A vast majority of India's workforce is informally employed - those who work outside of formal establishments, in un-incorporated private enterprises and mostly without any social security benefit. A new research now finds that Modi 1.0's reforms and policies have managed to push ahead with the greater formalisation of the country's workforce.
More than seven million jobs have been formalised between 2015 and 2018, a study commissioned by the Indian Staffing Federation (ISF) and executed by data and consulting company Kantar stated. The policies that contributed to formalisation include the introduction of the Goods and Services Tax (GST), demonetisation, EPF and ESIC reforms, Skill India initiatives, Fixed Term Contract Reform, as well as the Maternity Benefit reform.
These reforms could contribute to even more of India's workforce transitioning to the formal, going ahead. The study, projects, that about 11 million more jobs will move to the formal sector between 2018 and 2021.
The Modi Government's stress on higher formal employment has a reason. It enforces minimum wages and proper documentation of benefits by the employer. Formal jobs also end up ensuring the dignity of labour; enable productivity improvements, as well as access to formal training.
Informal employment, for the longest time, was estimated at 90 per cent of India's workforce. These estimates were challenged by some economists and the Modi 1.0 Government. They contended that India has underestimated the formal employment count thus far. The Economic Survey of 2018 states: 'India's formal sector, especially formal non-farm payroll is substantially greater than currently believed. Formality defined in terms of social security provision yields an estimate of formal sector payroll of about 31 per cent of the non-agricultural workforce (non-agriculture, as NSSO-EUS states is 24 crore or 240 million); formality defined in terms of being part of the GST net suggests a formal sector payroll share of 53 per cent.'
The new ISF report estimates that informal now accounts for 83.8 per cent of the total workforce in 2018, down from 86.5 per cent in 2015.
Of the seven million jobs that shifted to formal sector in 2015-18, EPF reforms contributed 18.16 per cent, ESIC 17.68 per cent, GST 15.32 per cent, Skill India initiatives 13.10 per cent, demonitisation 12.35 per cent, maternity reforms 11.83 per cent, and Fixed Term Contract 11.56 per cent.
EPF and ESIC initiatives include the Pradhan Mantri Rojgar Protsahan Yojana (Government of India pays the full employer's contribution towards EPF and EPS for the first three years of employment) and Employees' State Insurance (Central) Third Amendment Rules (all employees who earn Rs 21,000 or less per month are to be mandatorily enrolled for employee insurance under the ESI Act). While both these schemes were launched in 2016, GST came in July 2017.
"Companies are now more inclined towards doing business with organised contract staffing companies for claiming an input tax credit under GST," the ISF report states. "GST is acting as an incentive for companies to be part of the formal tax structure to get the benefits, thereby facilitating job formalisation," it added.