India's informal sector surges post-pandemic: 9% increase in firms, Rs 2 lakh crore output boost

Informal firms' output was up 15% in 2022-23

India's informal sector grew post-pandemic, with Andhra Pradesh, Bihar, and Chhattisgarh logging big output gains in fiscal 2022-23.

The number of informal firms in India increased 9 percent to 65 million in 2022-23 from 59.7 million in 2022-21, according to the Annual Survey of Unincorporated Sector Enterprises data released by the Ministry of Statistics and Programme Implementation. The output from non-agricultural firms also showed an increase of Rs 2 lakh crore, or 15 percent, to Rs 15.5 lakh crore in FY23 over the previous year.

Andhra Pradesh, Bihar, and Chhattisgarh emerged as the frontrunners in this growth, witnessing high double-digit gains in output within a year, thereby leading the additions to total output.
In Chhattisgarh, the output of informal firms was up 80 percent from the previous year, as the state added 20 percent more units and output per establishment went up nearly 50 percent.

In Andhra Pradesh, the output increased by 40 percent, as the number of units increased by a tenth during this period.

Informal units are proprietorships or partnerships not registered under the Companies Act. The output is calculated using the value addition done by each firm, which is also used as a measure in gross domestic product calculation.

The share of Andhra Pradesh in the country’s total informal enterprise output rose to nearly 5 percent in 2022-23 compared with 3.7 percent in 2021-22.

The output increases in Andhra Pradesh correspond with a push towards capital formation by the state. An earlier Moneycontrol analysis had found that the value of fixed assets jumped 40 percent during this period.

The informal sector now contributes roughly 6 percent to the state’s GDP, compared with 4 percent in 2021-22.

Maharashtra, Uttar Pradesh highest contributors

Maharashtra and Uttar Pradesh remained the highest contributors, apportioning nearly 25 percent of the country’s total output of informal enterprises, but data indicates diverging trends.

The contribution of informal enterprises in UP’s economy was higher at around 7 percent, while their share in Maharashtra’s gross state domestic product was around 5 percent.

Bihar and Jharkhand had the highest contribution from non-agricultural informal firms at around 8-9 percent.

Also, the share of the informal economy declined or barely increased for more industrialised states such as Maharashtra, Gujarat, and Karnataka, where formalisation may have happened faster.

Bihar, Chhattisgarh and Jharkhand witnessed a jump in the contribution of informal enterprises to their economy during this period.

Informal enterprises contributed Rs 15 lakh crore, or 5.7 percent, to the country’s overall economy.
An earlier analysis by Moneycontrol showed that informal companies push for digital adoption, which likely leads to output gains.