Two editions of ASUSE, for 2021 and 2022, rumoured to have been held up before elections, have just been released post the results. Recent analyses have revealed that the informal sector ‘lost nearly 1.8 million establishments and shed 5.4 million jobs’ between 2016 and 2023. Much of this is explained by the adverse effects of GST and demonetisation on the informal sector, which are well-documented. Still, the pressing question is how the informal economy can recover and sustain growth.
This can be studied by looking at the trend between the two editions.
ASUSE tells us GVA for hired rural workers in informal enterprises rose slightly from Rs 1.38 lakh to Rs 1.41 lakh between 2021 and 2022. One would expect that worker pay would rise, or at least stay constant. Paradoxically, average worker pay fell by Rs 14,000, over 10% of their salary. This troubling trend is compounded by increasing informality in this workforce. Formal hired workers decreased from 2.9 mn to 2.1 mn, a 25% drop, even as the workforce grew from 98 mn to almost 110 mn.
Compared to formal workers, informal workers increased by 6.1 mn, yet their pay is roughly a third of what formal workers earn. This shift towards informality suggests two trends: Lower-skilled workers are being hired informally, and more alarmingly, even skilled workers are being pushed into informal employment. Hiring workers informally not only means that they lack a contract, legal protections, health insurance or pensions, but also that they are paid less. This allows the owners of businesses to enjoy the surplus from the increased value-added we noted, making capital more dominant as labour is hurt and discontent, getting even less of a fair share.
Data from the recent consumer expenditure survey supports this shift. There’s a noticeable increase in income for families in the 40th to 70th spending percentiles, typically earning between Rs 1 lakh and Rs 1.5 lakh annually. This reflects a household structure with one informal worker earning average wages and another taking on casual jobs, indicating that while informal workers earn more, the average quality of all jobs remains poor. The crux of the problem is clear: informal jobs, which lack job security and social support, are not the quality employment opportunities that India’s workforce demanded in the elections. The gov’s manufacturing and vocational training push aims to provide gainful employment that allows workers to improve their living standards while enhancing productivity. However, data indicates that many workers are pushed into low-productivity, informal roles instead of secure, formal jobs.Yet the manufacturing sector also presents challenges; in the informal sector, GVA per manufacturing worker is 50% lower than in trade and 30% lower than in other services. Most workers are involved in tertiary sector trade establishments, which have seen a declining share of GVA. Despite a 4% annual increase in trade sector employment, GVA per worker in trade fell by Rs 15,000. These inefficiencies highlight that we are increasing low-productivity informal jobs where workers lack adequate pay and benefits.
The Modi government must avoid the pitfalls of the bold and blustering pro-capital free-market policies in Reagan and Thatcher’s economies, which increased inequality and social tensions.
Instead, we need to strengthen the employment intensity of economic growth, empowering workers and ensuring inclusive prosperity. We don’t need new schemes to do this: the gov has many addressing MSMEs, agri-industries, and has even built a social security system for informal workers.
The call is for a renewed focus: semiconductors are important, but NDA can’t only focus on big-ticket highly automated semiconductor plants for skilled labour where each job costs Rs.3.2 crore in subsidies, more than many workers could earn over their lifetimes. The Cabinet must redirect its institutional focus towards the 80% of working Indians who live in the informal economy.
India must rethink whether its state truly serves all its people or if the colonial overhang of top-down imposition and flawed accountability still makes it so that it serves only a few, while ruling the many.
The writer studies at Columbia University, US
