4.3% GDP Loss, Millions of Jobs Evaporate as 6.3 Million Enterprises Shut Down

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4.3% GDP Loss, Millions of Jobs Evaporate as 6.3 Million Enterprises Shut Down

The Impact of Macroeconomic Shocks on India's Unincorporated Sector

A new report by India Ratings and Research has estimated the cumulative impact of recent macroeconomic shocks on India's unincorporated sector enterprises at 4.3% of the country's GDP in 2022-23. These shocks include demonetization, the implementation of the Goods and Services Tax (GST), and the COVID-19 pandemic.

The report, based on the Annual Survey of Unincorporated Sector Enterprises (ASUSE) released by the Ministry of Statistics and Programme Implementation (MOSPI), reveals an increase in the number of non-agricultural establishments from 59.7 million in 2021-22 to 65 million in 2022-23. Employment in this sector also rose, with 109.6 million workers employed in 2022-23 compared to 97.9 million in the previous year.

However, the report also highlights the closure of 6.3 million unincorporated sector enterprises between 2015-16 and 2022-23, resulting in an estimated economic loss of Rs 11.5 trillion and the loss of approximately 16 million informal sector jobs.

Sunil Kumar Sinha, Principal Economist at India Ratings, emphasizes the importance of formalizing the economy while acknowledging the potential impact on employment generation. He suggests a balanced approach that allows for the coexistence of both formal and informal sectors during the transition period.

The report further indicates that the real gross value added (GVA) of unincorporated sector enterprises in manufacturing, trade, and other services stood at Rs 9.51 lakh crore in 2022-23. While this represents a 6.9% year-on-year growth, it remains 1.6% lower than the levels achieved in 2015-16.

Overall, the report paints a complex picture of the Indian economy, highlighting the challenges and opportunities associated with formalization and the need for a nuanced approach that balances economic growth with employment generation.