Growth or decline? Understanding non-agricultural informal enterprises

Efforts at providing robust data for unorganised sector, which plays an important role in livelihood and survival of the poor, has so far been half-hearted, producing no comparable evidence over time

Informal sector enterprises have been a defining feature of the Indian economy. While activities like agriculture, fisheries, livestock in the primary sector remain predominantly household-based informal enterprises, a large segment of non-agricultural activities are also in the informal or unorganised sector. It is unfortunate that the official coverage of these enterprises is somewhat patchy and reflects problems of temporal and cross-sectional comparability. Understanding of the size and contribution of these activities is mainly based on nationwide sample surveys of the National Sample Survey Office (NSSO). 

In the regular scheme of surveys, these are carried out once every five years. The last two years for which we have survey results are 2010-11 and 2015-16.The NSSO initiated a programme of annual surveys on unorganised enterprises, called the annual survey of unincorporated sector enterprises (ASUSE), in 2021-22, although there was possibly an earlier attempt in 2019-20 that did not produce any results. The first set of results from this initiative is available for 2021-22 and 2022-23 — first as a fact sheet and then as a full report.
 

The present report on the unorganised sector covering the years 2021-22 and 2022-23 is an important source of data in the backdrop of the Covid pandemic and its devastating impact on the informal economic activities and their subsequent recovery.
Another significant event likely to have impacted this sector is the demonetisation of 86 per cent of the currency in circulation in November 2016.  Implementation of nationwide Goods and Services Tax (GST) from July 2017 has also been mentioned as another factor affecting entrepreneurial activity, although one is not sure on its negative impact on the unorganised sector. It would be useful to keep these as a backdrop while taking a macro overview of the statistics focusing on the unorganised sector.

 

The NSS 67th round (July 2010–June 2011) included all non-agricultural unincorporated enterprises belonging to three sectors: Manufacturing, trade, and other services excluding construction. Units registered under the Factories Act and those covered under the Annual Survey of Industries were excluded as they come under the organised sector. Also, the enterprises that are incorporated, that is, registered under the Companies Act, 1956, government and public sector enterprises, and cooperatives are excluded. The ownership categories of enterprises covered would be (a) proprietary and partnership enterprises, (b) trusts, self-help groups (SHGs), and non-profit institutions (NPIs). The 73rd round survey (2015-16) also had roughly the same coverage, except that it included the non-captive electric power generation by unregistered units. This would, in any case, be a small segment. Construction is the most significant non-agricultural activity excluded in this survey as in 2010-11. There were minor methodological improvements in the computation of value-added and other economic variables, but these would not impact on the estimates of the number of enterprises or workers. One would assume the coverage in the recent surveys is comparable with the previous surveys as there is no mention of any change. The estimated numbers of enterprises and the employment are given in the accompanying graphic.
 

The surveys, covering the period 2010-11 to 2015-16,  show a healthy growth in the number of enterprises and employment in  manufacturing and trade. But in 2021-22, these numbers declined drastically. There has been certain recovery in the following year, but the number of units is yet to reach the 2015-16 level in both the sectors.
 

The services sector, however, records an impressive increase of about 20 per cent in enterprises and 10 per cent in employment, in the latest year over those of 2015-16, the annual growth being much higher than the previous period. The total number of enterprises in the latest year being marginally higher and that of employment marginally lower, nonetheles,s reflects a slackening of growth dynamics in the informal economy, particularly for manufacturing after 2015-16. There is a noticeable shift in favour of services within the informal economy.
 

Unfortunately, we do not have robust and comparable evidence on the unorganised units from any other source. A successful completion of the 7th Economic Census would have permitted some comparisons between 2013 and 2021. This is not possible now with this EC reports being shelved.
 

In any case, the EC, though very well designed to capture the spread of economic activity, has not been found to be useful to analyse the growth of specific sectors, due to data-related issues, for several states, particularly Delhi, which saw the total employment going down both in rural and urban areas during 2005 and 2013.
 

Another similar sample survey on the unorganised sector in 2018-19 has not produced any results. Importantly, in the national income statistics, one notices the growth in value addition from manufacturing declining after 2018-19, with insignificant recoveries in recent years. Similar is the story for the trade sector. These can possibly be attributed to sluggish growth in their informal components. One can argue that there has been some kind of economic downturn in the informal sector. The detailed analysis of the survey results would help us make such conclusions more affirmative. The Periodic Labour Force Survey (PLFS) suggests a continual growth in employment since 2019. It, however, reveals that the percentage of workers engaged in proprietary and partnership enterprises actually went up from 68.2 to 74.3, while that of agriculture increased from 44.1 per cent to 46.5 per cent from 2017-18 to 2022-23. A large part of the employment growth is in unpaid household work category, predominantly claimed by women. The increased employment in the informal sector seen in PLFS has largely been outside the non-agriculture sector and the overall improvement in employment situation reported is not in disagreement with ASUSE result.
 

In the year 2021, the Labour Bureau was assigned the task of conducting the All India Quarterly Establishment based Employment Survey (AQEES). This has two components: Quarterly Employment Survey (QES) covering units employing 10 or more workers, constituting the 'organised' sector, and an Area Frame Establishment Survey (AFES) for the units employing nine or fewer workers, or the 'unorganised' sector. The results from six QES covering nine sectors, namely manufacturing, construction, trade, transportation, education, health, accommodation and restaurants, informational technology-business process outsourcing, and financial service activities, are available, the latest one giving the information as on July 1, 2022. These suggest an annual growth of about 2.5 per cent in the enterprises. Unfortunately, the proposed AFES survey of the units employing less than 10 units has made little progress, putting a question mark on the goal of providing an alternate estimate of establishment-based employment.  
 

Efforts at providing robust data for the unorganised sector, which plays an important role in the livelihood and survival of the poor, has so far been half-hearted, producing no comparable evidence over time.  
 

Understanding the performance of this sector, thus, remains severely constrained due to the lack of regular robust data. Abandonment of important surveys half way, resulting in enormous waste of resources, and the sporadic release of survey reports data, are not helping an objective assessment on the subject.

(P C Mohanan is former member of the National Statistical Commission and Amitabh Kundu is Professor Emeritus at L J University, Ahmedabad)