Employment puzzle

The informal sector is not creating enough jobs

The recently published factsheet on the Annual Survey of Unincorporated Sector Enterprises (ASUSE), by the Ministry of Statistics and Programme Implementation, for 2021-22 and 2022-23, paints a sobering picture of the employment situation in the country. Despite showing resilience after the pandemic, the unincorporated sector has not generated significant employment. The sector, encompassing small businesses and sole proprietorships across manufacturing, services, and trade, represents the informal segment of the economy. Workers and enterprises in this segment typically lack formal recognition and are usually excluded from social-security schemes. However, the segment plays a key role in value chains and contributes to employment generation. The factsheet indicates the number of establishments and workers registered a compound annual growth rate of 5.88 per cent and 7.83 per cent, respectively, during the period April 2021-March 2022 and October 2022-September 2023.

However, as reported by this newspaper recently, compared to the results of the 73rd round of the National Sample Survey for July 2015-June 2016, despite an increase in the number of enterprises, the workforce in the unincorporated sector remains lower by 0.16 million, which raises questions about the employment-generation capacity in the informal sector. This discrepancy can be attributed to at least two factors. First, many unincorporated enterprises remain very small due to their limited production capacity or constrained demand. Second, they might be becoming more capital-intensive due to advancements in production technology and machinery. The exact reasons remain unclear, but both scenarios result in lower levels of employment generation. The sector has been significantly affected by several exogenous shocks over the past decade, including demonetisation, the introduction of goods and services tax, and Covid-related disruptions. As reasoned by the chairperson of the Standing Committee on Statistics, Pronab Sen, about 2 million unincorporated enterprises are added annually, employing 2.5-3 persons each. However, as the numbers suggest, due to these successive economic shocks, according to Dr Sen, an estimated 10 million enterprises and 25-30 million jobs may have been lost during this period.

While a detailed report on the survey will provide more insight into what is happening in the sector, the factsheet highlights the structural weakness within the economy. The share of regular, salaried workers in the workforce, as indicated by the Periodic Labour Force Survey, is not improving. The data on the informal sector shows it is also not creating enough jobs, partly reflected in the recent increase in agricultural employment. Further, given that the creation of enterprises in the informal sector seems to have suffered, with a marginal increase in value added over the years, sceptics may raise more questions about the gross domestic product estimates because of the dependence on the formal-sector data. Nevertheless, the latest survey of enterprises in the informal sector once again highlights the employment situation in the country. Given that India has the largest young cohort in the world and its workforce will grow in the coming years, creating gainful employment remains the foremost policy challenge. The new government, therefore, would be well advised to make policy interventions with the objective of creating jobs outside the agricultural sector. Without a significant increase in employment opportunities, it will become increasingly difficult for India to sustain high growth in the medium to long run.