Disparities and Informal Economy: An Indian Perspective – A Special Reference to COVID-19

Introduction

The informal economy is a diversified set of economic activities outside the boundaries of formal economy for large segment of societies that are not regulated or protected by the state. Informal sector implies absence of proper rule, regulations, and professional code of conduct in employment sector that is neither taxed nor monitored by any government. Informal workforce not only persists internationally but it expended and appeared in a new guise in the context of globalization, liberalization, cross-border, and rural-urban migration. Thus, informal markets are present in the whole world, especially in developing countries. India, a developing country, is not an exception to this and faces problems of disparities in economy since independence. Economic growth was accelerating in early 1990s since economic reforms was initiated by Indian government. There was a substantial decline in India’s poverty rate and changes in employment pattern. A large number of workers had shifted from the agricultural sector to service and industrial jobs.

The Indian labor market, however, remains characterized by high levels of segmentation and informality. The market comprises of “regular” and “casual” workers. “Regular” workers are usually employed in agriculture and small firms or sometimes they work in large formal firms without any kind of socio-economic security on a daily, fortnightly or monthly payment basis where they termed as “contract labor”. As per National Survey 2011-12, about 92.4 per cent of total workforce of India and around 85 per cent of the entire rural workforce was engaged in informal sector (Murthy, 2019). The National Commission for Enterprises in the Unorganized Sector (NCEUS) observed that informal employment has been 98% in the agricultural sector, 75% in industry and 72% in services (Sengupta et al., 2009). According to International Labor Organization (ILO), 2020 has given estimation that 90 per cent of 500 million Indian workforces are employed in this sector in 2020 and particularly vulnerable to any kind of health shocks as they are mostly not covered by any social protection system like health insurance, life insurance or pension scheme or any labor law. The COVID-19 pandemic has contributed to additional poverty in the world. It is estimated that around 88–115 million people will become poor in 2021. This could also increase by 150 million in 2021 (World Bank Group, 2020a).

The inequality in income and wealth distribution is one of the major problems in India. Historically, unorganized sectors and their inhabitants have been stigmatized, responsible, and subjected to rules and regulations that are exorbitant and impracticable to adhere to. The working situation has become worse in the informal sector after the exercise of demonetization in November 2016. The stated objective of such activity was to restrain the stock and flow back of black money in the economy but the largely cash dependent informal sector was severely affected as the government sought to impose formalization onto the economy (Mukta 2018). Most of the Indian informal sectors only transact through cash had huge consequences owing to such demonetization that led to huge disruption in the economic activities. A huge job loss and instability of income occurred in informal sector attributed to the demonetization and implementation of Goods and Service Tax (GST) in 2017. The informal sector of India was still in shock and unable to recover from such depressing situation when another crisis impinged in the form of COVID-19 in February 2020. The devastating attack of pandemic resultant into sudden prolonged lockdown to restrain the spread of virus had an immense impact on socio-economic condition and India faces a humanitarian disaster in an unprecedented way (Vasudevan, 2020).