The combined effects of demonetisation, GST rollout, and the Covid-19 pandemic have resulted in a staggering loss of ₹ 11.5 trillion, or 4.3% of FY23 GDP, for India’s informal sector, according to an analysis by India Ratings.
The unorganised sector, which saw the closure of an estimated 6.3 million units between 2015-16 and 2022-23, faced severe impacts from these economic disruptions. This led to a significant economic loss and about 16 million job losses in the informal sector.
In FY23, the size of the informal sector was ₹ 15.4 trillion, growing at an annual rate of 4.3% from FY16 to FY23. This is a stark contrast to the annual growth rate of 12.9% recorded between FY11 and FY16. Had the sector not been hit by these disruptions, its size would have been ₹ 26.9 trillion in FY23, translating to a cumulative economic loss of ₹ 11.5 trillion or 4.3% of FY23 GDP.
Demonetisation was announced in November 2016, followed by the GST rollout in July 2017, and the Covid-19 pandemic, which caused havoc from April 2020 through October 2021.
However, this period also saw the rise of the formal economy, leading to robust tax collections. ‘The rise in formalisation of the economy has resulted in robust tax collections,’ said Sunil Kumar Sinha, Principal Economist at India Ratings.
The agency analysed trends in the share of the unorganised sector in the overall economy, long-term trends in real gross value added (GVA) of these units, sectoral composition of jobs and enterprises, and estimated the economic and operational loss to the sector due to these shocks.
The unorganised sector contributes over 44% to the GVA and employs nearly 75% of the workforce in non-agricultural enterprises as of the Periodic Labour Force Survey (PLFS) 2022-23. About 90% of the agricultural sector workforce falls under the informal sector. The latest National Sample Survey data on informal enterprises suggests their real GVA in FY23 stood at about ₹ 9.51 trillion.
‘Though real GVA grew 6.9% year-on-year in FY23, it was still 1.6% lower than the levels attained in FY16. A long-term view of their real GVA gives a better picture of the deleterious impact of the shocks on the sector,’f added Sinha.
