The unskilled or low skilled work in India is categories as the informal or unorganized sector. When it comes to unskilled hands, how are people coping up their life with low skills? Are they working hard enough and still being surpassed with low wages? How is the unorganized sector killing the growth of Indian Economy?
The Unorganized sector is the result of the following factors:
- Improper training or poor skills of the workforce.
- Poor formal education (basic).
- Low wages and low productivity.
What is the Unorganized Sector?
According to a report by Indian Labor Market (ILO) and NSSO, it was found that 90% of the employment in the agriculture sector and 70% of the employment in non-agriculture sector lies under unorganized sector. About 90% of the unorganized workforce outside agriculture and 50% of the GDP is accounted for by this informal sector.
The unorganized sector, sometimes also referred as informal or unskilled sector consists of all unincorporated private enterprises owned by households or individuals engaged in production or sales of goods and services operated with less than total of 10 workers.
Unorganized Sector is characterized by local ownership, small scale of business operations, uncertain legal status, usage of poor technology, flexible turnover, absence of brand value, poor packaging, unavailability of good storage facility, poor distribution network, high migrations with lower rate of compensation, lower employment and job insecurity or lower protection for employees.
Unorganized sector is categorized as:
- Restrictive labor laws
- The absence of thrust on production: It lacks skilled labor, experienced workforce.
- The predominance of service sector growth: Because it requires a skilled workforce that is not available in the unorganized sector.
What is the role of Unorganized Sector in Indian Economy?
Most of the people in the unorganized sector in India are earning their livelihood/income by working. They run either a small self-owned business or hire themselves as contract workers. This informal and unorganized sector is economic activity is neither taxed or monitored by the government of India and eventually remains out of the Gross National Product (GNP).
Although as a matter of fact, the informal economy is associated with developing countries where up to 60% of the unorganized workforce works, and almost every economic system contains an informal economy in some proportion. If the unorganized sector gets regulated to the mainstream formal sector, the share of the unorganized sector in the Indian economy will ultimately be reduced. This will automatically reflect in the net taxes and manageable skilled and educated workforce.
As the unorganized sector is unable to compete with the organized sector. The cost of adhering to regulation and taxes will reduce the cost of production. It may also contribute a significant amount to the national income and likely to drive a new way to employment creation.
Unorganized sector is predominantly cash-based, which contributes majorly to the tax evasion and black money. When it comes to black money, it is estimated at around 24% of the GDP. This directly deprives the government of taxes and hampering developments.
A low tax base due to the unorganized sector directly leads to lower tax revenue, means that the government becomes more vulnerable for borrowing. This raises the fiscal deficit leading to higher inflations and it leads to credit downgrades and the outflow of foreign investments due to economic instability. It affects the low wage unorganized workforce, thus perpetuating a vicious cycle and hampering further developments.
What is the Share of Unorganized Sector in national income?
- The unorganized sector incorporates a large portion of the economy in terms of national investments, savings and value addition. The Share of the unorganized sector is more than 30%.
- The manufacturing activity share of the unorganized sector ranges near to 40%. These sectors might include some manufacturing, transport, construction, hotels, business or local services.
- The economy of India is not marginal. As estimated from research and studies, 92.5% of livelihood are not registered that are producing up to 2/3rd of the country’s GDP with no signs of retreat.
Both of these aspects play an integral role in the economy particularly in employment, poverty alleviation and its contribution to the national domestic product, savings, and capital formation. This governs the largest share of national income, service savings, investment, taxes, manufacturing activities, forex exchange, etc.
