DMPQ- Highlight the advantages and disadvantages of Formalization of Indian Economy.

Advantages of formalization

  • Increased tax revenues for the government due to better reporting under taxation laws
  • Coverage of population under social protection plans, saving from financial distress during difficult times
  • Increase workers’ welfare and the opportunities for decent jobs
  • Reduce unfair competition between formal and informal enterprises arising from tax or regulatory arbitrage

Downsides of formalization

  • Exclusion of population, if knee-jerk steps are taken e.g. demonetization
  • Poverty and destitution as rapid formalization imposes additional costs on informal economy

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