Is "Formalisation" possible? -CP Chandrasekhar and Jayati Ghosh

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published Published on Oct 23, 2018   modified Modified on Oct 23, 2018
-Networkideas.org

In recent times, the clamour for formalising economic activity, or shrinking its unorganised component and expanding the organised, has been heard from diverse sources. There are those who want formalisation to occur because the unorganised sector is seen as being largely outside the direct and indirect tax net, depriving the government of much needed resources. Hence, for example, one feature seen as favouring the Goods and Services Tax regime is that it is likely to force formalisation by requiring transactions to be recorded whenever those transactions are between the organised and unorganised units.

Others see formalisation as the process through which workers realise workplace benefits such as written contracts, legal minimum wages, paid leave and social security. Framing and implementing legislation that ensures workers one or more of these benefits is seen as transforming the nature of the workplace as well. This, however, ignores the fact that a substantial part of the workforce even in the organised sector is “informal”. Yet others see in formalisation a process of transferring workers from low productivity units to higher productivity units. So anything facilitating formalisation also contributes to a rise in average productivity and growth.

Finally, there is a perception that since women obtain the residual jobs in the labour market, they are the ones more likely to be involved in informal work. So formalisation is often seen as particularly favourable for women, improving the conditions of their work and the remuneration received. However, there has been a sharp fall in women’s labour force participation rates, from 42.7 per cent in 2004-05 to 31.2 per cent in 2011-12. In addition, women do not feature predominantly in a sector that accounts for the largest increases in employment in the non-agricultural sector. Construction accounts for a substantial share of non-agricultural employment, with the figure having risen from 14.4 per cent in 1999-00 to 30.1 per cent in 2011-12. There were 51 million construction workers in 2011–12, 93 per cent of whom were in the unorganised sector. However, men constituted 82 per cent of the construction workforce, with women contributing just 11 per cent and children (aged 18 years or less) 7 per cent.

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Networkideas.org, 23 October, 2018, http://www.networkideas.org/news-analysis/2018/10/is-formalisation-possible/


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