STUDENTS' CORNER

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CBS LINE

Volume 3.10

The Hidden Cost of India's Digital Push

The informal sector in India consists of small and unregistered businesses that represent a major share of employment and output. India’s unorganized sector consists of more than 8,65,000 firms that are experiencing a gradual and inconsistent digital transformation. The Government used digitalisation and formalisation as a remedy for the challenges facing the Indian economy, including addressing the black economy and enhancing tax revenue. To achieve this goal, the Government has implemented several measures including demonetisation, GST, Direct Benefit Transfer (DBT). Although the objectives established for these steps remain unmet, new issues have arisen, as the unregulated sector has been negatively impacted. It is noted that the non-agriculture unorganised sector is not separately accounted for in the GDP and is represented by the expanding organised sector. Demonetisation, GST, and lockdowns provided shocks to the economy and invalidated the approach to measuring the unorganised sector's contribution to GDP. The shocks resulted in a significantly greater negative effect on this sector relative to the organised sector.



Additionally, although the organised sector bounced back, the unorganised sector failed to recover because of these ongoing disruptions. Therefore, relying on the organised sector as a substitute for assessing the unorganised sector is misleading and results in an inflated GDP and other factors like consumption. The outcome is a lower assessment of inequality and poverty in India. It is highlighted that the economic entities in the unorganised sector are too minor to become formalised, even when they begin using banks and digital methods for transactions. Thus, digitisation has additionally harmed this industry without formalizing it. This has turned out to be an expensive error, as demand has been moving from the unorganised to the organised sector. This resembles colonization. 


Since the organised sector requires more capital than the unorganised sector, the shift in demand has led to a reduction in job creation, under-employment, hidden unemployment, and continued poverty. This has caused increased inequality and a lack of demand, leading to a slowdown in the economy. The Government’s encouragement of digitalisation reflects its policy preference for the organised sector. The multinational companies (MNCs) favor a more digital economy as it benefits them. Due to the lack of independent estimation for the unorganised sector, it becomes obscured in data. It allows the Government to assert that India's economy is the fastest growing major economy and that there are no issues with it. Therefore, no additional measures are needed to support the struggling unorganised sector. Consequently, it becomes obscured in policy as well.

It is not the story of informal economy which opposes transformation but that of subsistence among the shifting policies. With the coming of technology and capital merging to shape the future, millions of small enterprises find it difficult in adapting and being marginalized. Therefore, a reconsideration of growth requires not only the development of digitalization but also the ability to be empathetic in policies, inclusive, and recognize the forces that are not visible and help the country to be an economy. It is then that the digital development of India can truly enhance every section of its population.



NANDA KRISHNA U

School of Development

Azim Premji university 

Banglore





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