India's informal economy may add to GDP

International brokerage Credit Suisse believes that a better estimation of the informal segment could add to India’s Gross Domestic Product when data is revised with the start of new series due soon.

Such contributions are incorporated when the GDP series changes every 9-10 years, according to the India Market Strategy report authored by research analysts Neelkanth Mishra and Ravi Shankar.

“When a new series starts next year (effective FY12), we estimate GDP can rise by almost 15%, implying 2005-13 CAGR(Compounded Annual Growth Rate) was 1.8% higher, at 9.8%. While this does not materially change health ratios like CAD(Current Account Deficit) as a percentage of GDP, it does change the growth-inflation commentary,” said the report dated 9th July.  

The Credit Suisse report suggests that around 50% of India’s GDP and 90% of its employment is informal in nature. The greater share of the informal segment in the country’s economy poses its own challenges as it results in low tax revenues and limits risk-taking by individual on account of the lack of a safety net, said the report.

“From an investment perspective, in non-consumer sectors, only NBFCs(Non-Banking Financial Company) and cement directly benefit from the informal economy,” it added.