Most people in India earn a livelihood by working for an income. They work for one employer or many, or as self employed or own account workers or as contract workers, home-based workers etc. in every sector in the economy. The informal sector is economic activity that is neither taxed nor monitored by a government; and is not included in that government's Gross National Product (GNP); as opposed to a formal economy. Although the informal economy is often associated with developing countries-where up to 60% of the labor force (with as much 40% of GDP) works, all economic systems contain an informal economy in some proportion.
Share in national income
The Non-Corporate or unincorporated sector constitutes largest portion of the economy in terms of value addition, savings, investments etc. The share of corporate sector is around 12-14 percent in our national income while that of unincorporated [non-corporate] or Bhagidari sector is more than 30 percent. In the case of United States, the share of corporate business is nearly 70 percent.
Even in manufacturing activity the share of non-corporate sector is nearly 40 percent if we consider the unregistered manufacturing group (fully non-corporate sector) plus the partnership proprietorship groups in the registered manufacturing group.
The non-corporate forms of organisations are major players in such activities as manufacturing, construction, transport, trade, hotels and restaurants, and business and personal services.
The informal sector plays a significant role in the economy in terms of employment opportunities and poverty alleviation. This sector generates income-earning opportunities for a large number of people. In India, a large section of the total workforce is still in the informal sector, which contributes a sizeable portion of the country's net domestic product.
The unorganised sector has a crucial role in our economy in terms of employment and its contribution to the National Domestic Product, savings and capital formation.
Generally, all enterprises which are either registered or come under the purview of any one of the acts like the Indian Factories Act 1948, Mines and Minerals (Regulation and Development) Act, 1957, the Company Law, the Central/State Sales Tax Acts, the Shops and Establishment Acts of the State governments, are defined as part of the organized sector. Also included are all government companies, departmental enterprises and public sector corporations.
"Similarly, forestry, irrigation works, plantations, recognised educational institutions, and hospitals which are registered as non-profit making bodies are also classified as organised sector...all unincorporated enterprises and household industries which are not regulated by any acts of the above mentioned type and which do not maintain any annual reports presenting the profit and the loss and balance sheets are classified as unorganized" (National Accounts Statistics- NAS 1980: pp 69).
A partnership firm may, thus, be grouped under the 'organised sector' if it was covered under any of the statutes mentioned and if it maintained annual accounts. Otherwise it would be classified under the 'unorganised sector'. Thus, non-corporate enterprises can figure under either of the two (organised and unorganised) sectors in the national income classification.
The unincorporated or non-corporate sector has the largest share of national income, manufacturing activities, services, savings, investment, taxes, credit market, employment, forex earnings, etc. Yet it is little understood, dismissed as 'un-organised', 'informal' or 'residual' sector. It is important that the nature and role of this sector are explored to see how it impacts the economy, says R. Vaidyanathan.