Rise in unincorporated establishments driven by OAEs, shows NSO data

A rise in the number of establishments in the vast unincorporated sector during October 2023-September 2024 was led by an increase in the share of own account enterprises (OAEs), the latest fact sheet titled ‘Annual Survey of Unincorporated Sector Enterprises (ASUSE) 2023-24’ released by the National Statistical Office (NSO) on Tuesday showed.

 

Data showed that the share of OAEs grew to 86.4 per cent during the October 2023-September 2024 period from 85.1 per cent in October 2022-September 2023. This comes as the total number of establishments in the unincorporated sector grew by 12.8 per cent to 73.4 million during the same time period.

 

The share of OAEs stood at 84.2 per cent in the 73rd round of the National Sample Survey (NSS), conducted between July 2015 and June 2016. 

 

An OAE is an enterprise, which is run without any hired worker employed on a fairly regular basis, in contrast to hired worker establishments (HWEs), which employ at least one hired worker on a fairly regular basis.

 

Data further shows that the share of OAEs is highest in the ‘manufacturing’ category. The share stood at 88.3 per cent in 2023-24 from 85.5 per cent in 2015-16. 

 

This was followed by the ‘other services’ category, which includes activities like transportation, communication, real estate and finance, among others.

 

The share of OAEs in the sector grew to 86.8 per cent in 2023-24 from 82.5 per cent in 2015-16.

 

TCA Anant, former chief statistician of India, said that HWEs in the unincorporated sector are a ‘truncated’ entity. 

 

It implies that there is a greater chance of establishments, which hire people, registering themselves.

 

“Establishments that fall in the unincorporated sector by and large start as OAE. They are largely managed by a single person. If they happen to grow big and hire more people, then there are higher chances that they will get themselves registered. The government provides numerous incentives to formalise. Hence, this data could reflect growing formalisation of the economy,” he added. 

 

In contrast, Santosh Mehrotra, visiting professor, University of Bath, UK, said that the sector, which represents the vast informal ecosystem, is yet to recover from the impact of successive policy shocks of the past decade.

 

“Distress in the economy is clearly visible with gross domestic product (GDP) growth flattening in Q2 and the latest annual Periodic Labour Force Survey (PLFS) data also showing that the share of people engaged in agriculture increased by around 2 million. As a result of this distress, people are setting up their own enterprises for survival, which is being wrongly construed as entrepreneurship,” he added.

 

The annual survey to capture the information on operational, financial, and structural characteristics of unincorporated enterprises which refers to business entities that are not legally registered under the Companies Act, 1956, or under the Companies Act, 2013 was first started in 2019-20 as a pilot.

 

These unincorporated non-agricultural enterprises, ranging from small-scale manufacturers and service providers to trade establishments, constitute a significant portion of the economy.

 

Earlier this year, NSO released its first full annual report for the sector for April 2021-March 2022.