The Jobless Growth of Unorganised Enterprises Is Worrisome

Recently, the Ministry of Statistics and Programme Implementation (MoSPI) announced the key results of the Annual Survey of Unincorporated Sector Enterprises (ASUSE) 2021-22 and 2022-23.

This annual survey process started in 2019-20. Earlier this survey was conducted once every five years – the last two available are of the NSS 67th Round in 2010-11, and the NSS 73rd Round in 2015-16. 

However, although the National Statistics Office started ASUSE in 2019-20, it said that the first round had been conducted as a pilot and ASUSE 2020-21 could not be completed because of COVID-19. The survey factsheet for ASUSE 2021-22 and ASUSE 2022-23 published by MoSPI shows some growth in the sector, with the number of establishments increasing from 59.7 million in 2021-22 to 65.0 million in 2022-23. 

Employment in these enterprises also surged, with the workforce expanding from 97.9 million in 2021-22 to 109.6 million in 2022-23. However, comparing earlier ASUSEs with the 2010-11 and 2015-16 rounds can give us the true picture of this sector and its recovery in comparison to 2010-11 and 2015-16. 

The Indian unincorporated sector was devastated by triple shocks – demonetisation in November 2016, poorly designed and unplanned GST implementation in July 2017 and one of the world’s strictest COVID-19 lockdowns announced at barely four hours’ notice in March, 2020. These shocks clearly affected India’s annual GDP growth rate – 8.3% in 2016, 6.8% in 2017, 6.5% in 2018 and 3.9% in 2019 (MoSPI). This shows that India’s GDP already slowed before COVID-19 even began, i.e. before the first wave of 2020. This slowdown had already been reflected in the slower GDP growth prior to COVID-19, in fact since 2016, but also in the fact that India experienced the highest unemployment rate in its history – of 6.1% in 2017-18 – long before COVID. The MSMEs of the unorganised sector were very much part of this sharp slowdown in both growth as well as non-farm employment since 2016. 

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Notable is the fact that most non-farm employment outside the corporate sector is in MSMEs, most of which consist of unregistered enterprises in the unorganised sector. If they are adversely impacted by three successive policy-induced shocks, it is only logical that employment should fall. That is exactly what happened.

Another question that should be asked is why the government is releasing ASUSE data now. There is a clear practice by the government that any survey data will not be published during an election year or just before elections. PLFS 2017-18 data was published only after the 2019 general election, for instance. The same has been done with ASUSE 2021-22 and 2022-23. Even data for the earlier two ASUSE rounds has not been released – without explanation. This is a breach of data protocol and data release regulation. 

MSMEs and the unorganised sector suffered massively post-2016

To establish the above proposition, we examine trends in the growth of both enterprises as well as employment in the unorganised sector, since 2010 till now. The estimated number of establishments has increased from 57.7 million in 2010-11 to 65.4 million in 2022-23 (Table 1). We must remember that the time from 2010 to 2015 were normal years in terms of economic growth, and there was steady growth in both the number of enterprises as well workers in the unorganised sector over that period. The data shows a notable rise from 2010 to 2015, with the 2015-16 round showing 63.4 million establishments (from 57.7 million in 2010), which then slightly dipped to 59.7 million in 2021-22. This sharp fall cannot be only due to the second COVID-19 wave of 2021 as the government claimed, before increasing to 65.4 million in 2022-23.

Also read: Why Government Claim of 52 Million New Formal Jobs in Past Four Years Is Misleading

Since ASUSE data 2019-20 and 2020-21 has not been released yet, we tried to calculate how many new establishments started annually during the period of 2010-11 and 2015-16, i.e., 1.14 million annual average during the period.

Even if we keep the same growing rate of 2010-11 and 2015-16, we computed this between 2015-16 and 2022-23 (claimed as a post-COVID recovery year) and found out that only 2 million new establishments have been added during this period. However, if the 2010-2015 growth had been maintained, 7.98 million establishments could have been set up. Therefore, annually 0.8 million establishments did not start their business during this period. So, it is inaccurate to say that this sector recovered and grew just within one year (from 2021-22 to 2022-23) without looking at the earlier data, which reveals the potential shortfall in the number of units created. 

Table 1: 

Source: NSS 67th, 73rd round, ASUSE 2021-22 and ASUSE 2022-23

Similarly, the number of workers in the establishments peaked at 111.3 million in 2015-16, before experiencing a decline to 97.9 million in 2021-22. That massive fall is likely to have started with demonetisation, gathered momentum due to GST, and suffered further decline after the national lockdown of 2020 which took place well before the 2021 wave.

The number of unorganised sector workers was 111.3 million in 2015; but. In 2022-23, the number of workers in establishments is 109.6 million. So even seven years later, the workforce did not even bounce back to the same level as in 2015-16. The sector could not fully recover yet. We also calculated the number of persons who could have been engaged in this sector from 2015-16 to 2022-23 if it had grown at the same pace as it did between 2010-11 and 2015-16. We found out that this sector lost 0.90 million jobs annually. 

The number of establishments in 2022-23 has increased but the number of workers did not improve accordingly, which indicates that this occurred due to an increasing number of Own Account Enterprises (OAEs) in the sector.

In 2023, we showed that in India most OAEs emerged out of necessity as a survival strategy. This predominance of OAEs is the underlying symptom of, and a reason for, widespread poverty and a distressed job market condition. Furthermore, ‘proprietary and partnerships’ in no-farm sectors are classified as informal sector enterprises by the definition of the periodic labour force survey (PLFS). PLFS reports from 2017-18 to 2022-23 show that the number of proprietary and partnerships in the non-farm sector is consistently going up.

From Table 1, the ASUSE for 2010-11, 2015-16, 2021-22 and 2022-23 show that the percentage of hired worker establishments has declined over these years. In 2021-22, it declined to 14% and in 2022-23, it is 15%, but this is slightly lower than the earlier figure in 2015-16, i.e., 15.8%. Establishments which always have some hired workers have higher productivity than OAEs which also have restricted access to finance and more vulnerability to economic shocks. These constraints hinder their growth potential and overall contribution to economic development, emphasising the need for supportive policies to transform OAEs into more scalable and sustainable enterprises.

Santosh Mehrotra is an independent economist, and Tuhinsubhhra Giri is an assistant professor of economics, Christ (deemed to be University), Bengaluru.