Lower GST rate can help in formalisation of India’s workforce

Some of the measures recommended in a recent report that could aid in the formalization of India’s workforce include the removal of employment bottlenecks, the need of implementing the four Labour Codes, policy changes, and a modification of the goods and services tax rate for employment services.

India needs a structural change or overhaul to move towards formalization, as the nation currently employs nearly 85% informal labor. In order to provide over 40 crore informal workers in India with social security protection and a sustainable standard of living, formal employment must be strongly promoted, according to a report by the Indian Staffing Federation titled India at work

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As part of its recommendations, it has called for considering employment services as ‘merit services’, with lower GST slab tax rates at 5% with ICT benefits instead of the current 18% rate and has also suggested linking of skilling initiatives to employment.

It contends that, as of right now, 5.4 million temporary or contract employees earn an average salary of Rs 18,000 per month, contributing to an annual spend of Rs 1.16 lakh crore and Rs 24,168 crore in GST revenue. “The lower GST slab rate of 5% will result in an annual loss of Rs 17,455 crore, or GST of Rs 6,713 crore. The addition of 40 crore informal workers will have the same effect; their Rs 650 monthly ESIC contribution will result in monthly contributions of Rs 2600 crore and yearly contributions of Rs 31,200 crore. According to the report, the annual GST contribution would be Rs 49,728 crore.

It has further highlighted that there are concerns among policy makers and academics alike that the collective institutions of restrictive labour legislations in the labour market, has hampered output, investment and formal employment expansion. “The proposition is to remove the bottlenecks,” it has suggested.

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It has been suggested that district-level initiatives be spearheaded in order to connect skilling with employment. These initiatives should encourage skill companies to mobilize daily wagers, train them, and place them in formal employment for the first time in industries such as manufacturing, transportation, mining, and construction. It has stated that “the social security support scheme should be immediate for these industries.”

It has also highlighted that staffing industry can drive formalization and transform informal to formal employment. At present, the organised contract staffing industry represents 5.4 million contract workers and ensures protection for all associated workers, provides formal employment, adheres to the laws  and compliances of the land, it noted.

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