Informal economic activities: formalisation challenges

Informal economic activities: formalisation challenges

From the look of a livelihood-pattern change around, a question crops up if the size of Bangladesh's informal economy has been expanding under the push of the Covid-19 pandemic that upended set order globally. Though no up-to-date study or comprehensive statistics is available in this connection, a number of proxy indicators show that there is a growing trend in informal economic activities across the country. Take the example of a growing number of street vendors, rickshaw-pullers, battery-run auto drivers, and delivery boys in different cities. They are all engaged in economic activities generally considered informal. Some kinds of particularly unpleasant work like sorting and recycling of wastes are also mostly done informally.

By definition, according to the International Labour Organisation (ILO), informal economy 'refers to all economic activities by workers and economic units that are - in law or in practice - not covered or insufficiently covered by formal arrangements.' In other words, informal economy comprises 'activities that have market value and would add to tax revenue and formal GDP if they were recorded' or monitored by the government. Sometimes, it is also termed 'shadow' or 'grey' economy although these two terms again also refer to 'black economy.' And black economy is entirely a negative connotation whereas informal economy is not.

Thus, there are some grey zones to set the boundary of informal economy. Moreover, some overlapping is also there in-between formal and informal economy. For instance, transportation and storage is one of the 19 broad sectors of the country's Gross Domestic Product (GDP) and contributes around 15 per cent to the GDP. So the workforce in the sector is also considered in formal employment. In reality, some of the workers in the transport sector are working under informal arrangement.

The fact that the informal economy is thriving can be attributed to high joblessness, underemployment, poverty, socioeconomic disparity and unsafe work. The situation aggravates during any natural or manmade disaster when people have to rely on informal economic activities for life and livelihood. The Covid-19 pandemic is the latest example. As the  pandemic hurt many spheres of formal economy and millions of people lost their formal jobs, most of them have now entered various informal activities for their survival. Informal activities also faced a severe blow during the onset of the pandemic, causing job loss for thousands of people, if not millions.

In Bangladesh, several factors have contributed to the growth of the informal sector over the decades. One of the critical factors is inability of the formally registered businesses and government agencies to absorb the rapidly growing workforce. Bangladesh Labour Force Survey 2016-17 showed that at the national level, 85.10 per cent of the employed population are engaged in informal employment. For females, the ratio is 91.8 per cent and for males it is 82.1 per cent. Again, in rural area 88.10 per cent of the total job is in the informal sector while the ratio is 77.33 per cent in urban area. Finally, 95.40 per cent of the jobs in agriculture sector are informal by nature. These statistics are five years old and no update is available so far. That's why it is difficult to gauge the latest condition of the informal employment as well as overall informal economic activities in the country. It is, however, estimated that the size of the informal economy is at least two-fifths of the country's formal GDP.

Against the backdrop, the attempt to create a database for informal sector and its workforce within next five years is a welcome move. One of the main objectives is to ensure decent working conditions for those who are employed there, according to a report published in The Financial Express (FE) in October last. The first step to create the database is to bring entrepreneurs and businesses under a registration system. SME Foundation, Bangladesh Small and Cottage Industries Corporation (BSCIC) and A2I (Aspire to Innovate) Programme will work jointly to develop the 'National Informal Sector Database' with all necessary information by July 2027.

In fact, the new industrial policy has underscored the importance of database of the different economic activities in the informal sector. It also provides a guideline to do so making the ministry of industry responsible to administer the proposed databank. The databank will bring all scattered enterprises across the country under registration through the one-stop service of union digital centres and A2I.

The industrial policy defines informal sector as any economic activity of enterprises which are not formalised by the special law or not included in tax and revenue collection or not registered with any authority concerned. As for examples, it cited domestic workers, street vendors and waste pickers among informal sectors.

Another important objective to create the database is classification of the various informal activities as micro-small and medium enterprises (MSMEs) and providing training to the entrepreneurs. Later, the ministry will recommend tax exemption for these SMEs for a certain period of time and facilitate bank financing. So, a set of ambitious objectives are there to uplift the informal economic activities in the long run. By attaining the objectives, the government will be able to enhance its tax network, too.

A number of challenges are, however, there to develop the database. Most of the informal businesses will not be interested in getting official registration. They may find it hazardous for them in the near future, especially in terms of taxation. Again, there are vested-interest groups which may also create barriers to registration and database. The groups include local political leaders and activists and members of a number of law-enforcing agencies. They used to collect unauthorised tolls from many of these tiny businesses in exchange for providing makeshift settlement on streets and roads illegally. In some cases, various criminal activities are conducted in the guise of informal trading and the vested groups provide them shelter also. So, identifying the challenges and the ways to overcome those are critical to make the informal-sector database comprehensive.

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