Impact of economic shocks post 2016 on informal sector pegged at 4.3% of GDP

The cumulative impact of macroeconomic shocks over the past few years—demonetisation of high value currency, implementation of the goods and services tax, and the Covid-19 pandemic—on the unincorporated sector enterprises has been estimated at 4.3% of the GDP of 2022-23, according to a new report.

The report by India Ratings and Research is based on the Annual Survey of Unincorporated Sector Enterprises (ASUSE) released recently by the Ministry of Statistics and Programme Implementation (MOSPI) that revealed that the total number of establishments in the non-agricultural sector increased to 65 million in 2022-23 from 59.7 million in 2021-22. Employment in this sector increased to 109.6 million workers from 97.9 million workers in the same period.

“The number of unincorporated sector enterprises which were shut down between 2015-16 and 2022-23 are estimated at 6.3 million, leading to Rs 11.5 trillion economic and about 16 million informal sector job loss. However, this period also coincided with the rise in the formalisation of the economy, which has resulted in robust tax collections,” said Sunil Kumar Sinha, Principal Economist, India Ratings.

While formalisation of the economy is the way forward, the report noted but cautioned that the reduced footprint of unorganised sector has implications for employment generation. “Therefore, a judicious mix of policy which allows coexistence of both formal and informal sectors needs to pursue in the interim,” it said. 

A glance at the latest data suggests that the real gross value added of these firms in the segment of manufacturing, trade and other services stood at about Rs 9.51 lakh crore in 2022-23. “Although the real GVA of unincorporated sector enterprises grew 6.9% YoY in 2022-23, it was still 1.6% lower than the levels attained in 2015-16,” said Paras Jasrai, Senior Analyst, India Ratings.