India’s Informal Sector

The nation has seen such situations that the various sectors of the nation were not expecting at all. The various decisions that have been taken by the government of the India like of the Demonetisation or the coming up of the GST, the various sectors of the society have been left with a shock and are still in the shock, trying to recover from the situations that has caused a huge drop down in the there graph of there growth. One of the sectors that have been really hit in the recent time is that of the Informal Sector that is still in a huge shock as the GST paper work has caused a blockage in the working capital. The major reason that has been conveyed by the various economists in India or even by the various economists present worldwide, say that the nation was not at all ready for these drastic changes as the necessary preparations were not at all in the place to cope with all this. According to the recent Trade and Development Report, 2017 from the UNCTAD, Geneva, India and the China are no longer the growth poles of the world. The global economy needs a stimulus because its growth rate slowed down to 2.5 per cent from the 3.2 per cent in the pre-financial crisis days and India did provide a boost in the past. Today India’s GDP growth has slipped to a lower position than China’s (6.7 per cent). While china has experienced high growth for the nearly 3 decades, today it is facing a challenge of the high wages and the high input costs. For India it is facing a different type of the challenge as in the case of India it is a very different story. The industrial and the export sectors growth have slowed and the service sector growth has been facing the problems for almost a year. The informal sector has been badly hit by the demonetisation and the GST and it’s as a result of all this, the output has contracted. The decline in the output of the informal sector when properly measured will show even a sharper decline in the GDP growth than the 5.7 per cent recorded in the April-June quarter of 2017-18. The unorganised or the informal sector constitutes an important part of the economy contributing, according to the landmark National Commission for the Enterprises in the Unorganised Sector Report (2009), 50 per cent of the GDP. Even though it employs around the 90 per cent of the labour force, the conditions of the work in the sector are dismal and the demonetisation has hit it very hard.

According to the NSSO 68th Round on the Informal sector and the conditions of the employment in India 2011-12, 80 per cent of the informal sector employees have no written contract and the 72 per cent get no social security benefits. The average earning of the informal sector worker is Rs 225 per day, while the formal sector is in the enterprises with less than the 6 persons. The informal sector includes workers in the manufacturing, the construction, the wholesome and the retail trade, the transport, household workers like the cooks, maids, the drivers, security guards and the agricultural workers. It also includes the child labour. Most of the Informal sector workers are denied the social benefits like the pension, gratuity, the insurance against the life and the sickness and the maternity benefits. They are the most vulnerable section of the population. The informal sector is the cash based and the few workers are able to operate their bank accounts even when they have one. In the aftermath of the demonetisation, thousands of the informal sector workers lost their daily earnings and then moved back to their villages in the droves.

Many found the jobs in the MNREGA offered a sort of the cushioning to the informal sector workers. Many of the workers have not returned to the cities in order to work after the sudden disruption in their lives. In the same way, the Goods and the Services Tax has hardly been understood by the informal sector, many of the owners of the enterprises are semi-literate and not used to the digital or the complicated paper work. There are many reports about the small producers and the exporters finding it very difficult to file the returns on the inputs for which they could claim the credit in the later stage. Already the GST paper work is blocking their working capital; the medium sized informal businesses have had to hire the accountants at the extra costs which they at times, cannot afford. All these are having a multiple impact on the manufacturing growth. Maybe later on all these glitches would be smoothened out. In any case, the informal sector will not vanish in the future because there are not enough new jobs being generated in the formal sector. There were only 1.5 lakh new jobs in the year of the 2016 and even after taking into account the service sector jobs, only 2.31 lakh jobs were created in 2015. As is well known, there had been a jobless growth in the earlier period when the organised sector adopted capital-intensive production techniques in order to remain competitive in the operations. More and more of the companies are going for the digitalisation and the artificial intelligence in order to beat the competition. India needs to create one million jobs a month as more than 10 million young people are joining the labour force every year. The informal sector has also been hit hard by the difficulties in obtaining the formal sources of the credit from the various public sector banks that are burdened with a mountain of the NPAs. Thus they are facing a very high-interest burden. Even though the informal sector is taking a beating from this shock treatment, it will remain very important as it is the one that absorbs all the unemployed as there are no barriers to the entry and also no special skills are required. Only thousands of the workers will suffer more under the unbearable hardships. Even the minimum wages, which are low by the standards that have been set worldwide and are binding by the law on the employers, are not given to the informal sector workers.

Many are denied the bonus and the sick leaves and have no health insurance. According to the NCEUS report, 47 million people recede into the poverty every year because of the one major illness in the family. The Modi government has pledged to take a rights-based approach to the provision of the social security to the informal sector workers and the low premium life and the accident insurance and the pension schemes were begun in 2014. The government has also promised the health care cover for all. If the health insurance and the cashless treatment becomes a reality in the public hospitals, something really significant would be achieved by the NDA government that is ruling in India now. Currently the budgetary allocation for the health has not improved and is below the 2 per cent of the GDP. The crowds in the front of the AIIMs and the other major public hospitals are increasing day by day. India’s out-of-pocket expenditure on the health for an average person is one of the highest in the world. The ratios of the doctor per 1000 inhabitants at 0.7 and the hospital beds per 1000 population at 0.5 per cent remain the lower than in all the members of the BRICS. The private hospitals are very much thriving as a result and there is hardly any regulation on their healthcare services or the charges. Rahul Gandhi has probably hit the right note by targeting the informal i.e. the unorganised sector workers because they are not only huge in the numbers and are also badly in the need of the social safety net but they also want to transition to the formal sector jobs. Anyone who looks after their needs and the jobs will be successful politically. The Union Textiles Minister Smriti Irani recently said that the FDI in the textile sector has tripled since the beginning of the current financial year and in the financial year 2016-17 it marked the $690 million. Hailing the Prime Minister’s initiative of ‘Make in India’, she said the PM has approved a Rs 6000 crore special package for the growth of the textile and the apparel sector and finally in order to create the jobs. Over 250 exhibitors from the 13 states and 300 overseas buyers from more than 50 countries are participating in the mega show of the ready-made clothes and the apparels.

Now the government of the India is focussing on bringing the stimulus package in order to revive the sagging economy and this step was on the cards from quite sometime now as a suitable action was required at a suitable time to defeat the various sources affecting the economy of the country and now finally the time has come for all this. The government of the India is very likely to announce a stimulus package for reviving the growth amid a sputtering economy which will include measures to boost the private sector investments. The Finance Minister Arun Jaitley today said there is problem of the private investment and the government is seized of the issue. Very soon you will hear from us, Jaitley said speaking at the investor summit that was organised by JP Morgan. He said from the day 1, this is a very proactive government and this government has always been analysing the various economic indicators and also the required action will be taken at the right time. Various types of the meetings are being held with the Railways and the commerce ministers and the various other high level government officials on the economic situation amid the calls for a stimulus in order to boost the rate of the growth which has been going down for the past few very critical and the vital quarters. Also signalling that the real estate may be brought under the GST, Jaitley said “As far as bringing more items under the GST is concerned, I think Real Estate is the most easy to bring in”. As far as the farm loan waiver by the states is concerned, the Finance Minister said they have to find their own resources for this purpose. There are growing calls for a stimulus package for the disruption-hit economy with the several measures being floated, including the spending more and then expanding the fiscal deficit. On the other side, the government of the India had recently announced a new Public Private Partnership policy to promote the private investments in the affordable housing. The new policy for the affordable housing allows extending a central assistance of up to Rs 2.50 lakh per each house that is to be built by the private builders even on the private lands. The Minister of the Housing and the Urban Affairs Hardeep Singh Puri announced the policy at an event that was organised by the industry body NAREDCO in Mumbai and at this time Mr Puri mentioned the policy that seeks to assign the risks among the government, the developers and the financial institutions, besides leveraging underutilised and unutilised private and the public lands towards the Housing for All target by 2022. He exhorted the private developers to seize the investment opportunities in the affordable housing in the prevailing enabling environment.

The two PPP models for the private investments in the affordable housing on the private lands include the extending central assistance of about Rs 2.50 lakh per each house as the interest subsidy on the bank loans as the upfront payment under the credit linked subsidy component of the Pradhan Mantri Awas Yojna (Urban). Under the second option, a central assistance of Rs 1.50 lakh per each house to be built on the private lands would be provided, in case the beneficiaries do not intend to take the bank loans. The Goods and the Services Tax Network recently said that the filing of the returns on the GST portal peaks during the day time and the portal is functioning very smoothly during the peak hours. The hourly trend of the GSTB-3B for the period August 12 to September 20 shows that about 94 per cent of the tax payers have filed the return between 10 am to 10 pm. Only about 6 per cent have done late in the night or in the early morning. The government is taking a large number of the steps to support and act the pillar for the various policies, so that all these policies can do the magic that is expected out of them. For this recently, the economic advisory body has been set up in which NITI’s Debroy will be the head. The GST is the second historic step after the major process of the demonetisation, the BJP said recently while lauding its government at the centre for delivering on the various promises that were made to the people in the manifesto with the regard to the corruption and the black money. Notwithstanding the criticism against the two major economic moves, the political resolution moved by the party at its national executive said that they had broken the backbone of the black market and the black money hoarders and also brought in ease of doing the business. Modi in his valedictory speech however steered clear of saying much on the economic front, focussing more on the organisational matters and the political aspects. An hour later, the government announced the formation of the Economic Advisory Council to the Prime Minister (EAC-PM), headed by the NITI Aayog member Bibek Debroy to advise him, a proof enough of the concern over the state of the economy. The EAC will include the NITI Aayog’s Principal Adviser Rattan Watal as the member and the economists Surjit Bhalla, Rathin Roy and Ashima Goyal as the part-time members. The terms of the reference of the EAC would be to analyse any type of the issue, the economic or the otherwise, referred to it by the PM and advising him.

The liquidity crisis has hit the industry post the GST as the funds are stuck as no refund since its rollout in the month of the July this year. The Goods and the Services Tax (GST) seems to have played havoc with the Punjab’s economy that at the present time is very much fragile in the nature. Not only has the poor inflow of the Integrated Goods and the Services Tax (CGST) hit the state government, which is unable to meet its committed liabilities, it has also adversely affected the industry. The industry rues that it is facing the worst liquidity crunch ever and the industrial production too is slowing down like never before. With the huge reserves of their money locked in the GST refunds, the exporters say that anything between 30 per cent and 56 per cent of their working capital is now locked in the refunds. This means that the industry has no money to purchase the raw materials, the transportation of the goods to the customers or for shipping the goods to the buyers abroad. A top auto parts manufacturer in the city of the Ludhiana in the state of the Punjab told recently in a media statement that the credit and the cash cycle was now broken. The payment cycle in the business in Ludhiana was between the 2 to 3 months wherein the credit was extended to the buyers. Before the coming of the GST into the power, the VAT rate was lower and as a result of this the refund was also very lower. The VAT had to be paid each quarter while the GST has to be paid each month and also the tax rate is also very high. Badish Jindal, president, Federation of Punjab Small Industries Association said the GST had come as another big blow to the industry after the demonetisation. It’s been 3 months since the coming of the GST, around 56 per cent of the manufacturers’ working capital is stuck. The sales are under the pressure and no one is building the stocks. As a result of this, the banks too have lowered the limit of the borrowing. A K Kohli, senior vice-president, Punjab Chamber of Small Exporters, said that the government at the centre is sensing some anomaly in the huge refunds sought by the exporters, has initiated an audit of all the cases where the refund is more than Rs 1 crore. At least 30 per cent of my working capital is stuck too. How one can expect to run a business in a place like this? Realising the economic slowdown arising with the shift in the tax regime, the Punjab Excise Department has initiated its own process of releasing the old VAT refunds.