Hurdles and challenges in the path of formalize the economy GS Paper 3 Source : The Hindu Editorial

Hurdles and challenges in the path of formalize the economy GS Paper 3 Source : The Hindu Editorial

Hurdles and challenges in the path of formalize the economy- Today Current Affairs

Context : Since 2016 Government of India is doing many efforts to formalize the Indian economy up to maximum extent , for which the government brought demonetization of the currency , introduced GST,  tax reforms,  digitalization of financial transactions and enrolment of informal sector workers on numerous government Internet portals etc. 



The Government of India is trying its best to convert maximum informal sectors into formal sectors . Generally it has been assumed that formal sectors are more beneficial and more productive than the informal sector, and formal workers have access to social security benefits. But there are many hurdles in the path of such transformation . 

In India more than 90 % laborers and employees are working in informal sectors and the share of informal sectors in the GDP of India is more than 50 % in the Indian economy . Because of the corona pandemic the size of the informal economy has shrunk by 15 to 20 % because of  the adoption of GST, enhanced digitalization, and demonetization, a report by the State Bank of India’s (SBI) economic research department has said. But the size of formal sector during this time has not increased in same ratio. 


What is Formal Sector and Informal sectors of Economy: The Hindu Analysis

Formal sector is the sector where the workers get all the benefits of the governments (Liker PF, social security, registration , insurance , fixation of the working hours, maternity leaves , annual leaves, weekly off , job security etc) While the informal sectors are those sectors where the workers are not having any right . They are not registered . An informal economy is the part of any economy that is neither taxed nor monitored by any form of government. Even though this informal sector plays an important role in Indian economy 

What measures are opted by the Government of India for formalize the economy: The Hindu Analysis

    • Demonetization of Currency – Even though this policy was brought to curtail the black money from the market so that informal sectors where the black money is invested could be finished and other informal sectors could be encouraged to be formalized but the results were not as per the prediction. This policy could not formalize the informal sectors even though it reduced employment from informal sectors also . many informal small business which were based on cash transaction could not survived and collapsed 
  • Introduction of the GST 
  • Digitalization of Economy
  • Ease of registration of informal business on government portals 
  • Registration of the workers of informal sectors on government portals 


Hurdles in front of the  path of formalize the economy: The Hindu Analysis

  • Persistence of the informal sectors of the economy is the symbol of an underdeveloped economy but It does not mean that after finishing the informal sectors , formalization would be done . there are following hurdles in front of the path of formalization of Indian Economy
  • High illiteracy rate : Government , through its effort, could not convince the informal business to register on the government portal because of the low level of literacy rate. Labor are also not aware about their rights so they also does not make any demand for the benefits of government schemes 
  • Lack of faith towards the government 
  • Most of the informal businesses are of low investment and could not bear the burden of GST 
  • Those informal laborers who are engages in non agricultural activities and those working in urban are also not aware regarding their rights and because of the inflation and the shrinking of the government sectors as well as increasing level of unemployment , Generally labors works on the conditions as the business need 

  • Red tapism is a big hurdle in the path of formalization of the economy. Informal business have fears of the government raid as well as various types of torturing , therefore they prefer informal business 


Formalization of the economic sector is necessary and important steps but it should not be on the cost of the collapsion of the informal sectors . Government should reform its policies and convince the people that formalization of the business would be beneficial for the economy . Laborers must be skilled and educated so that they can be aware regarding their rights . and the government should formalize the economy gradually  without hampering informal sector sectors which can be done only by creating confidence between government and the informal labor and businessman . 


Here we mention all information about Hurdles and challenges in the path of formalize the economy- Today Current Affairs.


GS Paper 3

Source : The Hindu Editorial 

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