Informal Economy Share May Have Shrunk To 20% From 52% In FY18, Says SBI Report

While the formal sector is back to its pre-pandemic level, the share of the informal sector has shrunk.

At least Rs 13 lakh crore has come into the formal economy over the last few years through various channels, including the national database of unorganised workers, e-shram portal, according to a report by State Bank of India.

The informal economy is now at 15-20% of the formal GDP, an estimate by Soumya Kanti Ghosh, group chief adviser at SBI, showed. That compares with the official estimates of the informal economy size at 52% as of FY18.

There’s a wide variation across sectors though, with formal sectors such as finance and insurance expanding post-pandemic, Ghosh said in the report.

The analysis, according to the report, assumes that the shrinkage in the economy post pandemic is mostly informal, and hence the loss in output across sectors gives a measure of the informal sector. “By making this assumption, we ensure that the size of the informal economy is still overstated as the shrinkage in economy also consisted of formal.” This ensures that the estimate is at least free from any downward bias in measurement.

The Extent Of Formalisation

Monthly EPFO Payroll

This provides data on establishments remitting first electronic challan-cum-return in a particular month. Based on this, almost 36.6 lakh jobs have been formalised till August 2021.

E-Shram Portal

• As many as 5.7 crore unorganised workers have registered in the first two months of the portal’s launch in September.

• 62% of the workers belong to the age-group of 18-40 years and 92% have monthly income of less than Rs 10,000.

• State-wise, the top four accounted for 72% of total registration. West Bengal is on the top, followed by Odisha and Uttar Pradesh.

• Occupation-wise, workers from agriculture sector account for 55% of registration, followed by construction at 13%. Of the 5.7 crore registered workers, 81.2% or 4.6 crore have bank accounts but only 24% of them or 1.1 crore have Aadhaar-linked bank accounts.

The e-shram is a big step towards the formalisation of employment. To date, the rate of formalisation of unorganised labour due to e-shram, according to Ghosh, is around 17%, amounting to Rs 6.8 lakh crore (3% of GDP), in just two months.

Kisan Credit Cards Cards

SBI estimates Rs 4.6-lakh-crore formalisation only through Kisan Credit Cards, with more marginalized farmers coming under the banking sector ambit. The total number of insurance and pension accounts that have been opened across several schemes for unorganised and organised workers is as much as 68.9 crore, the report said.