Budget 2022: No Indian Should be Left Behind

Informal sector workers need reskilling and job support, not shock treatment. That’s the challenge for Budget 2022.

India’s formal economy is booming, while the informal one, which is the lifeline of over half a billion poor citizens, is wrecked.

(Photo: Aroop Mishra)

His name is Ordinary Indian (nicknamed “Oye” by pals). Like millions of his fellow citizens, Oye would keep a bit of cash at home, for that gave him a sense of security. He was to get married in November 2016. His mother was excited. On the eighth day of that month, she took a wad of crisp 1000-rupee notes from the Godrej safe at home to buy jewels for her handsome daughter-in-law. She picked a few twinkling pieces to be embedded in a necklace and paid half its price in cash. Later that evening, Prime Minister Narendra Modi demonetised 1000-rupee notes. Shell-shocked, Oye and his mother rushed to the market, but the equally stunned jeweller had simply shut shop, refusing to honour any transaction. He had already fired over a dozen shopgirls and work-smiths.

Oye was forced to cancel all ceremonies. His wedding planner, too, downed shutters. Nearly 100 semi-skilled workers – among them electricians, cooks, waiters, band-wallahs – lost their jobs. Oye’s mother wowed she would never deal with these “petty shopkeepers” again. She wowed to buy all future jewellery only from Titan, which belonged to the “house of the trusted Tatas”. Oye just sat glumly in front of his television set, oblivious to angry economists ranting about “the death” … oh yes, it was the death of something called “India’s informal economy”. But Oye was beyond caring.

Not Such a Good & Simple Tax (GST)

Oye’s family stopped keeping cash at home. They got good at using digital wallets like Google Pay. Slowly, life and work began to pick up. Oye restarted his micro-unit to assemble ultra-cheap desktop computers by scavenging parts, buying pilfered components, or smuggling them from China. It was a cottage industry, hardly subject to any taxation or formal oversight. He would accept payments any which way, in cash, cheque, or digitally – often a haphazard combination of all three – but barely kept any records or issued invoices.

On 30 June 2017, less than eight months after the brutal demonetisation, he was at a Friday night blast at a local pub, getting drunk and flirting clumsily. He missed the midnight do in Parliament, where Prime Minister Modi and President Pranab Mukherjee, at the stroke of the midnight hour, inaugurated India’s Goods & Services Tax (GST). In his inimitable style, the Prime Minister called it a “good and simple tax”. But overnight, Oye’s hangover vanished.

Companies, looking for GST-registered units whose invoices would give them tax credits under the new regime, abandoned sellers who dealt mostly in cash. Oye was stumped.

Since all his component suppliers were “underground”, he could not claim tax credits from them. His effective cost went up by 18%, wiping out his wafer-thin margins. Big electronics’ retailers such as Crome and Reliance Digital had won. Oye was out of business, like millions of similarly fated micro-entrepreneurs. Once again, Oye sat glumly in front of his television set, oblivious to angry economists yet again ranting about the “second death” of something called “India’s informal economy”. But Oye was much, much beyond caring.

21 Months of a Lockdown Within Digital Caves

Slowly and gingerly, a third time, Oye picked up the pieces of his life. Along with a friend, he got a license to open a kebab kiosk in Patparganj. Far away from the world of hard disks and pen drives, he got embroiled with fried fish tikka, Kathi rolls, and chicken wings. The cash counter began to jingle. Oye was now relaxed enough to promise his three-year-old a trip to Mumbai’s enticing amusement parks.

But the D-Day was set for Wednesday, 25 March 2020. Excitedly, the Oye household was doing last-minute shopping and packing, when Prime Minister Modi flickered on the television screen. Lockdown! Within four hours. For 21 days, nobody could stir out of home. His child’s dream holiday was crushed. The kebab kiosk was hastily bolted.

And 21 days stretched on for 21 months … as Oye hopelessly watched his customers hop on to Zomato and Swiggy to order their culinary fantasies. He knew he had lost once again, this time permanently. Because even after COVID-19 vanished, these exorbitantly funded digital guys would have demolished his business.

Oye sacked his cooks and waiters, took a deep breath, and sat down before his television set, oblivious to angry economists just ranting and ranting about the “irrevocable death” of something called “India’s informal economy”. But Oye just punctured the screen with his middle finger. He was done.

Oye’s Tragic Story, Multiplied Half-a-Billion Times, Creates a Bewildering Dichotomy

That’s the bittersweet conundrum of India’s “miracle” – but also “crisis-ridden” – economy. The Titans, Cromes, Reliance Digitals, Zomatos and Swiggys have wiped out the struggling “heroes” of our informal economy. The big boys have usurped their market shares to log record gains in revenues, profitability, and valuations. The whole world is serenading India for “formalising and digitising its economy” at one of the fastest rates in recorded history – by one estimate, the share of the informal sector, humming at over 60 per cent of the GDP before 2016, has halved in half a decade. That’s brutal. It also explains the bewilderingly dichotomous data points in India’s economy:

• Corporate taxes are up 75% even as total GDP has stayed static over two years

• Stock markets are at record highs (even after softening by nearly 10% towards the end of 2021), while the global economy is teetering against a recurring pandemic

• Private final consumption expenditure (PFCE) is lower than two years ago, but prices of consumer articles are on a tear; FMCG companies are surprised at their own pricing power

• Big employers – especially fast digitising ones – are grappling with an incredible wage spiral, while unskilled workers are tragically unemployed; the rural poor are signing up in record numbers for subsistence schemes like MNREGS

The above dichotomy can be captured in a single, dangerously cleaved sentence: India’s formal economy is booming, while the informal one, which is the lifeline of over half a billion poor citizens, is wrecked.

Don’t get me wrong. It’s not my case that the formalisation of our economy is a bad thing. In fact, it’s a long-desired, cherished goal.

But my quarrel is with the pace of this transition. We’re throwing our informal economy off the cliff. Instead, we need to craft a sensible glide path to ensure that its poor denizens are protected under a social security net during this painful period.

We need to provide education, health, reskilling, and mass absorption in manufacturing and services sector industries, a process spread over several years, perhaps over a decade, during which the formal economy will gradually usurp informal sectors, instead of obliterating them in a matter of years, nay, months.

So, that’s the challenge that confronts Budget 2022. Which is why we at BloombergQuint have chosen this theme, ie, Budget 2022: No Indian Left Behind.