India has a high number of its people engaged in informal employment. What is / are the negative consequences of the same on economy?

1. Low Productivity

2. Low human development

3. High Tax-GDP ratio

Select the correct option from the codes given below:

Answer: [A] Only 1 & 2

It is estimated by NSSO that 84.7% of jobs in the Indian economy are in the informal or unorganised sector. Of this, excluding agriculture, the leading contributors of informal employment are manufacturing, construction and trade. According to the Report of the Committee on Unorganized Sector Statistics, the informal economy makes a considerable contribution to the economy and caters to the requirements of the formal economy. However, its negative repercussions cannot be ignored.

Studies show that employees tend to be significantly more productive in the formal employment when compared to the informal employment. Also, the quantum of value added by a person in a formal job is almost double that of a person in an informal job.  Informal workers also work under worse working conditions with little job security, no perks or protections and with low wages. The protections guaranteed to workers under different legislations are not complied with by the informal sector, and they also escape the purview of the authorities. A large informal sector also impacts the government in terms of revenue foregone because the units operating in the informal sector stay out of the government’s fiscal revenue net (This leads to low tax GDP ratio). Hence, the informal sector is detrimental to the interests of the working population, the government and in the long run, even to the employer.

This question is a part of GKToday's Integrated IAS General Studies Module