Taking a look at ILO Nepal data, more than 70 percent of the economically active population is involved in the informal economy. Closing industries and the change in employment nature have expanded the informal economy in Nepal. Many development partners have influenced poor and middle-class people for starting informal sector enterprises. However, those who have started or engaged in the informal economy encounter multiple challenges and constraints.

What is the informal sector; this is what ordinary people need to understand. Informal sectors are any sectors of small or temporary in the nature of trading or business. A small vendor selling vegetables to barber shops, a microbus operated in Ratnapark route (could be any route), to a commission paid to the middle man for service on the sale of properties. There are many thousands of economic activities that are happening more informally. Why is this happening? In an inquiry, as an employee, the tax that one has to pay is discouraging so, many people who used to work as an employee and pay tax left the job and started doing informal economic activities. Ishowari (Name changed for her security) shares she works in 5 houses as a domestic worker and makes over Nrs. 4,80,000 a year without any tax, whereas Ram Tamang, who works as a driver in an NGO, receives the same amount, but he shares he needs to pay tax and PF, and he gets the minimal amount in hand. The understanding of the people here is how much money I get in hand? They least bother about tax. He also shares that he might leave the job and do some informal sector economy, which doesn’t require to strictly follow to pay the tax. Is Nepal Government in a position to regulate the informal sectors? This is a good question twhich needs a detailed study and needs a plan, the government could come to develop a plan and policy to encourage and develop and regulate the sectors for the betterment of both the people involved and to the government.

Many people involved in non-measured activities, which are not benign features of economic activity; however, continue to have significant impacts on the formal economy. Numerous exchanges of goods and services occur outside of the auditor’s purview, yet they still have an impact. Similarly, household production may not produce goods and services for a public market, but it still significantly affects the choices made in that context. Compared with the formal economy, workers working in informal sector economy activities are subject to exploitation and deprived of many fundamental rights. Nepal has recently established the Social Security Fund, which is an excellent initiative and can be appreciated concerning the social security of the employee and people who work full-time in formal economy sectors.

How can a state ignore and not think of managing the 70% of the economically active population involved in informal economy activities? If Nepal can develop a policy and framework to manage, develop, and protect the workers in the informal sector economic activities. ILO Nepal has commissioned a study on the “Social Protection for People in the Informal Economy of Nepal.” Nepal Government needs to develop more appropriate policy and implementation directives and plan to address the safety net role of the people involved in informal economy activities.

Foreign employment and remittances have decreased after the COVID-19 pandemic situation. Many Nepali who was outside of the county, working and sending remittances in the country, returned and are returning. Once active in economic activities, these populations might get involved in the formal, informal economy or no economy at all. Recognizing and developing the informal sectors economy activities not only bring improving social protection for all involved in the informal economy activities i.e., access to health care, education, support to disability and other social welfare, support during emergencies like the COVID-19 pandemic but also will ensure their future participation in the formal economy, maintaining their quality of life. Informal activities may require specific regulations for legal recognition; a separate legal framework might be required to develop micro-enterprises, and street sellers or vendors differently. Simplification of regulations, reducing bureaucratic hurdles, and assurance of protection of people involved in informal sectors will ensure the support from the people involved in the informal sector economy.

(Written by-Mukti Suvedi, he is a Peace and International Development Expert, in Nepal and teaching at various universities abroad and Nepal. He is an analyst and has written many articles in numerous books and magazines.)

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