Informal economy or the grey economy is the ubiquitous phenomenon in the developing world and India is no exception. Rather, the presence of the informal sector in the Indian economy is much more pronounced due to the presence of the illiteracy- overpopulation nexus. If one carefully delve deeper in to the economic system, the obvious importance of the informal sector will be clearly discernible.
One of the most important roles of the informal sector is in the maintenance of the demand -supply equation of the economic fundamentals. On the demand side, it provides employment to the major chunk (about 95 per cent) of population. Moreover, the employment is in consonance with the nature and availability of the labour in India as mostly illiterate and semi-skilled labour are working in the informal sector. On the supply side, informal sector has no parallel. Right from providing the services like haircutting, repairing etc. through the commerce like retail sector, restaurants, lodging etc. and finally, to the manufacturing sector like textiles, processing units etc., the role of informal sector is beyond comparison.
Therefore, any disruption in the smooth functioning of the Informal sector will have direct impact upon the GDP of the nation as can be observed from the present economic situation of the nation. But now, the need of the hour is not just the smooth functioning of the informal sector but rather one step beyond i.e. formalisation of the informal sector. But this process of formalisation is not formal in strict sense like that of imposing registration, licensing, rules and regulations etc. Rather, this process needs to be unique that completely is in accord with the Indian economic system at present.
One of the important aspects that needs to be considered in the formalisation process is the vocational education. Vocational education will enhance the productivity level of the informal sector. Rather, vocational education can help in the proper allocation of the economic resources for the self-employment. This can pave the way for the generation of the lot many employment opportunities in the repairing and technician jobs like plumbers, carpenters, etc. which helps not only the people who are receiving the services but at the same time will make the jobs highly remunerative for the service providers.
Secondly, there is dire need of improving the linkage of the formal credit system to the informal sector. Formalisation of the credit system via the rural banking, cooperative credit societies and the micro financing will assist not only the informal sector but at the same time, it will help in the financial inclusion of the of the masses in general. Further, it will help in assisting the bank in attaining the objectives of the priority sector lending and poverty reduction. At the same time, the geographical and spatial distribution of the informal sector in India will increase the overall efficacy of the banking system.
Finally, the formalisation process can be attained by the proper synchronisation of the informal sector with the formal one. The large informal scale units can subcontract work to the small-scale informal units. In this way, the small informal units can assist not only in the reduction of production cost but at the same time will bring in the element of specialisation. Overall, the informal units help in making the formal units more flexible and competitive.
Therefore, the time is ripe for the application of the principles of the informal economy in a specified way. Once achieved, most of the economic ills can be rectified in one shot. Moreover, the informal sector will aid in the process of achieving development not just growth. This is for the simple reason that informal sector influences the social indicators and social dimensions directly that will thereby improve the HDI for India. Take for example, the female participation. The female participation is high in these sectors so it may assist in the attaining the objective of the gender parity. In addition, informal sector will help in the transformation of the Indian economy from the agricultural economy to the modern economy as the informal economy provides the readymade alternative to the agricultural system.
Keeping all the above points in mind, one can easily hypothesise the importance of the informal sector to the Indian economy. Hinderances in the smooth functioning of the informal sector is bound to lead to dire consequences as can be observed from the recent act of demonetisation. If we play the cards of the informal sector well, this may act as the panacea of most of the economic ills that the nation is currently experiencing. So, we just not require the coexistence of the informal sector with the formal sector. Rather, what we actually require is the embellishment of the formal sector with the informal sector.
The author is Student (PhD. Agricultural Economics, SKUAST, Jammu)