Shrinking informal economy rings alarm bells for jobs in India

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₹11.5 trillion, or 4.3% of the 2022-23 GDP, over the seven-year period. India’s informal sector consists of a vast network of small businesses, street vendors, and independent workers, operating outside the formal legal framework, and their sheer size—three-fourths of the workforce—means they play a critical role in job creation. The latest survey covered 458,938 informal sector enterprises between October 2022 and September 2023.

The informal sector had grown 7.4% per year in real terms between 2010-11 and 2015-16. Alongside, the number of workers also rose from 108 million to 111.3 million. But as the informal sector shrank in size in the seven years that followed, the number fell to 109.6 million by 2022-23.

This was chiefly due to a decline in the size of the informal manufacturing sector, while trade and other services saw increases. Although this is higher than 97.89 million in 2021-22, the lower level of employment from the pre-shock year is worrisome at a time when job scarcity has emerged as one of India's major economic issues. Also read: The spoilers that lie ahead: What ails India’s rosy growth story Labour productivity within India's unincorporated sector, as measured by GVA per worker, also paints a concerning picture.

The compound annual growth rate (CAGR) for GVA per worker was 12.3% during the period of 2010-11 to 2015-16, which dwindled to a mere 4.6% in the subsequent seven-year period. This means a significant slowdown in the pace of growth in the value of goods and services produced by an average worker in the informal sector. According to Amit Basole, a professor at Azim Premji University, this tends to happen when people crowd into the informal sector due to a lack of other options, which divides