Growth in informal enterprises signals job creation but raises concerns

ASUSE data shows a rise in unincorporated sector jobs, but reliance on own account enterprises sparks questions about economic health and formal sector job creation

The National Statistical Office released its Annual Survey of Unincorporated Sector Enterprises, or ASUSE, on Tuesday. The official press release noted the number of such small informal establishments had risen by almost 13 per cent in the period between October 2023 and September 2024, compared to the same period a year prior. The number of jobs provided by such employment also grew, but at a somewhat smaller rate. This could be presented as a good sign — any job growth is welcome. But, at aggregate level, it is hard to see it as a good indicator for the economy overall. In particular, much of the growth in the number of establishments and jobs came from what are called “own account enterprises” or OAEs, which are essentially one-person or family shops that do not hire any workers regularly.

 

There are several questions that arise from this data. First, it is doubtful whether it shows genuine growth in the economy. The unincorporated sector has always been a large part of the Indian economy. Many of these small businesses, however, remained informal — invisible not just to the tax and regulatory authorities but also to large-scale surveys like ASUSE. Over the past decade or so, there has been a regular trend towards formalisation of the Indian economy, driven by financialisation as well as the introduction of goods and services tax, among other structural changes. It is possible, therefore, that this apparent growth is merely a statistical artefact reflecting the underlying formalisation. Such statistical constructs have been observed before. For example, the number of those paying into government small-savings schemes for employees increased in the recent past. Whether that reflected a genuine increase in jobs or merely formalisation of existing jobs was a matter of some debate.

 

The other, and deeper, question is whether even if there is an increase in OAEs it would be the sign of a healthy or unhealthy economy. As has been pointed out by experts in this newspaper, surveys focusing on employment have demonstrated that there has been a shift in recent times away from urban jobs; indeed, for the first time in a long period, employment in agriculture has increased in recent years. This suggests that the general engine of job creation and growth in a developing economy — in which individuals move out of agriculture to more productive sectors — may not be working as desired in India at the moment. If so, the increase in the number of OAEs may not be a sign of an improving and growing economy, but instead of spreading distress that is forcing individuals to set up shop for themselves. This has long been one interpretation of the dominance of informal services in India’s GDP — such small, services-based establishments are a “residual” that sweep up workers who cannot find regular employment but have no place in agriculture.

 

The preponderance of available evidence strongly suggests that the government needs to ensure the growth of medium and larger establishments in this country as a priority. Good, stable jobs can be produced only through normalising such enterprises. Unincorporated-sector establishments need to be given the right inducements and incentives to grow through simplicity in policy and the administrative environment, and thus to take on more employees on a regular basis.