Using social security and tax coverage as two parameters, the Survey estimated formal sector jobs could range between 31 per cent and 54 per cent of the workforce in non-agricultural sectors.
“These estimates for formal non-farm payroll, ranging from 31 per cent in the case of social security-defined formality and 53 per cent in the case of tax-defined formality, are considerably greater than current beliefs about the size of formal sector non-farm payroll,” the Economic Survey noted.
Employees getting social security benefits under the Employees’ Provident Fund (EPF) scheme and Employees’ State Insurance (ESI) scheme were taken into account for the social security benefit-based computation of the formal workforce.
The Survey estimated non-farm payroll at around 75 million, which constituted 31 per cent of the 240 million workers in the non-agricultural sector. This estimate included 15 million non-agricultural workers in the government sector, excluding the defence personnel.
For computing the number of tax-based formal sector workers, the Survey used newly available data from firms under the goods and services tax (GST) regime.
“From a tax perspective formal employment is 11.2 crore (112 million); adding government employment yields a total count of 12.7 crore (127 million). This implies that nearly 54 per cent of the non-agricultural workforce is in the formal sector. Of course, not all the firms that pay GST are formal, in the common-use sense of the term,” the Survey highlighted.
For taxed-based numbers, the Survey also factored in sectors such as health and education, which are outside the ambit of the GST at present.
According to the Survey, the size of the formal sector — defined either in terms of social security or the GST net — is 13 per cent of the firms in the private non-agriculture sector but 93 per cent of their turnover.
However, the Survey said providing high productivity and good-quality jobs to the country’s “young and burgeoning labour force” would “remain a pressing medium-term challenge”.
“An effective response will encompass multiple levers and strategies, above all creating a climate for rapid economic growth on the strength of the only two truly sustainable engines — private investment and exports,” according to the Survey.
The Survey said digitising government records and the GST provided new opportunities for estimating the size of the formal economy.
A recent study by Indian Institute of Management professor Pulak Ghosh and State Bank of India Chief Economist Soumya Kanti Ghosh titled ‘Towards a payroll reporting in India’ suggested that seven million jobs would be created in the formal sector in 2017-18. It had used estimates from the EPFO and ESIC, along with the National Pension System and the General Provident Fund, to support its claim. However, former Union Minister Jairam Ramesh and IDFC Institute Senior Fellow Praveen Chakravarty had said in an article recently that new additions to the EPFO did not automatically mean job creation in the economy.