“Note Ban, GST, COVID-19 Shocks Cost ₹11.3 lakh cr, 1.6 crore Informal Sector Jobs”

Economic losses, especially to India’s informal sector, resulting from the cumulative impact of macroeconomic shocks since 2016, including demonetisation of high-denomination banknotes, introduction of the Goods and Services Tax (GST) and the COVID-19 pandemic, are estimated to amount to 4.3 per cent of India’s GDP in 2022-23 or ₹ 11.3 lakh crore, India Ratings and Research said on Tuesday.

Noting that the sector has been “severely hit” by recent macroeconomic shocks, India Ratings chief economist Sunil Kumar Sinha estimated that 63 lakh informal enterprises closed between 2015-16 and 2022-23, and around 1.6 crore jobs were lost. “This period also coincided with an increase in formalisation of the economy, which led to robust tax revenues. While formalisation of the economy is the way forward, the reduced footprint of the unorganised sector is having an impact on employment generation,” Mr Sinha said.

In 2022-23, the gross value added (GVA) in the economy generated by such unregistered enterprises was still 1.6% below the levels in 2015-16. Moreover, their compound annual growth rate (CAGR) was 7.4% between 2010-11 and 2015-16, but has declined by 0.2% since then, the ratings firm calculated based on the recently released results of the government’s Annual Survey of Unregistered Sector Enterprises (ASUSE).

As per the survey, the number of non-farm sector establishments rose to 6.5 crore in 2022-23 from 5.97 crore in 2021-22, while employment rose to 10.96 crore from 9.79 crore workers. However, this was lower than the 11.13 crore people employed in the sector during the “pre-shock period” in 2015-16. This was primarily due to a decline in the number of manufacturing jobs, which stood at 3.06 crore in 2022-23 from 3.6 crore in 2015-16.

Latest data shows that the real gross value added (GVA) of unincorporated firms in manufacturing, trading and other services (MTO) stood at ₹9.51 lakh crore in 2022-23, an 18.2 per cent share of India’s real gross value added (GVA), declining sharply from 25.7 per cent in 2015-16.

“The decline was more pronounced in other services and trade, with the informal sector’s share falling to 32.3% and 21.2% in 2022-23 from pre-shock levels of 46.9% and 34.3%, respectively. In the manufacturing sector, the informal sector’s share fell to 10.2% from 12.5% ​​in the same period,” the firm said in its report.

If the macroeconomic shocks had not occurred in the period after 2015-16 and growth in these enterprises had followed the pattern of 2010-11 and 2015-16, the total number of such enterprises would have reached 7.14 crore in 2022-23 and the number of employees would have increased to 12.53 crore, India Ratings concluded.

According to the 2022-2023 Periodic Labour Force Survey, the non-affiliated sector accounts for over 44% of the country’s GDP and employs almost 75% of the workforce employed in non-agricultural enterprises.

The size of unlisted sector enterprises (USE) stood at ₹15.4 lakh crore in 2022-23, growing at a compound annual growth rate (CAGR) of 4.3 per cent between 2015-16 and 2022-23, compared to a compound annual growth rate (CAGR) of 12.9 per cent recorded between 2010-11 and 2015-16. “If the growth rate of USE had been maintained at 12.9 per cent during 2015-16 to 2022-23, its size in 2022-23 would have been ₹26.9 lakh crore,” India Ratings explained.