Unorganised non-agriculture sector is crucial for Indian economy. This sector, referred as household sector, contributed 44.25 per cent of the total GVA at basic prices and provided employment to 74.3 per cent of total work force in the country in 2022-23.

It also provides a crucial link in our domestic supply chain for goods and services to the formal economy. Given its sheer size, it is crucial to see how the informal sector fared in terms of value-creation and employment-generation.

Utilising the recently released datapoints from the Annual Survey of Unincorporated Sector Enterprises (ASUSE), we delve into a comparative assessment to uncover the sector’s progress since the last time similar data became available seven years back in the Enterprises Survey of 2015-16.

Though there have been changes in survey design, coverage of unincorporated enterprises and the definitions of ‘establishment’ adopted in the two surveys, still we can make a comparison after adjustments with the results of Annual Survey of Industries to understand transitions. Arguably, these trends also offer a deep insight into where the Indian economy is headed.

Advantage services

The total number of unincorporated non-agricultural establishments (referred to as ‘USE’ henceforth) have increased from 6.36 crore in 2015-16 to 6.5 crore in 2022-23. In continuation with the past, a bigger share of these establishments come from rural areas — a trend that has further strengthened with an increase from 51.3 per cent to 55 per cent.

While the highest percentage of establishments belonged to the ‘Trade’ sector seven years back, at present, the establishments in ‘Other Services’ constitute the highest percentage at 38 per cent followed by Trade at 35 per cent and manufacturing at 27 per cent. The accompanying table depicts how businesses gravitated towards ‘Other Services’ and away from ‘Manufacturing’ in the last few years:

Evidently, ‘Manufacturing’ sector recorded a dip in the number of establishments while there has been increase in ‘Other Services’ at a CAGR of 2.53 per cent. This is quite in line with the larger trend of India leapfrogging into a service-based economy in the last decade or so, a trend further bolstered by the emergence of new-age services.

Data from the last two ASUSE surveys correspondingly demonstrate a robust sectoral expansion of ‘Other Services’ with an annual growth of 15.2 per cent in the establishments.

‘Productive’ Services

‘Other Services’ sector outshines others in terms of productivity as well. Out of the total Gross Value Addition (GVA) by the USE, 41 per cent comes from ‘Other Services’ in 2022-23.

Likewise, GVA per establishment is the highest for this sector at ₹2.58 lakh. A comparative analysis over last seven years shows that ‘Other Services’ experienced an increase in GVA per establishment in nominal terms at the rate of 2.9 per cent per annum but showed negative CAGR of 1.9 per cent in real terms.

‘Manufacturing’ was the only sector that saw an increase of 5.9 per cent, compounded annually in nominal terms and 1.08 per cent in real terms at 2015-16 prices, in the last seven years. Interestingly, a real growth in GVA per establishment is seen in rural areas.

Shrinking manufacturing workers

Considering the pivotal role played by USEs in enhancing employment opportunities, it is imperative to hold a candle to the magnitude of jobs created. While an annual uptick of 8 per cent was seen in the number of workers employed in 2022-23 from the previous year, the labour size has shrunk from 11.40 crore workers in 2015-16 to 10.96 crore workers.

The biggest dip is seen in the ‘Manufacturing’ sector (see table). Workers in Manufacturing subsector declined at a CAGR of 3.33 per cent in the last seven years.

Service sector workers, on the other hand, have grown overall albeit with a decline in the average number of workers per establishment from 1.76 to 1.62. This number has increased slightly from 1.68 to 1.73 for the ‘Trade’ subsector.

In terms of geographical differences, although more than half of USEs come from rural areas, they employ 48 per cent of the total workers.

Productivity dips

The labour market story of USEs, will nevertheless, remain incomplete without a discussion on how the change in labour productivity has ensued in the last seven years. Overall, GVA per worker in nominal terms increased from ₹1.01 lakh to ₹1.42 lakh in the last seven years. And service-based workers record the highest productivity followed by ‘Trade’.

But here is where the picture becomes grave. If we factor price effect through the GVA deflator, the growth in real terms shows a decrement. The price adjusted GVA per worker for 2022-23 comes out to be ₹1.02 lakh at 2015-16 prices which is almost same at ₹1.01 lakh for 2015-16. Productivity of workers in trading establishments have seen the sharpest drop followed by service-based establishments. Notably, labour in manufacturing establishments and those working in rural areas are the only exceptions, showing an increase in productivity in real terms.

Declining real wages

Commensurate with labour productivity, emoluments, in real terms, have also seen a negative growth rate of 0.65 per cent, compounded annually. The decline in real terms is reflected in both rural and urban areas.

‘Manufacturing’ has seen an increase in emoluments per worker from ₹73.79 thousand to ₹1.16 lakh in nominal terms and also increase in real terms at 5.47 per cent compounded annually.

On the other hand, while ‘Other Services’ sector has the highest annual emolument per worker at ₹1.35 lakh increased from ₹1.01 lakh in the last seven years but their real wages have declined in the last seven years by 1.67 per cent, compounded annually.

The shift towards service-based industries in the USEs is evident from the rise in the number of establishments and workers in this sector.

However, productivity and worker wages in services have declined in real terms over the past seven years – something that needs deeper investigation.

Conversely, manufacturing, though smaller in scale than before, has seen growth in both productivity and wages during the same period. It is plausible to thus conclude that while services remain dominant, manufacturing is catching up vis-à-vis wages and productivity, potentially due to government policies.

In the run-up to Viksit Bharat at 2047, both sectors will be vital, giving credence to the government’s current strategy of incentivising manufacturing through various programmes while concurrently promoting services.

Ashish Kumar former DG, MOSPI is Distinguished Fellow and Sakshi Abrol is Visiting Fellow with Pahle India Foundation