The two bold steps, demonetisation and GST, by the Modi government 1.0, despite drawing flak had contributed immensely in formalising jobs, reveals a study commissioned by Indian Staffing Federation (ISF).
The last four years saw an unprecedented momentum in the formalisation of jobs. More than seven million jobs have been formalised between 2015 and 2018. Cumulatively over 28% of 7.06 million jobs formalised in between these four years were due to demonetisation and goods and services tax (GST).
The Narendra Modi-led government had in November 2016 announced demonetisation of specified high-value banknotes of ₹500 and ₹1000 denominations. GST, a comprehensive indirect tax that subsumed various central and state levies, came into effect in July 2017. The government has drawn harsh criticisms for the haste with which both the steps were implemented and the consequent problems faced by large sections of industry.
However, the report, “Impact of Key Reforms on Job Formalisation and Flexi Staffing”, commissioned by the Indian Staffing Federation (ISF) and executed by data and consulting company Kantar stated that the policies that contributed to formalisation of jobs during the period from 2015-18 include the introduction of the Goods and Services Tax (GST), demonetisation, EPF and ESIC reforms, Skill India initiatives, Fixed Term Contract Reform, as well as the Maternity Benefit reform.
Moreover, the study reveals that only about 16% of India’s estimated 500 million workforces are in the formal sector. The rest are in the informal sector. Modi Government 1.0 had always stressed on higher formal employment.
They contended that India has underestimated the formal employment count thus far. The Economic Survey of 2018 states: ‘India’s formal sector, especially formal non-farm payroll is substantially greater than currently believed. Formality defined in terms of social security provision yields an estimate of formal sector payroll of about 31 per cent of the non-agricultural workforce (non-agriculture, as NSSO-EUS states, is 24 crore or 240 million); formality defined in terms of being part of the GST net suggests a formal sector payroll share of 53 per cent.’
Of the seven million jobs that shifted to the formal sector in 2015-18, EPF reforms contributed 1.26 million (18.16%), ESIC 1.25 million (17.68%), GST 1.08 million (15.32%), Skill India initiatives 0.93 million (13.10%), demonetisation 0.87 million (12.35%), maternity reforms 0.84 million (11.83%) and Fixed Term Contract 0.82 million (11.56%).
EPF and ESIC initiatives include the Pradhan Mantri Rojgar Protsahan Yojana (Government of India pays the full employer’s contribution towards EPF and EPS for the first three years of employment) and Employees’ State Insurance (Central) Third Amendment Rules (all employees who earn Rs 21,000 or less per month are to be mandatorily enrolled for employee insurance under the ESI Act). While both these schemes were launched in 2016, GST came in July 2017.
The study further estimated formalisation of around 11.03 million jobs in 2018-2021 as a result of current and imminent policies and reforms.
Reforms in EPF and ESIC will drive formalisation of jobs the most. The report revealed that flexi staffing industry has witnessed acceleration due to the government’s reforms since 2016. It said the flexi workforce is expected to go up to 6.1 million by 20121 from 4.1 million in 2019. In 2015 and in 2018, the number of flexi workforce in the country stood at 2.1 million and 3.3 million, respectively.