The slow growth in manufacturing is a pain-point for the Indian economy. But small manufacturers in the informal sector have been particularly hit in the period between 2015-16 and 2021-22 by a number of events such as Demonetisation, GST implementation, and the pandemic. This is evident in a businessline analysis of the four editions of NSSO’s unincorporated enterprises survey.

The number of unincorporated enterprises (non-agricultural) was around 5.76 crore in 2010-11. By 2015-16, this grew to 6.34 crore. However, by the next survey in 2021-22, the total number of enterprises fell to 5.97 crore, and subsequently rose to 6.5 crore in 2022-23.

The fall in the number of enterprises from 2015-16 to 2021-22 was sharpest in the manufacturing sector, with a decline of 24 lakh enterprises. While the number marginally rose in FY23, the share of manufacturing enterprises in still below FY12 levels.

Fewer workers with small manufacturers

Small manufacturers in urban areas were hit more severely than rural India. Analysis of the 2015-16 and 2021-22 surveys shows a 20 per cent dip in the number of manufacturing enterprises in the urban areas between the years, while in rural areas this decline rate was 6 per cent.

In terms of employment, too, there was a decline of over 1.3 crore workers in the informal sector between 2016 to 2021, with over 60 per cent of this dip attributable to manufacturing. Unincorporated entities in manufacturing employed 3.06 crore workers in 2022-23 compared to 3.48 crore in 2010-11. 

“Most micro and small enterprises were found to be unsustainable after the shocks of Demonetisation and Covid. Many of these small enterprises were ancestral and the owners just decided to exit them and migrate to the bigger cities for employment or remain unemployed,” Madan Sabnavis, chief economist, Bank of Baroda, said. “Many of these manufacturing entities are ancillaries for larger industrial enterprises and could have faced technological obsoletion in the absence of funds to upgrade themselves,” he adds. Analysts also attribute the decline in employment levels to better and higher deployment of technology by informal enterprises, in line with trends witnessed in the larger economy.

Dip in real GVA

Interestingly, while nominal gross value added (GVA) per small enterprise shows a steady rise across the four editions of the survey, analysts note that the real GVA of the informal sector dipped from 2016 to 2023 and is still not back to the pre-shock levels. GVA is defined as total output minus total input.

“The real GVA per establishment in 2022-23 was 4.12% lower than the pre-shock level of that in 2015-16. On the whole, the recovery, in real terms, for the informal sector is not complete as per the latest data,” Paras Jasrai, Senior Economic Analyst, India Ratings & Research, says. “The informal sector’s share in the real GVA stood at 18.2 per cent in 2022-23, falling sharply from 25.7 per cent in 2015-16. The shrinkage has been sharper in services and trade relative to manufacturing,” he adds.

The same trend is also seen in wages paid to workers. While the emoluments paid per hired worker increased from ₹87,544 in 2015-16 to ₹1,24,842 in 2022-23. But Jasrai notes that in real terms, the emoluments per hired worker is just 0.4 per cent higher in 2022-23 than 2015-16.

(With inputs from Jameela Suha, intern with BL)

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