Among the loudest critics of the demonetisation policy are those who predict doom for India’s informal sector as a result of this exogenous shock. Numerous anecdotes are being forwarded to highlight the suffering of daily wage earners and informal labourers across the country. Let us use this opportunity to critically evaluate the factors that have contributed to keeping approximately 83% of India’s labour force informal, despite 25 years of modest growth in a seemingly liberalized economy.If we dig deeper, we find some troubling truths about our growth story. While the share of agriculture in total employment has fallen from approximately 60% to less than 50% and the share of manufacturing remained largely unaffected at approximately 12%, it is the share of the non-manufacturing sector (construction) which has nearly doubled from 6% to 12%, while the share of the services sector rose from 23% to 27%. Informal employment in the non-agricultural sector increased by 27%. Most jobs created in the high growth period of the last decade have been informal in nature, even in the organized sector. This implies that the benefits of Indian economic growth are concentrated among a few, while a growing proportion of the population has been relegated to living as working poor.
Demonetisation is forcing employers in the country to reconsider employment contracts. There needs to be a simultaneous push from the formal financial institutions such as banks, payment interfaces such as National Payments Corporation of India and other private firms to facilitate the adoption of new payment methods. Each firm will have to assess its internal fundamentals to evaluate what the short-term costs of going formal entail while achieving operational and dynamic efficiency to remain in business in the long run. This can only be great for their employees and the economy overall.