SBI research sees higher job formalisation rate this fiscal
It asked the government to ensure that the existing tax structure is favourable to the taxpaying population, which constituted 8.5% of the total population and cross-subsidised 91.5% of the population.
The report said that out of the 114 million taxpaying households, 8.5% of the total population contributed ₹75 lakh crore or 65% of the private final consumption expenditure. It said “it is important and ethical that even as we formalise, we must support honest taxpaying households through a better designed tax structure, particularly indirect taxes on items like fuel”.
SBI Research expects formalisation rate in this fiscal to be higher than in the previous year but lower than the 2018-19 level.
The starting point of the study was the assumption that the shrinkage in the economy after the Covid-19 outbreak was mostly informal and hence the loss in output across sectors would give a measure of the informal sector.
“By making this assumption, we ensure that the size of the informal economy is still overstated as the shrinkage in the economy also consists of formal. Employing this methodology and rigorous data validation, this article estimates that currently the informal economy is possibly at max 15%-20% of formal GDP,” the report said, adding that there was wide variation across sectors, with formal sectors like finance and insurance expanding post pandemic.