Tariff effect? Informal trade establishments shrink in Q2 as manufacturing and services expand

informal trade enterprises shrunk

India’s informal trade establishments had a difficult second quarter of FY26, with both the number of firms and workers declining from the previous quarter, a Moneycontrol analysis shows. The weakness comes against a backdrop of rising global trade uncertainty, particularly after the United States imposed a 50 percent tariff on a range of Indian goods in August.

According to the latest quarterly data on unincorporated enterprises, the number of informal trade units — which include retail shops, kirana stores, wholesale markets and small import–export firms — dropped to 23.9 million in July–September from 25.2 million in April–June. This marks the sector’s first contraction since the pandemic and may reflect the ongoing turbulence in international markets, where traders are grappling with weaker demand and tariff-linked disruptions.

Employment mirrored this decline, with the sector shedding workers as headcount slipped to 41.9 million from 44.1 million in the previous quarter.

In contrast, the informal manufacturing sector recorded a sharp improvement, supported by festive-season stocking and a rebound in demand for consumer goods. The number of informal manufacturing units rose to 21.7 million in September 2025 from 20.6 million in June, while employment expanded from 33.5 million to 35.9 million. The sector had already been on an upward trajectory ahead of the festival season, and the momentum continued through Q2.

The services sector strengthened modestly as well. Informal service establishments increased to 34.1 million from 33.6 million a quarter earlier, though employment dipped slightly to 50.8 million from 51.0 million, partly reflecting technological disruptions affecting larger firms.

The picture becomes more nuanced when viewed through a rural–urban lens. Rural India recorded a marginal rise in the number of informal establishments—43 million, up from 42.8 million in June — even as rural employment fell from 62.5 million to 59.5 million workers.

Urban establishments remained broadly stable at around 36.7 million, but employment grew from 66.1 million to 69.1 million, driven by stronger trading and service-sector activity in major cities ahead of the festive season.