[Editorial Analysis] Unmask the distress

Mains Paper 3: Economy
Prelims level: Informal Sector
Mains level: Distress in the Informal sector.


• Recently released economic data suggests that the Indian economy has emerged better than most expected.

• The impact of the localized restrictions on economic activity during 2nd wave was less damaging than the 1st wave.

State of Informal India:

• The year 2020 exposed the abysmal flaws of the economic system which pushed 10 million people into insecure jobs with no alternative or safety net.

• India has nearly 90% of the workforce in the unorganized sector.

• In the last few decades of development, economic policies have created a massive pool of cheap labour adding to the already large numbers of landless agricultural labourers caught in social and economical discrimination.

• Since 1991, about 15 million farmers have moved out of agriculture due to its non-remunerative nature and at the same time, 60 million people are displaced due to developmental projects.

• These people were exploited by the rich to accumulate huge profits.

• During the 1990s, India’s desire to capitulate to global financial forces significantly increased the vulnerability of hundreds of millions of people causing irreversible environmental damages.

• Though not India’s entire unorganized workforce is insecure such as farmers, forest dwellers, etc. relatively secure if their resource base or access to the security net are intact.

• It is equally true that agriculture alone cannot provide full employment in villages and youth’s uninterested in traditional occupations.

• The above realities result from collective failure to tackle issues at roots because of jobless growth in the formal sector since 1991 pushed them to informal and insecure jobs.

Challenges and Issues faced by Informal Sector:

• Lack of frequent and up-to-date economic indicators makes it hard to track India’s large informal sector.

• Ignoring problems of the informal sector leads:

• Job and wage losses

• Higher inflation

• Risk the livelihood of migrant workers.

• The sector has an inadequate safety net that results in the displacement of informal workers.

• India is among the few countries with high inflation throughout the pandemic period.

• This disruption and high inflation is due to the disruption of the informal firms.

• Of the total 384 million employed in the various groups of the informal sector,

The Distress: The Real Side of the Spectrum:

• The informal sector’s distress which accounts for half of the total value added in the economy and employs around 90% of the labour force, can be gauged from the state of the informal labour force.

The Consequences of the Distress:

• The sustained divergence between informal and formal labour forces results in the worsening of the income distribution.

• This results in a loss of purchasing power of the lower sections of the society that would shift the aggregate household consumption basket towards that of the affluent households.

• This raises demand for the less labour-intensive services and imported manufactured products and reinforce the current labour market trends.

• This labour market scarring has broader implications for aggregate consumption and investment and indicates subdued medium-term growth prospects.

Informal Sector Future Prospects: The Other Side of the Spectrum:

• The prospects for the 40% in the informal agricultural sector have been resilient.

• Rural wages have held up well over the pandemic because of:

• good monsoons

• recent higher agricultural exports

• Higher govt spending in various social welfare schemes.

• Longer-term consumption will depend on agricultural reforms which will help diversify income sources and raise agricultural productivity.

• But the other 40% of informal workers in the non-agricultural sector are most worrying because these are most vulnerable and borne the brunt of the economic disruption that the pandemic has unleashed.

• The rural half who involves in construction, trade and manufacturing have seen growth fall.

• The sharp rise in demand for rural unemployment benefits is an indicator of the disruption faced.

• The urban half employed in trade, hotels, construction, etc has been at the receiving end of formalization.

Way ahead:

• Indian informal sectors need the protection of their workers via social welfare schemes so that disruptions they are facing do not lead to a permanent fall in demand.

• Govt needs to prolong and increase budget allocation for the MGNREGA scheme.

• India doesn’t have an equivalent urban social welfare scheme.

• Govt while doubling CAPEX that provides short-term jobs, needs to set up a more permanent direct urban social welfare structure.

• In the meantime, govt needs to take steps to promote reforms that are needed to help small businesses grow.

• For instance, lowering the regulatory burden associated with growing firms.


• The big learning from the pandemic has been that India can’t wish away the informal sector and neither can it be assumed that the fortunes of the formal and informal sectors move together.

• Bringing the informal sector to the forefront of policy decisions can lead to a significant payoff for the entire economy for years to come.


Prelims Questions:

Q.1) With reference to the Indian Astronomical Observatory (IAO), consider the following statements:

1. It is located at Hanle near Leh in Ladakh.

2. Night observations at IAO-Hanle from 2m-Himalayan Chandra Telescope (HCT) are possible throughout the year without any interruption due to monsoons.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer: C

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