Datanomics: Slack in informal manufacturing in pre-tariff quarter

First-ever quarterly estimates of unincorporated enterprises show job and enterprise losses in manufacturing, raising concerns over India's growth outlook

The government has, for the first time, released the quarterly estimates of unorganised sector enterprises, breaking from the past tradition of releasing them annually. The numbers for the first quarter of financial year 2026 (Q1FY26) were not encouraging -- especially for the labour-intensive manufacturing sector. While it does not reflect the effect of US’ 50 per cent tariffs which came into effect much later in August, it paints a worrying picture. It could be an early sign of stress in the informal sector where the bulk of enterprises and workers are concentrated. While most of them are not involved in exports directly, but help bigger enterprises involved there.

       

The decline in employment is most visible in manufacturing. After steady gains in 2022-23 (9.7 per cent) and 2023-24 (10 per cent), the first quarter of FY26 saw a dramatic reversal with a 9.3 per cent contraction over that in the Q4 of FY25. Trade and services witnessed sharp decline in growth of jobs during this period. 

       

Enterprise creation in manufacturing has also gone into negative territory. After robust growth of 13 per cent

 

in 2023-24, establishments fell by 4.7 per cent in Q1FY26. In contrast, trade and services appear resilient.

   

Chart 3:

   

In the overall GDP data, proxies are used for the informal sector in quarterly and provisional annual data

 

and actual data of unincorporated enterprises are used in the later revisions. Though the latest data on unincorporated enterprises did not give output figures (value wise), a broad gauge can be made from the employment and enterprise numbers. Already, there was contraction in manufacturing GVA growth in Q1FY26 over Q4FY25 when even the organised manufacturing was also taken into account. A caution should be exercised in over-interpretation of data since the size of the Indian economy in Q1 of any year is generally smaller than Q4 of the previous year.