The official narrative on the findings of National Statistical Office’s latest Annual Survey of Unincorporated Sector Enterprises (ASUSE) 2023-24 is that it indicates robust recovery from the disruption caused by Covid-19. Key metrics such as the number of establishments, workers, wages, and productivity show significant year-on-year growth although this partly reflects the fact that the favourable base effect created by the pandemic is still playing out. Even so, this has implications for the India growth story as it depends on the health of the vast number of unincorporated non-agricultural enterprises — which are not legally registered as companies — that belong to the informal sector. These enterprises are not just stand-alone entities but also support the incorporated or formal sector by acting as suppliers and services providers, thereby forming an integral part of the domestic value chain. These small businesses contribute 28 to 30% of the nation’s output of goods and services or GDP and 40% of employment.
According to ASUSE 2023-24, the number of unincorporated enterprises rose to 73.4 million from the pandemic lows of 59.7 million in 2021-22 while adding 22.7 million workers to 120.6 million. Prima facie, it would appear that this sector is indeed showing resilience after the pandemic. However, the pandemic was not the only disruption for the informal economy as it has been buffeted by earlier shocks like demonetisation which took high value notes out of circulation in November 2016, and the implementation of the goods and services tax in July 2017. As cash accounts for bulk of transactions in India, demonetisation struck a body blow to unincorporated enterprises impacting daily wage earners in urban areas as also in the villages. There was no money to pay wages to around 46% of informal workers who were either casual or contractual. Around 65% of daily wage earners went without work in urban areas as informal enterprises downed shutters and they returned to their villages.
What does not augur well for the health of unincorporated enterprises is that the shift back to agriculture still continues unabated, rising to 46.1% of the workforce in 2023-24 from 44% in 2017-18, according to the Periodic Labour Force Surveys. This is a reversal of what is associated with modern economic development. The continuing stress in non-agricultural unincorporated enterprises is most evident in the fact that employment in manufacturing still remains below the levels before demonetisation: there were 2 million fewer workers in this sector in 2023-24 when compared to 36 million in 2015-16 although the number of enterprises is unchanged at 19.8 million.
In the case of trade, the number of enterprises and employment is broadly unchanged. Over this period, the overall increase in enterprises by 10 million and employment by 9 million is in services. According to a yardstick suggested by Pronab Sen, former chief statistician of India, had unincorporated non-agricultural enterprises not faced all these shocks, the number of enterprises normally rises by 2 million annually. Since 2015-16, there would have been 79 million enterprises as against 73.4 million in 2023-24. In effect, 6 million enterprises were lost. As a typical unincorporated enterprise employs between 2.5 and 3 persons, close to 15-18 million jobs were lost in the process. While the post-pandemic recovery of such enterprises is no doubt impressive, a more nuanced picture emerges if one takes into account the disruptions to the informal sector before Covid-19.
