India's Informal Economy Demonstrates Steady Growth Amid Global Challenges
India's vast unincorporated non-agricultural sector displayed remarkable resilience during the July-September quarter, registering modest but significant growth in both establishments and employment according to recent government data. The Ministry of Statistics and Programme Implementation (MoSPI) released its quarterly bulletin on Tuesday, revealing encouraging trends in the informal economy that employs millions of Indians.
The latest estimates indicate that the number of unincorporated establishments increased to approximately 7.97 crore during the July-September period, up from 7.94 crore in the previous April-June quarter. While this quarter-on-quarter growth appears marginal, it represents substantial expansion when compared to the annual estimate of roughly 7.34 crore establishments for the 2023-24 financial year.
Employment Shows Promising Uptick
Employment figures followed a similar positive trajectory, with the sector now employing approximately 12.86 crore workers. This marks a slight increase from the preceding quarter and a more significant jump from the over 12 crore workers recorded in the 2023-24 annual survey. The data underscores the sector's ability to withstand global economic pressures and trade uncertainties that have affected many formal economies worldwide.
"Despite global challenges and trade uncertainties, the unincorporated sector stayed afloat during the July–September quarter," the MoSPI survey emphasized, highlighting the informal sector's crucial role in maintaining employment stability during turbulent times.
Digital Transformation Accelerates
Beyond the employment numbers, the quarterly bulletin revealed significant shifts in the sector's operational dynamics. Digital adoption among enterprises accelerated notably, with internet usage climbing to 39% in July-September from 36% in the previous quarter. This three-percentage-point increase within just three months indicates rapid technological integration even among small, often informal operators.
The manufacturing segment within the unincorporated sector demonstrated particularly strong recovery. Manufacturing's share of establishments rose to 27% from 26%, while its employment share increased more substantially to 28% from 26% over the quarter. This suggests that manufacturing units are not only growing in number but also employing more workers per establishment.
Women continued to play a vital role in the workforce, accounting for nearly 29% of total employment during the latest quarter, maintaining their substantial presence in India's informal economy.
Urban Employment Gains Momentum
Urban areas emerged as significant contributors to the employment growth, with the urban workforce expanding to approximately 6.91 crore from 6.61 crore in the previous quarter. This indicates stronger labor absorption in cities and urban centers, potentially reflecting improved economic activity in urban markets.
The MoSPI survey provided insights into the employment patterns, noting that "Many unincorporated manufacturing units depend on casual labour, migrant workers, and helpers who often shift to seasonal agricultural work in the preceding quarter and return when manufacturing activity strengthens, leading to a rise in employment rather than in the number of establishments." This pattern explains why employment growth sometimes outpaces establishment growth in the sector.
Comprehensive Survey Methodology
The quarterly data collection involved an extensive survey covering 5,880 first-stage units across India, comprising 2,419 villages and 3,461 urban blocks. From this sample frame, a total of 1,65,842 establishments were surveyed, including 71,925 in rural areas and 93,917 in urban centers.
To enhance data quality and frequency, the survey design was refined with the overall sample size boosted by roughly 1.5 times compared to earlier Annual Survey of Unincorporated Sector Enterprises (ASUSE) rounds. The survey covered most parts of India, excluding only a few hard-to-access locations such as the Andaman and Nicobar Islands, Lakshadweep, Ladakh and select districts in Arunachal Pradesh and Nagaland.
Broader Economic Context
The resilience in the unincorporated sector aligns with other positive economic indicators for the second quarter of FY26. Manufacturing PMI averaged around 58.7 while services PMI stood at approximately 61.4 during the quarter, both signaling strong expansion across formal sectors. Industrial output also showed steady year-on-year gains, with the Index of Industrial Production (IIP) and manufacturing demonstrating consistent improvement.
The Reserve Bank of India has estimated GDP growth of 7% for the second quarter, suggesting broad-based economic strength that appears to be benefiting both formal and informal sectors.
Economist Manoranjan Sharma, Chief Economist at Infomerics Ratings, commented on the findings: "Employment and activity in India's unincorporated, non-agricultural sector recorded a mild uptick in the July–September quarter. Although these quarter-on-quarter gains are modest, both indicators stand well above the FY24 annual estimates, suggesting continued recovery and resilience in the informal economy amid global headwinds."
However, Sharma also cautioned that "the welcome improvement should not obscure persistent structural challenges, such as low productivity, under-employment, and the sector's dependence on absorbing labour when formal job creation lags." He emphasized that a more comprehensive understanding would require additional data on sector-wise details, financial indicators, and wage patterns.
The quarterly release represents part of a broader initiative by India's official statisticians to provide higher-frequency data on the country's vast informal economy, offering policymakers and researchers more timely insights into short-term economic movements that affect millions of Indian workers and entrepreneurs.
