Conclusion

undiversified asset portfolio. Accordingly, there is room to introduce innovative contributory schemes or retirement savings instruments for this segment of the informal sector.

This volume makes the case that the developmental challenges associated with widespread informality are unlikely to be solved by an approach focused solely on bringing the informal sector into the ambit of formal sector regulations. These challenges—low productivity, vulnerable jobs, and a limited tax base—have multiple, complex causes that are more suitably addressed through policy reforms and programs that recognize the heterogeneity of informal firms and workers.

Perhaps realizing that decades of growth and business formalization programs have had little impact on the problems associated with informality, policy makers in South Asia have begun to try new approaches to improving the prospects of informal workers. A major development in this direction is the growing recognition of the need for a multifaceted approach to provide social protection in the informal sector. For example, Nepal’s most recent (15th) economic development plan seeks to universalize social protection, expanding noncontributory social assistance programs as well as contributory programs to the informal sector (NPC 2020).

The growing use of digital technology to expand the reach of public services to the informal sector is another notable development. Recognizing that data are necessary in designing an effective social protection system in the informal sector, the Indian government introduced, in 2020, an online portal on which informal workers can register for access to programs.41

However, it is unclear if the overall approach to the issues associated with informality has changed substantively. Policy documents continue to mention informality in broad terms and as a problem to be eradicated. However, as argued in this volume, there is a need for a shift of focus from the desire merely to reduce the extent of informality to an effort to remove the various causes and negative consequences. Barring exceptions, such as the clarity with which the goal of universalizing social insurance is being formulated, the underlying objectives of many regulatory and tax-related policies associated with informality are not specified adequately. A case in point is VAT programs, which are apparently being used to achieve formalization, efficiency, and equity objectives simultaneously.

Technology-driven programs are promising, but more evidence on specific technologies and the associated channels of impact is required. Inducing informal firms to register for business licenses has not automatically caused them to grow and prosper. Likewise, enrolling firms and workers through digital portals and other, similar applications of technology may not lead to real change unless it fills specific institutional gaps or reduces binding frictions. For instance, e-commerce may be useful for informal firms that are constrained by market access but not for those facing other types of constraints.