What is a formal sector? How is it different from the informal sector? Which sector employs maximum number of people in India? Do you think the formal sector should be enlarged?
A formal sector of the economy is a well defined sector or an organized sector that contributes to the gross national product (GNP) and gross domestic product (GDP) of the country. It is also taxed and monitored by the government.
Whereas, the informal sector is an unorganized one which is neither taxed, nor monitored by any form of government. The activities of the informal economy are not included in the gross national product (GNP) and gross domestic product (GDP) of a country.
In India, the informal sector employs the maximum number of people. Although the informal sector makes up a significant portion of the country, it is often stigmatized as troublesome and unmanageable. However the informal sector provides critical economic opportunities for the poor.
The biggest problem with the informal sector is that of job security. Moreover other social benefits like health insurance are often not covered in the informal sector. The contribution of informal sector is also not estimated. The workers are often denied minimum wages, working conditions are not proper, unemployment and disability benefits etc. are denied, while conveying undeserved benefits to others.
As such, integrating the informal economy into the formal sector is an important policy challenge. Yes, the formal sector should be enlarged because formal sector ensures all the above mentioned facilities to the workers which the informal does not. Therefore, it is more productive. National Sample Survey Office (NSSO) statistics show that in the 1989 to 2010 period, informal firms have accounted for the maximum number of jobs created and the vast majority of new establishments.
Setting up enterprises in smaller towns with lower costs and improved infrastructure is a necessity. Improving access to formal credit is also necessary. By taking care of these fronts, the formal economy can be enlarged to a large extent.