oppn parties Formalize the Informal Sector

News Snippets

  • Amit Shah says the government will identify and deport illegal immigrants from all parts of the country
  • Reports from Pakistan confirm that Hafiz Saeed has been arrested and sent to jail
  • After the SC order, Karnataka Speaker says he will go by the Constitution in deciding on the resignations of the 16 MLAs
  • Rebel MLAs say they will not attend the trust vote on Thursday
  • Supreme Court rules that rebel MLAs cannot be forced to attend the assembly and vote in the floor test
  • Both the Centre and the Assam government have sought re-verification of up to 20% of draft NRC data
  • Pakistan opens its airspace for Indian planes
  • Dilapidated building collapses in Mumbai, killing more than 10 people while many were still trapped
  • Kulbhushan Jadhav case verdict to be delivered today by the ICJ
  • A Vistara flight landed in Lucknow with just 5 to 10 minutes of fuel left in the tank
  • Supreme Court to decide on Karnataka MLAs plea today
  • Karnataka alliance to face floor test on Thursday
  • China says that the next Dalai Lama will be appointed by it
  • Pakistan assures India that no anti-India activity would be allowed in the Kartarpur corridor
  • Pakistan to allow visa-free access to 5000 pilgrims every day to undertake pilgrimage using the Kartarpur corridor
ISRO calls-off Chandrayaan-2 mission launch at last moment due to technical snags. revised date will be announced later
oppn parties
Formalize the Informal Sector

By Sunil Garodia

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Writes for a number of publications.
Indian economy is said to be oiled by the informal or unorganized sector. This sector provides support to the organized sector in the form of supplies and logistics. To that end, its importance cannot be discounted. This sector is extremely cash dependent and has been hit hard by demonetization. But it also has to be recognized that there is a very thin line between being informal or unorganized and being illegal.

There is no harm if one conducts business in cash, as long as all transactions are accounted for in books of accounts, transactions are carried out through purchase and sales invoices, relevant taxes are paid, returns are filed and no laws of the nation are broken. If any of the foregoing is not adhered to, then the business is operating illegally. With several restrictions in place for payment in cash, it is clear that most of the informal sector units operate illegally. In that case, the importance it holds to the organized economy is immaterial – the said businesses must adopt legal means or close down.

Apart from causing huge revenue loss to the nation by not paying taxes, these businesses are guilty of providing unfair competition to those entrepreneurs who operate legally. Since they pay no taxes, source their raw materials from the underground market and pay labour wages at much reduced rates, these units can supply at a much lesser cost than those who operate by sticking to the law. If these units are not brought in line, it will continue to act as a disincentive for small entrepreneurs to operate legal businesses. After all, how long can a businessman tolerate loss of orders and reduced profitability by operating legally when he sees illegal units mint money?

If demonetization has hit these units hard, as a follow up, the government must do all to ensure that they enter the mainstream. Continued evasion of taxes is hurting the nation. The government should expand banking services and ensure that these units shift to transactions through banking channels. Cash leaves no trail and doing business in cash makes it easy to avoid paying taxes. This state of affairs cannot be allowed to be continued any longer. Unscrupulous businessmen continue to live a life of luxury by robbing the nation of its rightful share of taxes. For the informal sector, not less-cash but no-cash should be the mantra.