While there has been a shift towards formalization of unorganized sectors, Saurabh Mukherjea from Marcellus Investment Managers believes that India’s formalized economy might be undercut by a resurgence in black money. “There are two developments, and perhaps they are neutralizing each other,” he noted in a conversation with Moneycontrol.
On one side, Mukherjea highlighted that formalization appears to be progressing well. “Direct tax collections are still very robust. In FY2024, collections were growing at 16-17 percent, and in the first half of FY2025, direct tax collections have also been very healthy, with mid-teens growth.” He added that direct tax collections are growing considerably faster than nominal GDP which would suggest that more businesses are coming into the ambit of the formal taxpaying economy.
However, he added that there is a troubling counter trend of black money. “For reasons I can’t fully explain, there seems to be plenty of black money in India,” he said.
Mukherjea explains, “Wherever I'm going, wherever I'm travelling, I'm seeing a plethora of unorganised sector brands. These are not conventional brands that we associate with FMCG, electricals, sanitary ware, or building materials.” He added that distributors and dealers tell him that cash is back big time, thereby allowing unorganised brands to flourish.
This resurgence, he noted, is particularly visible in the consumer goods and real estate markets, industries heavily impacted by cash transactions.
"For one, you see organised FMCG companies reporting absolutely dire numbers," he explained. “Their numbers have been unbelievably weak for the last two to three years. But you and I know that while things are bad, they're not that bad, right? You don't expect to see a Dabur having negative growth, or an HUL having 2 percent volume [growth]. Quarter after quarter, you're seeing undergarment companies such as Page Industries reporting zero growth in a country where population grows at 2 percent. That’s when we realized that we are seeing a revival of unorganised sector brands,” he remarked.
Across several states, Mukherjea noted that organized companies face competition from unbranded goods sold entirely in cash. “In places like Haryana, Punjab, and UP, there are shops that will say Havells or a Polycab on their board, but every single item in it will be a brand that you and I have never heard of,” he explained adding that often, they'll tell you that the stuff is made in Tamil Nadu and shipped all the way across to the other end of the country where it's doing booming business.
“This type of large-scale informal sector presence is new in a way we hadn’t seen till 2020. Companies making stuff in Tamil Nadu but selling it in cash at the other end of the country, and this is happening across sectors.”
The real estate market is area where the challenge of black money persisists. “If we speak to our friends in the NCR region or in Gujarat or in Madhya Pradesh, they'll give you the ratio of black to white, and the ratio is skewed in favour of black once again,” he noted.
But Mukherjea adds that while there definitely has been a reversal in the formalisation trend, with direct tax collections growing at a rapid clip, "I would still say that we're moving in the right direction,” he noted.
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