Unorganised growth

Arvind Mediratta | Updated on September 11, 2019

Sops to the informal sector will propel economy

India’s aim to be a $5-trillion economy hinges a lot on catalysing the unorganised sector, particularly in retail and wholesale. The self-employed form a sizeable chunk of this sector. On one hand, over 90 per cent of the $700-billion retail market in India is unorganised and micro. On the other, as the Periodic Labour Force Survey (PLFS) 2017-18 reveals, the informal and self-employed workers are far behind the salaried class on income. Independent businesses, and what I call the unaccounted ‘informal’ sector professionals (the self-employed, which now even the latest PLFS report recognises), are a huge base to tap into.

The report also showed that in urban areas, the share of self-employment is 32.4 per cent. Self-employment was also the major source of income for 52.2 per cent of rural households. But, a majority of self-employed workers earned roughly ₹8,000 a month, lowest in the income bracket.

Meanwhile, as per the International Labor Organization, over 80 per cent of the Indian economy is in the informal sector, while only 6.5 per cent constitutes the formal sector. The self-employed are tagged ‘formal’ only after they’ve registered with some branch of the government and/or pay taxes. According to a National Sample Survey Organisation report, 63 million enterprises have no registration; 96 per cent of these are run by individuals and most of them pay no GST, as their volume of business is below ₹20 lakh.

The urban informal sector comprises a large segment of street vendors, self-employed people working from home, craftsmen, carpenters, electricians, plumbers, beauticians, tiffin service providers, artists, fashion designers, or professionals who have neither registrations nor formal benefits. Of late, a large part of the growing ‘Geek Economy’ is also adding to this sector. The perks of liberalised policies and FDI benefits do not percolate down to them. It is therefore critical to focus on this microeconomy to manage our macroeconomic growth.

Policy intervention and access to formal economic facilities will have a huge cascading effect. Consumption will rise, job opportunities will be created, and further investments will be made. To be specific, their inclusion into the cash and carry fold, for example, will trigger a series of returns. Cost savings from access to cash and carry will raise discretionary consumption and improved cash flow will enable them to reinvest for expansion. Consequently, there’ll be more meaningful jobs and the sourcing of more local goods. Currently, India’s FDI framework in cash and carry and wholesale trading restrict sales to only the formal, ‘registered businesses’.

There is a huge lateral opportunity as well. India’s drive to improve the ‘ease of doing business’ will get a fillip if this informal sector is formalised with favourable policies and regulations. The government should consider issuing the Weights and Measurements License, the Gumasta License, etc, within a fixed time and for a longer duration of 5-10 years. The self-employed should be given permit registration of small businesses, registration from professional bodies and/or accreditation and skill certificates from institutes such as IMA, ITI etc. Estimates show a chunk of the 63 million MSMEs in India, employing 110 million people, will immediately improve quality of life — an improvement on the human index as well.

The vision is there; the intent is clear. The government is taking incremental steps to widen the social security net and increase the unorganised sector’s income. The emphasis should now shift to accelerating the pace of formalising the Indian economy: we must reenergise informal, independent businesses to make India attractive for domestic and foreign investments. The $5 trillion will follow.

The writer is MD and CEO, Metro Cash & Carry

Published on September 11, 2019

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