Question

The informal sector is a drag on the formal corporate sector. Discuss with reference to comparative advantage of Indian businesses.

Answer 1

Informal sector remains a problem in India when we discuss the prospects of economic growth.

It is perceived as a hindrance to economic progress because the informal sector does not pay taxes , does not include employees in social insurance schemes amd does little to offer labour law protections .

Informal businesses are concentrated with very low productivity sectors . They are on average smaller and less productive .

They pay lower wages to their employees and do not provide them with proper training , also manage their firms less efficiently than their better educated formal sector counterparts.

The informal sector is hence a drag on economic development.

Informal sector undermines the efforts of the developing countries like India to lay down foundations for a modern , work based , social insurance .

As employees understand the harms to their future economic security resulting from informal employment they will more willingly work in the formal sector.

The formal sector has a better comparative advantage in all aspects of workplace , salary , training ,etc. Than the informal sector which is less efficient in every aspect of development of economy.

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