India can get back to growth, and how

Amid a looming global recession, India has its own growth to tackle. Steps are being taken, but there’s a lot more we can do to achieve the vision of a $5 trillion economy by 2024. An instant, but a calibrated fix to this scenario is to catalyse the unorganised sector, particularly in retail.

Over 90% of the $700 billion retail markets in India is still unorganised and micro. The Periodic Labour Force Survey (PLFS) 2017-18 reveals that casual or informal and self-employed workers are far behind the salaried class on income. In urban areas, the share of self-employment was 32.4%. Self-employment was the major source of income for 52.2% rural households. 71% of non-farm workers had no formal job contract as of 2017-18. Most self-employed workers in India earned roughly around Rs 8,000 a month, among the lowest in the income bracket.

We need to focus on this micro-economy to rejuvenate our macro position — kiranas and what I call the unaccounted sector professionals are a huge base of this.

The government has made a beginning. A massive 12 million mom-and-pop (kiranas) enterprises are set to prosper from Pradhan Mantri Karam Yogi Maan Daan scheme. Other developments like interest subventions, financial support to women entrepreneurs, easing of sourcing norms and bigger and better farmer benefits will bring the economy up to speed gradually. The need of the hour is more direct and immediate steps to spur consumption, create jobs and prime India for return of investments.

Address the “unaccounted sector” of India. It is the segment of more urban informal workers who are not accounted for in the books of the government. The perks of liberalised policies and FDI benefits kick-started in 1991 don’t percolate down to them. Allow them to access formal economy facilities and the cascading effects are huge. It will translate into more consumption, meaningful jobs, and further investments. With just a few policy tweaks, both government and country can tap into this goldmine of opportunities to boost revenue and growth.

As per the International Labor Organization, over 80% of the Indian economy is in the informal sector, while only 6.5% makes the formal sector. The self-employed are tagged ‘formal’ only after they’ve registered with some branch of the government and/or pay taxes. According to a National Sample Survey Organisation report, 63 million enterprises have no registration, 96% of these are run by individuals and most of them pay no GST as their volume of business is below Rs 20 lakh.

Urban street vendors, self-employed people working from homes, craftsmen, carpenters and electricians, plumbers, beauticians, tiffin service providers, artists, fashion designers and others fall in unorganised sector. A large part of the growing geek economy too is in this sector. McKinsey says India’s geek economy has the potential to grow up to $20-30 billion in 2025. Basically, any professional who does not come under the definition of India’s ‘registered businesses’ is an unaccounted office or an enterprise.

Policy changes

Simple policy changes will not only help them benefit from the existing retail liberalisation norms but also bring them into the formal economy, reigniting the cycle of growth. Their inclusion into the cash & carry fold, for example, will help them save more and will raise discretionary consumption. Improved cash flow will enable reinvestment to expand businesses, and thus create more jobs, and will help source more local goods. The government will gain from the sector’s contribution to the exchequer.

Currently, India’s FDI framework in cash & carry and wholesale trading restricts sales to only the ‘registered businesses’. India’s drive to improve ‘ease of doing business’ gets a fillip if this informal sector enters the system without the hassle of unnecessary paper works. Reinvestments can prime the market for foreign interest and quickly fix a slowing FDI cycle.

If the government has found a way to put money into the unorganised sector’s pockets through pension, some policy tweaks can open several highways to our kiranas — India’s 2nd biggest industry after agriculture — and informal professionals making more money and living off it well. That, in turn, will make India an attractive market for both domestic and foreign investments. A chain reaction will be triggered!

(The writer is MD & CEO, Metro Cash & Carry)