Two out of every three jobs in India’s informal sector, not counting units engaged in agriculture and construction, are in businesses engaged in trade or providing services.

Likewise, about two-thirds of all units in the informal sector are engaged in trade or providing some service, says a recent report of the National Sample Survey Organisation.

In all, 7.52 crore people are employed in the informal sector, with 4.37 crore in the services sector, including trading units. That number includes proprietors of these units. Another 3.6 crore people are employed in 1.97 crore units classified as manufacturing enterprises.

Analysis of data presented in the report titled ‘Key Indicators of Unincorporated Non-agricultural Enterprises (Excluding Construction) in India’, shows that India’s informal sector employs 1.76 individuals per unit. Significantly, the ratio for manufacturing units is higher — 1.83 individuals per unit.

Own account enterprises

The informal sector is dominated by units that do not usually have hired workers, and so referred to as own account enterprises (OAEs) — over 84 per cent of the units are in this category. Such units collectively account for 62 per cent of all the employment in the non-agriculture, non-construction units in the informal sector. The worker-to-unit ratio for OAEs is 1.29 on an average and this ratio includes the proprietor.

In comparison, enterprises that use hired workers, also referred to as establishments by the NSSO in its reports, have a workers-to-unit ratio of 4.20. As seen for OAEs, the ratio of workers-to-unit is higher at 4.69 for manufacturing enterprises that hire workers.

It is also seen that rural India has a larger share of units operating in the informal sector, but more people are employed by such units in urban areas. Of the 6.34 crore units engaged in manufacturing, trade and other services in the informal sector, nearly 51.3 per cent of the units are in rural areas; but of the 11.13 crore people engaged in these units, only 44.8 per cent are employed in units in rural India.

As a result, a unit in rural India provides employment to 1.53 individuals while those in urban areas employ 1.99 individuals, the proprietor included. In all, 6.14 crore people are engaged in 3.09 crore units in urban India.

The NSSO data also show that units with hired workers or establishments tend to come up mostly in urban areas. Of the 6.34 crore units, 1 crore units were classified as establishments and about 72.2 per cent of these were in urban areas. It is then only natural that about 72.2 per cent of the employees working in establishments are also in urban areas. In contrast, OAEs are distributed across rural and urban areas, with rural India accounting for a larger share of units and employment.

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