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Accelerated digitisation, Goods and Services Tax and the emergence of the gig economy has caused India’s informal economy to shrink to 15%-20% of the country’s formal gross domestic product from 52% in 2018, claimed a research report by State Bank of India’s Economic Research Department.

“Our starting point is an assumption that the shrinkage in economy post pandemic is mostly informal and hence the loss in output across sectors gives us a measure of the informal sector…. this article estimates that currently, the informal economy is possibly at max 15%-20% of formal GDP,” read the report called Ecowrap, which was released on November 1.

SBI’s research team, by making the above assumption, ensures that the informal economy’s size is still overstated as the shrinkage in the economy also consisted of formal. This is so the estimate is free from any downward bias in measurement. The research concludes that there’s shrinkage using data from Employees’ Provident Fund Organisation, E-Shram portal, the first-ever national database of unorganised workers, and usage of Kisan Credit Cards.

Before delving any deeper into the data sources and their validity in measuring formalisation, let us first understand what the informal sector means.

Defining informal worker

SV Ramana Murthy, the additional director general at the Social Statistics Division, National Statistical…

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