In news:

• The article highlights the important role the informal sector can play in the vision of Atmanirbhar Bharat.

 

Atmanirbhar Bharat

• Atmanirbhar Bharat, which translates to ‘self-reliant India’ or ‘self-sufficient India’, is the vision of our PM of making India a bigger and more important part of the global economy.
• It doesn’t mean “self-containment”, “isolating away from the world” or being “protectionist”.
• It calls for pursuing policies that are efficient, competitive and resilient, and being self-sustaining and self-generating.
• The five pillars of ‘Atmanirbhar Bharat’ are stated as economy, infrastructure, technology-driven systems, vibrant demography and demand.

 

Economic development through Atmanirbhar Bharat

• The vision of the Atmanirbhar Bharat is rooted in the classical paradigm of economic development, based on demand injection in the economy via two sources, domestic and external.
• ‘Vocal for local’ exhorts a distinct and decisive shift in consumer preferences towards locally-produced goods and services.
• ‘Make for the world’ is more ambitious and resembles the export-led growth strategy adopted in East Asia.
• Thus, the Atmanirbhar Bharat categorically bestows the Indian economy with twin engines of growth.

 

Constraints faced by informal sector

• Most firms are micro in size and deploy little capital.
• They have a small scale of production, substandard/unbranded quality of products, and localised scope of procuring raw material and marketing their products.
• They are vulnerable to business downturns and other market uncertainties, as reflected in high mortality.
• Their access to cheap, reliable and long-term credit sources is highly restricted.
• The sector also endures a lack of official identity and recognition of its existence and contribution.

 

Three transformations informal sector need to adopt

• Atmanirbhar Bharat promises enhanced demand for domestically-produced goods and services, but the exposure to stiff global competition, especially for informal sector units, is imminent.
• In such a scenario, the informal sector must embrace for three tectonic shifts with respect to internal transformation, strategic positioning and labour-market dynamics.

 

1)  Internal transformation

• Enterprises must undergo drastic internal transformation, progressively converging at incremental formalisation through spontaneous and self-propelled transition into economically-viable units.
• It requires infusion of capital to ensure enhanced labour productivity and higher wages.
• A systemic disruption, fostering natural growth must be ushered in, which would also curb the birth of new informal enterprises.
• Moreover, internal consolidation in the sector via merger and acquisitions of units would bring benefits accruing from scale economies.

 

2) Strategic positioning

• Two, because the vision of the Atmanirbhar Bharat exposes the informal sector to global competition, entrepreneurs must embrace the subtle art of strategic positioning in global mega-supply chains.
• They must pick their products and markets with utmost care, and engrain two mantras of success at the global stage in the DNA of their business strategies.
• Global mega-supply chains demand ultra-flexibility in production cycle in addition to heightened resilience to withstand headwinds emanating from not just domestic factors but also global.

 

3) Labour market dynamics

• The informal sector employs more than 80% of India’s workforce.
• The changes in the first two spheres i.e. higher capital intensity-led enhanced labour productivity and ultra-flexibility in production cycles may have severe repercussions on the availability and quality of jobs in India.
• To alleviate these concerns, the first assumption is that the proportionate increase in expected demand must be more than the enhanced labour productivity to at least retain the currently employed workers.
• To generate good quality jobs, diversification (both horizontal and vertical) must be encouraged.
• Vertical diversification entails products not just be partly produced or assembled in India, they must be the end-products of fully indigenised and integrated production and supply chains, from design to made in India.
• Horizontal diversification involves expansion into newer products and markets, smartly aligning with India’s comparative advantage of surplus labour.