The country needs to map its informal economy better

We need more accurate data on enterprises that play a major role in employing people

- PRAMIT BHATTACHARYA

Over the past decade, the Indian government has pursued a relentless war on informality. The demonetization of high-value currency notes in 2016 was justified in the name of formalization, as was the hasty introduction of the goods and services tax (GST) in 2017. Formalization would improve productivity of small firms, provide secure employment to workers and generate higher tax revenues, we were told.

The government's cheerleaders proclaimed victory soon after the war began. They claimed that the twin shocks of demonetization and GST had managed to purge the Indian economy of undesirable informal elements. Without any credible evidence, they claimed that small informal enterprises were getting registered with the GST network in large numbers. Growth in GST registration itself became a proxy indicator of formalization. To what extent the growth in overall GST numbers reflected the usual growth of corporate enterprises and to what extent it reflected a shift of informal enterprises to the formal sector was never answered.

A nationally-representative survey of unincorporated enterprises released earlier this year provides a reality check: 63% of unincorporated enterprises in the country were not registered with any statutory authority in 2022-23, it found. This is only a marginal improvement compared to 2015-16, when 69% of unincorporated enterprises were found to be unregistered. By definition, unincorporated enterprises exclude firms registered under the Companies Act.