And what is the reason?

Demonetisation, GST, COVID-19 shocks have costed 4.3% of India’s GDP in 2022-23 or ₹11.3 lakh crore and 16 lakhs informal sector jobs for India. Informal sector jobs are unregulated loose jobs like workers, madis, drivers, workers, helpers and others.

The number of workers employed in the informal sector in 2022-23 has dropped by 16.45 lakhs (about 1.5%) to 10.96 crore as compared to 11.13 crores in 2015-16.

With the lack of employment, ration card, medical insurance or even the security of getting enough money to fill the rations, India’s informal sector workers are moving back to the villages, away from the cities they once helped to build.

Due to these factors approximately 63 lakh informal enterprises were shut down between 2015-16 and 2022-23, with about 16 lakhs jobs lost. However the good thing is that this period also coincided with the rise in the formalisation of the economy, which has led to robust tax collections.

While formalisation of the economy is the way forward, the reduced unorganised sector footprint has implications for employment generation and also for the rural demand and alleviating poverty.

As per the survey, the number of establishments in the non-agricultural sector increased from 5.97 crore in 2021-22 to 6.5 crore in 2022-23 and employment provided from this rose to 10.96 crore from 9.79 crore workers. However, this was lower than the 11.13 crore people employed in the sector in 2015-16. This year 2015-16 marks the time when the Indian economy did not suffer from demonetization, GST and other shocks. 

The latest data suggests that the real GVA of unincorporated firms in manufacturing, trade and other services (MTO) was ₹9.51 lakh crore in 2022-23, which is 18.2% of the India’s real MTO GVA. It was 25.7% in 2015-16 which means that the contribution of unincorporated firms has fallen from 25.7% to 18.2% between 2015-16 to 2022-23.

The shrinkage has been sharper in other services where the share of informal sector has declined from 46.9% to 32.3% between 2015-16 and 2022-23. This fall can also be seen in Trade sector where the fall has been from 34.3% to 21.2% in the same period.  In the manufacturing sector, the share of the informal sector fell to 10.2%, from 12.5% during the same period.

The unorganised sector contributes over 44% to the country’s GVA and employs nearly 75% of the work force employed in non-agricultural enterprises, as per the 2022-23 Periodic Labour Force Survey.

The size of unincorporated sector enterprises (USE) was ₹15.4 lakh crore in 2022-23, growing at a CAGR of 4.3% between 2015-16 and 2022-23, compared with a CAGR of 12.9% recorded between 2010-11 and 2015-16. As per a report, if the pace of growth of USE remained at 12.9% during 2015-16 to 2022-23, their size in 2022-23 would have been ₹26.9 lakh crore.