The impact of economic shocks after 2016 on the informal sector was estimated at 4.3% of GDP

The cumulative impact of macroeconomic shocks over the past few years — the demonetization of high-value currencies, the introduction of the goods and services tax, and the COVID-19 pandemic — on unregistered sector businesses has been estimated at 4.3% of GDP in 2022-23, a new report has found.

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

“The number of unregistered sector enterprises that closed between 2015-16 and 2022-23 is estimated at 6.3 million, leading to a loss of Rs 11.5 trillion in the economy and about 16 million jobs in the informal sector. However, this period also coincided with an increase in formalisation of the economy, resulting in solid tax revenues,” said Sunil Kumar Sinha, Chief Economist, India Ratings.

While formalisation of the economy is the way forward, the report noted, but warned that the reduced footprint of the unorganised sector has an impact on employment generation. “Therefore, in the meantime, a judicious policy mix that enables co-existence of both the formal and informal sectors should be pursued,” it said.

A glance at the latest data suggests that the real gross value added by these companies in the manufacturing, trading and other services segment stood at around Rs 9.51 lakh crore in 2022-23. “While the real gross value added by the unregistered sector companies grew by 6.9 per cent year-on-year in 2022-23, it was still 1.6 per cent lower than the levels achieved in 2015-16,” said Paras Jasrai, senior analyst, India Ratings.