Informal sector loses Rs 11.5 trillion, 16 million jobs after shocks

Chennai:The cumulative impact of macroeconomic shocks over the past few years on informal sector enterprises has led to economic losses of Rs 11.5 trillion and the loss of 16 million jobs.

According to data from the Ministry of Statistics and Programme Implementation (MOSPI), the total number of establishments in the non-farm sector rose to 65 million in 2022-23 from 59.7 million in 2021-22. In 2015-16, the number of informal enterprises stood at 63.4 million.

Between 2010-11 and 2015-16, 5.7 million enterprises were added, which translates to an increase of about 1.1 million enterprises per year. If macroeconomic shocks like demonetisation, GST implementation and COVID-19 had not occurred in the period after 2015-16, and the growth of enterprises had followed the pattern between 2010-11 and 2015-16, the total number of enterprises would have reached 71.4 million by 2022-23.

Similarly, the number of employed persons would be 125.3 million. Hence, there would be a loss of 6.3 million informal establishments and 16 million jobs between 2015-16 and 2022-23, says India Ratings.

The size of informal enterprises stood at Rs 15.4 trillion in 2022-23, growing at a compound annual growth rate (CAGR) of 4.3 per cent between 2015-16 and 2022-23. The CAGR was 12.9 per cent between 2010-11 and 2015-16. If the growth rate had continued at 12.9 per cent from 2015-16 to 2022-23, the size of informal enterprises in 2022-23 would have been Rs 26.9 trillion. This translates into a cumulative economic loss of Rs 11.5 trillion, or 4.3 per cent of GDP in fiscal 2023.

“The number of informal enterprises that closed between 2015-16 and 2022-23 is estimated at 6.3 million, leading to an economic loss of Rs 11.5 trillion and loss of around 16 million jobs in the informal sector. However, this period also coincided with an increase in formalisation of the economy, resulting in robust tax revenues,” said Sunil Kumar Sinha, chief economist at Ind-Ra.

While formalization of the economy is the way forward, the reduced footprint of the unorganized sector has an impact on employment generation. Therefore, in the meantime, a judicious policy mix should be pursued that allows both the formal and informal sectors to coexist.

The informal sector’s share in gross value added (real) of manufacturing, trade and other services stood at 18.2 per cent in 2022-23, falling sharply from 25.7 per cent in 2015-16. The decline was more pronounced in other sectors of services and trade. The informal sector’s share in these sectors fell to 32.3 per cent and 21.2 per cent in 2022-23 from pre-shock levels of 46.9 per cent and 34.3 per cent, respectively. In manufacturing, the informal sector’s share fell to 10.2 per cent from 12.5 per cent during the same period.