India formalizes ₹26 lakh crore of its economy over seven years: SBI Research

India has formalized Rs 26 lakh crore of the economy in seven years, according to a report released on June 21 by State Bank of India (SBI) researchers.

SBI researchers, using data from the recently released Annual Survey of Unincorporated Sector Enterprises (ASUSE), estimated that the share of the informal economy dropped to 23.7% in FY23 from 25.9% in FY16. The distribution of the labor force, approximately 568 million people, indicates that 45% of the labor force remains informal. Agriculture (25.5%) and services (13.9%) sectors constitute nearly 40% of the total workforce, and 88% of the informal workforce.

The e-Shram portal, which has registered 297 million unorganized workers, could further accelerate the formalization process, according to the researchers. The report also highlighted that those at the bottom of the pyramid, earning less than $3.65 daily, account for 43% of private final consumption expenditure.

“World Bank data shows that at 2017 international prices, 44% of our population spent less than $3.65 per day,” the report stated.

Private final consumption expenditure increased by 4% in FY24, while the economy grew by 8.2%.

ASUSE data released earlier this month by the Ministry of Statistics and Programme Implementation showed a more significant increase in the number of informal establishments in rural areas between 2022-23 and 2010-11 compared to urban areas. During this period, services accounted for a larger share of informal enterprises.

Rural enterprises also experienced a faster increase in value added, at 2.7 times compared to urban establishments’ 2.3 times. While urban enterprises contribute more to GVA per establishment, the pace of growth is quicker for rural establishments, with significant increases across manufacturing, trade, and other services sectors.

The share of India’s informal rural service sector enterprises in the economy declined to 8.8% in 2022-23 from 13.8% in 2010-11.