Falling Fortunes

Evidence is mounting of a crippling decline in the unorganised sector

30 January 2019
Unofficial data on the unorganised sector points to massive job losses in the wake of demonetisation and the goods and services tax.
sanjit das / bloomberg / getty images
Unofficial data on the unorganised sector points to massive job losses in the wake of demonetisation and the goods and services tax.
sanjit das / bloomberg / getty images

The pressure-cooker manufacturer Prestige reported soaring profits last year, as did its primary rivals in the cookware market. But the good news for these companies came with bad news for the economy. The chairperson of Prestige told The Hindu that increased profits had come hand in hand with a fall in competition from the unorganised sector. “There are three or four organised players” in the industry, he said, listing a few rival brands. “The rest are all unorganised.” Since the government had implemented the goods and services tax, or GST, “the unorganised competition is reducing.”

Official data claims that the Indian economy is growing at more than 7 percent per annum. But unofficial data contradicts that contention. A recent survey by the All India Manufacturers’ Organisation revealed that the economy has not yet recovered from the blows of demonetisation and the GST. The survey, based on data from 34,700 of the AIMO’s 300,000 member units, showed that the number of jobs in micro and small enterprises had declined by roughly a third since 2014. In medium-scale enterprises, about a quarter of jobs had been lost, and among traders the decline was over 40 percent. Data from the Centre for Monitoring Indian Economy, a business-intelligence firm, shows a loss of 11 million jobs last year, most of them in the largely unorganised rural economy. Between 2004 and 2007, when the economy was actually growing at 7 or 8 percent, there was a clear “feel good” factor across both the organised and unorganised sectors, and almost all segments and industries did well. Today, large sections of society—farmers, traders, young people, and many more—are protesting. Recently, more than 25 million people applied for 90,000 relatively low-level positions in the railways. The desperate applicants included holders of engineering, business and commerce degrees.

The dissonance between the government’s claim of 7-percent-plus growth and the lack of a “feel good” sentiment is explained by vastly different rates of growth between the organised and the unorganised sectors. But that crucial difference is not reflected in official numbers, partly for methodological reasons.

The government collects data on growth in the unorganised sector once every five years. The last time it did this was in 2015. In the years between successive datasets, official numbers for the unorganised sector are calculated on the basis of various assumptions. For example, there are projections based on figures from the preceding year, and on data on the organised sector—on the assumptions that old trends persist, and that the organised and unorganised sectors share similar fortunes. These assumptions are valid if the economy does not face a structural break.

Such assumptions do not hold anymore. Demonetisation hurt the organised sector much less than the unorganised sector, since the latter is far more dependent on cash. The GST has also had a disproportionate impact on unorganised enterprises, even though they are exempted from registering for it. GST compliance in the organised sector has forced the digitisation of business transactions, and a preference for organised-sector suppliers. The informal sector has struggled to deal with the reconfigured complexities and priorities, and so lost lucrative contacts with the organised sector. In the wake of these shocks, the organised sector can no longer serve as a proxy for the unorganised sector, and old numbers have no connection to the new reality.

Arun Kumar is the Malcolm Adiseshiah Chair Professor at the Institute of Social Sciences, and was formerly a professor of economics at Jawaharlal Nehru University. He is the author of Demonetization and the Black Economy, and the forthcoming Ground Scorching Tax, both published by Penguin India.

Keywords: economy unorganised sector demonetisation GST employment jobs labour manufacturing