DHAKA, Oct 9, 2020 (BSS) – The informal economy in South Asia has been hit hard by the COVID-19 pandemic, the World Bank (WB) said in the latest South Asia Economic Focus here.
The South Asia Economic Focus said that many unorganized workers, self-employed people and microenterprises have experienced a large drop in earnings.
Informal self-employment has provided opportunities for some workers who have lost jobs to maintain livelihoods, but likely at much lower earnings levels than before the pandemic.
An informal economy (informal sector or grey economy) is the part of any economy that is neither taxed nor monitored by any form of government.
Informal sector includes food and flea markets, street vendors, laundromats and the like, mostly in rural or informal areas.
It is considered informal since these businesses are rarely registered at national or regional levels, are cash-based and thus do not pay taxes and usually do not have formal arrangements with employees.
The WB report added that one of the key reasons for the dire situation in the informal sector is that the service sectors that were affected most by the lockdown are dominated by informality.
Many informal workers also tend to be more exposed to the disease due to their involvement in the provision of services that require face to face interactions, the study said, adding that isolated, home-based work is not an option for them.
This is of grave concern, because more than three quarters of all workers in South Asia depend on income from activities in the informal sector.
A major threat to long-term income generation is that many viable small enterprises, including microenterprises, will fail because they lack the resources to survive over the next six months.
The challenge for policymakers is not only to provide relief to the informal sector in the short run, but also to design more universal social protection systems in the longer run.
Digital technologies will play an important role in these reforms and could help the informal sector increase productivity and integrate better into markets, provided that access to internet and digital technologies is significantly broadened, the report said.
Governments have begun to respond by expanding assistance to the poor and to affected firms.
The pandemic highlights an important fact about South Asian economies. The informal sector dominates employment, but its productivity, and thus the incomes of workers, tends to be low.
Improving these workers’ human capital and access to physical capital is key to maintaining high rates of growth. Thus, policies that focus on supporting productivity in the informal sector are critical to development, as well as to improving income distribution, in the region.