Protect Poor By Creating Jobs In Formal Sector

The government has introduced a scheme providing a lower tax rate only to new manufacturing firms.

By Bhagwan Chowdhry and Prasanna Tantri

The health and economic crisis we are currently in is giving us insights into what is and isn’t working well in India, and how we should prepare for a better tomorrow. Yes, we have been able to reach India’s marginalised population better using our public distribution system and direct benefits transfers through the digital infrastructure we built over the last decade. But at the same time, the plight of the migrant worker and the huge economic setback of the urban and rural daily worker is also becoming painfully transparent.

As we come out of the crisis, we will need to make some big changes. More than 80% of India’s labour works in the informal sector. This percentage needs to come down drastically. This would require removing the incentive to stay in the informal sector and creating powerful incentives to move workers to the formal sector.

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The informal sector provides many advantages for businesses. Pay is flexible, businesses have complete flexibility in hiring and firing workers, and in reorganising the production processes swiftly to suit changing business conditions. The regulatory cost and burden of hiring workers is also low. For example, no provident fund (PF) contributions are made, nor are other benefits provided. After all, this would increase the cost of hiring each worker, which neither the business owners nor the workers—by accepting lower wages in exchange for these mandatory benefits—are willing to bear. Currently, the employer is required to contribute 12% of the worker’s salary and the employee also deducts and contributes another 12% from their salary towards PF.

Source: The New Indian Express

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