There was a time when India’s share in world economy was around 25%, with the most advanced agriculture sector across the globe and top-notch performance and production in informal sectors like textiles, shipping, and steel. This was the time before British took complete charge, and almost a century and a half later in the year 1950, we stood at around 4% share in the world economy.
We have of course grown from that day. However, over the last decade, India’s economic rise has been nothing short of exemplary. We are now proudly the fifth largest economy in the world, rising from the 11th position in 2013-14.
The unorganised sector, also referred to as informal sector, usually consists of all unincorporated private enterprises owned by individuals or households engaged in the sale and production of goods and services operated on a proprietary or partnership basis and with less than ten total workers.
Historically, the sector has always been the flag bearer of our economy. Around 80% of India’s workforce, which is nearly 44 crore, constitute the informal sector of the economy. Industries such as agriculture, textile, footwear, gems and jewellery, automotive components, and unorganised retail are the majority contributors of the sectors.
Agricultural History of India
Agrarian status of India’s economy is a widely known fact with almost 60% GDP share of agriculture and its allied sectors in the year 1950. However, the lesser noticed fact is that the GDP share of Agriculture today stands only at 15% but our annual grain produce is almost 150 Million tonnes growing by 200% from 50 Million tonnes in the year 1950. The declining GDP share of agricultural activities and yet the increasing produce is a tell-tale of India’s economic diversifications resulting due to some world class policy interventions, incentive programs and an unmatchable vigour of aspiring Bharat to realise the vision of self-reliance.
Small-scale Enterprises Contribute Half of India’s GDP
Today, the industries contributing to the informal sector economy are predominantly run by small-scale enterprises and they together contribute approximately 50% to India’s GDP. The sector activities range from service to manufacturing and across agriculture, textile, footwear, automotive, unorganised retail industries amongst many. The informal sector not only contributes to intrinsic levels of the economy but is also one of the major employment providers to India’s workforce.
e-Shram, National Database of Unorganised Workers, indicates almost 30 Crore unorganised workers registered and the domains of agriculture, household and construction as the top 3 employers. Several government initiatives like e-Shram, MGNREGA, Pradhan Mantri Rojgar Protsahan Yojana, Pradhan Mantri Mudra Yojana, etc. have been acting as a catalyst to boost the economy share of this sector.
The introduction of Goods and Services Tax (GST) has been another booster for small-scale enterprises by subsuming various state and central government-level indirect taxes into a single window. Arguably, GST has wiped out all the cascading taxes on SMEs and the tax burden has been reduced to over 60%.
Let’s Look at the Contribution and Potential of Various Industries Constituting the Informal Sector
Agriculture
In the beginning, we highlighted how agriculture put India ahead in the global landscape. Despite its falling share of GDP, agriculture remains the primary focus of the Indian government as it still employs more than other industries. What’s more, its growth is directly linked with the development of India’s export markets, grocery store owners, restaurant chains, etc.
Contribution of Agriculture to India’s Export Markets
India must thank agricultural produce for its dominance in the global export market. It helps the country earn foreign exchange reserves pivotal to rein in problems arising from the balance of payment crisis. Agricultural produce such as oil meals, sugar, nuts, vegetables, spices, rice and others are holding India’s fort in export markets. Globally, India ranks 9th in agricultural exports. The overall export value of agricultural products stood at a gallant US$ 19.74 billion in April-August 2023.
Export Figures of Agricultural Products
| Agricultural Products | Export Value in FY 2023 (In INR) |
| Oil Meals | 129.48 Billion |
| Wheat | 118.27 Billion |
| Sugar | 463.09 Billion |
| Castor Oil | 101.33 Billion |
| Spices | 304.33 Billion |
| Basmati Rice | 385.24 Billion |
| Non-Basmati Rice | 510.89 Billion |
Retail Stores Flourish Due to Increasing Agricultural Produce
It’s all about the reach at the end of the day, no matter how much farmers produce crops. Something that has been enabled greatly by retail stores across India. These stores deliver agricultural products to the end users. They even tie up with e-commerce players to expand the reach of these products. The deepening penetration of the Internet across India (both urban and rural locations) has contributed to the sale of agricultural produce via e-commerce. According to India Internet Report 2023 by Nielsen, rural locations have 425 million internet users compared to 295 million in urban locations.
The Way Forward for Agriculture – Occupying a Large Chunk of India’s Informal Sector
The prospects of agriculture remain bright as the country embraces Amrit Kaal for the next 23 years i.e. 2047 when India achieves 100 years of independence. Factors driving the growth of agriculture include India’s expanding population creating demand for food products and the rising per capita income will likely help meet the same. India’s population is expected to be 150 crore in 2030, rising from 142 crore at present. The country’s per capita income rose 41% from 2011-12 to 2021-22 and is expected to grow further. As per the Situational Assessment Survey, the monthly agricultural household income was estimated to be INR 6,426 in 2011-12, which rose to INR 10,218.
But Can India’s Agriculture Meet Such Tall Demands?
The lack of technology and intermittent monsoon pose a significant challenge to meet the domestic and overseas demand.
Keeping in mind the same, the government has plans to introduce Agriculture 4.0 to revolutionise the sector in terms of enhanced production, increased employment opportunities and the overall economic well-being of India. Agriculture 4.0 is a highly advanced version capable of transforming the current farming methods. It focuses on maintaining soil fertility, leading to improved quality and quantity of agricultural produce. 4.0 involves using the Internet of Things (IoT), artificial intelligence, robotics and big data to accelerate the pace of production.
As opposed to conventional farming where the focus remains mainly on watering the crops and spraying pesticides or fertilisers, the new wave will ensure data-driven farming, which will lead to enhanced productivity and eliminate wastage. Almost one-third of food production worth over US$ 1 trillion has been wasted so far. The introduction of new technologies will likely prevent further wastages. It will be interesting to see whether the government drives 4.0 on its own or uses the public-private partnership route for the same.
Textile and Apparel Industry – The Important Segment of India’s Informal Sector
India’s textile and apparel industry, with a 2.3% contribution to the country’s GDP, employs nearly 4.5 crore people directly or indirectly. Being the largest producer and exporter of textiles and garments, India holds a 4% share in the global textile and apparel trade. Buoyed by the production-linked incentive scheme (PLIS) worth INR 10,683 crore and increasing global demand, India’s textile exports are expected to touch $65 billion by FY26. Whereas the country’s textile and apparel market size is projected to touch $190 billion by 2025-26.
Export Figures of Various Textile Products in FY23
| Textile Products | Export Value |
| Cotton Fabrics and Madeups | US$ 6,818.94 Million |
| Manmade Yarn, Fabrics and Madeups | US$ 4,948.91 Million |
| RMG Cotton (Including Accessories) | US$ 9,280.4 Million |
| RMG Manmade Fibres | US$ 3,070.23 Million |
| Cotton Yarn | US$ 2,752.41 Million |
| Handmade Non-silk Carpets | US$ 1,315.84 Million |
| Man Made Staple Fibre | US$ 462.56 Million |
| Woolen Yarn, Fabrics and Madeups | US$ 204.25 Million |
| Coir | US$ 361.98 Million |
Emerging Trends in India’s Textile and Apparel Industry
India’s textile industry is fast embracing advanced technologies to meet domestic and global demand. The industry responds to the demand for sustainability by using advanced technologies, giving rise to smart textiles, also known as e-textiles or technical textiles. These textiles, which feature electronics, sensors and other smart components, play a vital role in producing textiles for sports, medical, automotive and military applications.
The Way Forward for India’s Textile Industry
To continue accelerating textile production, the government has launched a slew of schemes such as the Production-linked Incentive Scheme, Scheme for Integrated Textile Parks, Silk Samagra – 2, and PM Mega Integrated Textile Regions and Apparel (PM MITRA). PM MITRA will likely create 1 lakh direct and 2 lakh indirect jobs per park.
These schemes foster technology advancements, skill advancement, infrastructure development, and eco-friendly solutions. The 5F Vision (Farm to Fiber to Factory to Fashion to Foreign) offers an approach to building an integrated textiles value chain. This forms part of the government’s vision to enhance India’s competitiveness in the global textile landscape.
Shipping Industry
From four ports in Harappa and Mohenjo-Daro civilisation era to 12 ports and 200 minor/intermediate ports currently, India’s shipping industry has come a long way. The country’s coastline expands to over 7,500 kilometres, offering tremendous potential for shipping business growth and creating massive income opportunities for the workforce involved in the same. Maritime transportation accounts for 95% and 90% of India’s trading volume and value, respectively. India ranks among the top five ship recycling countries, accounting for a 30% share of the global market. The industry has various components such as shipping companies, logistics players and interconnected infrastructure that enable the smooth movement of goods across the country.
Major Developments and Trends in India’s Shipping Industry
In a move that will increase India’s cargo volume by four times to 500 million tonnes by 2047, the maiden Inland Waterways Development Council (IWDC) has committed to invest INR 45,000 crore to develop the country’s inland waterways. Estimates say that around INR 35,000 crore will be invested in cruise vessels, while another INR 10,000 crore will go towards developing cruise terminal infrastructure by 2047.
In another development, the Inland Waterways Authority of India (IWAI) has signed a memorandum of understanding (MoU) with Amazon Seller Services Private Limited to ensure seamless movement of cargo, customer shipments and products over inland waterways, aligning with the government’s Amrit Kaal Vision 2047 for the country’s maritime industry. By utilising the sustainability and efficiency of water transportation, the partnership seeks to optimise logistics cost, minimise carbon footprints and foster economic growth.
Government Initiatives & the Future of India’s Shipping Industry
The government introduced the Sagartat Samridhi Yojana while releasing Maritime India Vision 2030. And it started to take effect by identifying projects worth around INR 3.62 lakh crores. Another flagship maritime scheme is Sagarmala, launched by the government in 2015. The scheme has so far initiated 113 projects worth INR 7,030 crore regarding RoRo/RoPax and inland water movement to speed up water transport across the country. Prices of several commodities will likely fall as water transport costs are 5-6% lower compared to other transportation means. The project is expected to elevate India’s merchandise export to US$ 110 billion by 2025 and create 10 million new jobs, including 4 million direct jobs. Reducing logistics costs for EXIM (Export-Import) and domestic trade with minimal infrastructure development is the vision of the Sagarmala project. The project aims to reduce logistics costs by having industrial capacities near the coast, further enhancing India’s export competitiveness.
Steel Industry
If India wants to achieve a $5 trillion economy status by 2025, the steel industry will have a major role in the same. The industry, which is growing at a compounded annual growth rate of 5-6%, contributes around 2% to India’s GDP and employs 5 lakh people directly and 20 lakh people indirectly. It plays a major role in the growth of construction, capital goods, automotive components, consumer durables and railways.
India, which is the world’s second-largest steel producer, manufactured 89.711 million tonnes of finished steel during April-November 2023, registering a 14.3% rise over the corresponding period last year. The rising steel consumption in line with the increased production ensures a balance between demand and supply, keeping prices reasonable for industries feeding on steel and their consumers. Domestic consumption grew 14.9% during April-November 2023, compared to the corresponding period last year, to 87.066 million tonnes. India’s finished steel is anticipated to reach 230 metric tonnes by 2030-31 from 121.29 metric tonnes in FY 2023.
Government Initiatives and the Future Outlook for India’s Steel Industry
The approval of Specialty Steel by the Indian government in the production-linked incentive scheme worth INR 6,322 for a period of five years will help promote capital investment and technology upgradation in the sector, increasing employment and enhancing production further. The government has already signed a memorandum of understanding with 27 companies.
Moreover, India’s steel industry embraces the green revolution as the Ministry of New and Renewable Energy (MNRE) has brought a National Green Mission for green hydrogen production and consumption. The industry has already adopted the best technologies available for expansion. What’s more, the Ministry of Steel has incorporated the capabilities of Bhaskaracharya National Institute for Space Applications and Geo Informatics (BSIAG-N) into the government’s flagship PM Gati Shakti Master Plan. It will help upload geolocations of over 2000 steel units to gain production insights. The information gained through the same will help plan an extension of railway lines, develop inland waterways, ports and highways, as well as ensure improved gas pipeline connectivity.
Construction Industry – Present Scenario & Future Estimates
Being the second largest employment generator after agriculture, India’s construction industry includes various segments such as real estate, infrastructure and urban development on a broader level. The real estate segment further comprises residential flats/apartments, office space, hotels and leisure parks. In total, the industry operates across 250 segments. The immense linkages the construction industry has with such segments greatly impact the overall economic well-being of the country.
The real estate segment, for instance, is projected to attain a gallant market size worth US$ 1 trillion by 2030. Estimates say the segment will likely contribute 12-15% to India’s GDP by 2025. What explains the confidence behind attaining such tall projections is the stupendous 2023 the real estate segment witnessed. As many as 4,76,530 units were sold in India’s top cities in 2023, registering an annual growth of over 30%.
As per market experts, such a growth has not been witnessed in the last 15 years even though home loan interest rates were largely above 8% in 2023. That speaks of the country’s robust economy, aided by higher income of home buyers and enhanced transparency in the real estate ecosystem. Catch more of that below.
RERA – The Game Changer in India’s Real Estate Space
What has boosted the home buying sentiment across India is the introduction of the Real Estate (Regulation and Development) Act, 2016, ensuring transparency in the real estate industry. We Indians always wanted to buy our dream home. But what stopped us were fraudulent activities from property developers, resulting in numerous stalled projects and a lack of timely deliveries. The introduction of RERA made developers clear everything about the property price, delivery timelines and other information to the buyers. It resulted in renewed buyer confidence, which was further reflected in increased home sales across the country. Expectations of lower interest rates on the back of inflation below 6%, which is within the RBI’s comfort zone, and the government’s flagship housing schemes will further prop up home sales and lift the economy.
Infrastructure Industry – The Key to India’s Entry Among Developed Nations by 2047
The new India believes in setting new benchmarks. So, it’s not going to stay calm with its goal of achieving a $5 trillion economy by 2025. In fact, it is fast moving towards achieving the $40 trillion economy target by 2047, which will help India attain a developed economy status. India’s infrastructure Industry, which moves ahead with a 5-6% compounded annual growth rate every year, is key to putting India among the elite group of developed nations by 2047.
The Contribution of the Informal Sector to India’s GVA
Firstly, let’s know about the Gross Value Added (GVA) in brief before checking how much contribution the informal sector has made to the same. GVA represents the total value of output made by the sector, industry, manufacturers and service providers constituting the economy. In a nutshell, it is the rupee value for the goods and services of the country minus the cost of raw materials and inputs in an economy.
The advanced estimates from the Ministry of Statistics and Programme Implementation pegged the rise in the contribution of agriculture and allied activities to GVA for FY23 at 3% each. The estimates put the growth in the contribution of industry and service sectors to GVA at 3.7% and 8%, respectively, for the said period.
Share of Agriculture & Allied Sector, Industry & Service Sector to India’s GVA
| Segments | Share to GVA in FY23 |
| Agriculture | 15% |
| Industry | 30% |
| Services | 55% |
Contribution to Agriculture GVA
| Segments | Share to Agriculture GVA in FY21 |
| Crop | 55.1% |
| Livestock | 30.1% |
| Fishing and Aquaculture | 6.7% |
| Forestry & Logging | 8.1% |
Contribution to Industry GVA
| Segments | Share to Industry GVA in FY23 |
| Manufacturing | 17.3% |
| Construction | 8.1% |
| Mining & Quarrying | 2.3% |
| Electricity, Gas, Water, Supply & Other Utility Services | 2.3% |
Employment Scenario in India’s Informal Economy
The informal sector holds more than 90% of India’s total workforce across its various industry segments. Agriculture and allied services hold around 30% of India’s workforce. Around 50% of India’s employed individuals work in proprietorship and partnership firms. Around 52% of the workers engaged in the Agriculture Sector Excluding Growing of Crops, Plant Propagation, Combined Production of Crops and Animals without a Specialised Production of Crops or Animals) (AGEGC) and non-agricultural sectors are in India’s informal enterprises.
Around 40% of India’s workforce find themselves in proprietorship enterprises in urban and rural locations across the country. Proprietary enterprises constitute 43% and 23% of the male and female workforce, respectively, in the informal economy. In contrast, partnership firms hold a greater share of the female workforce (25%) compared to the male workforce (9.8%).
Stunning! Nearly Two-thirds of AGEGC and Non-agricultural Enterprises Employ Less Than 6 Workers
Interestingly, around two-thirds of the enterprises in AGEGC and the non-agricultural sectors employ less than 6 workers. The small enterprises with less than 9 workers account for 74% of AGEGC and non-agriculture sector enterprises. The point to note is that rural locations hold a larger share of such enterprises at 74% compared to 65% in urban locations. However, what causes worry is that over 80% of the workforce in AGEGC and non-agricultural sector don’t have a formal contract, which implies a lack of social security for them in the form of insurance, provident fund and several other privileges employees in the formal economy enjoy. Whereas 3% of the workforce in these enterprises work on a contract for 1-3 years.
93% of the casual workers without formal contracts indicate increased informality in the economy. Whereas contract workers account for a share of 68.3%. The problem of informality is far deeper by affecting salaried individuals too with 66% of them not having a written job contract. More than 70% of the workforce (except self-employed) don’t have the privilege of paid leave, causing a loss of pay for them when they don’t work.
Government Measures to Make Informal Workers Enter the Mainstream Economy
The government, with a view to formalising informal workers, has introduced a slew of measures such as e-Shram, Pradhan Mantri Shram Yogi Maan-Dhan, PM SWANidhi, and Pradhan Mantri Kisan Samman Nidhi.
e-Shram – A Transformative Step to Revolutionise India’s Informal Sector
Over 29 crore unorganised workers are registered on the e-Shram portal, making them eligible for social security schemes. These include construction workers, gig and platform workers, migrant workers, street vendors, agriculture workers, etc. Over 90% of the workers registered on the portal earn less than INR 10,000 per month, representing a pale picture of the informal workforce amid merciless inflation. Now with them receiving the benefits of social security schemes courtesy of being an e-Shram member, they can work with enhanced freedom and contribute way more to India’s economy. The age required for enrolment on e-Shram ranges from 16-59 years. At the same time, workers must not be members of EPFO/ESIC, NPS or any other government-sponsored benefit schemes. And of course, they must have an Aadhaar Card for enrolment on e-Shram.
Pradhan Mantri Shram Yogi Maan-Dhan
It is a central government scheme offering pensions to informal workers upon attaining 60 years via Direct Benefit Transfer (DBT). Amid the increased adoption of smartphones and digital payments, the DBT will likely meet huge success.
Informal workers eligible for the benefits of this scheme include street vendors, rickshaw pullers, brick kiln workers, rag pickers, cobblers, mid-day meal workers, home-based workers, agricultural workforce, beedi workers, handloom workers, washermen, audio-visual workers, leather workers, etc. As per government estimates, there are 42 crore such workers in India. The age at which workers must enrol for the scheme ranges from 18 to 40 years, with their incomes must be INR 15,000 or below. Additionally, they must not be members of EPFO/ESIC, NPS or any other government-sponsored benefit schemes. They must present an Aadhaar Card and bank savings account/Jan Dhan Account to enrol for the scheme.
PM SVANidhi
The Ministry of Housing Affairs launched in 2020 the ambitious PM SVANidhi scheme for street vendors. As per the scheme, these vendors receive a working capital loan of up to INR 10,000, which they can repay through monthly instalments over a year. The best part is that the timely payment will result in a 7% annual interest subsidy to their bank accounts via DBT. It only doubles the joy for the beneficiaries who were able to resume their livelihood after the COVID-19-induced lockdown caused them a loss of income. While the plan was initially valid till March 2022, it got extended to December 2024 after consultations. The scheme benefits 50 lakh+ street vendors by offering them a collateral-free loan on affordable terms, backed with seamless digital transactions. These vendors must present a valid identity card (Aadhaar Card, PAN Card, MNREGA Card or Driving Licence) to receive these benefits.
Pradhan Mantri Kisan Samman Nidhi
This scheme offers income support to all landholding farmer families across India. As per the scheme, these families receive a yearly payment of INR 6,000 with three equal instalments of INR 2,000 in every fourth month. Along with the Aadhaar Card, the farmer families will need to submit documents such as a Driving Licence, Voter’s ID Card, MNREGA Job Card, etc. to enrol for the scheme.
Some More Initiatives Will Further Help Formalise the Informal Workforce
It all starts from the business and flows across to the workers. So, the government must look to ease restrictions for informal businesses so that they get into the formal mode soon. The government must also consider supporting several self-help groups to identify even more critical conditions the informal workforce faces in India. The data collected from these groups will likely help policymakers find plausible solutions to effectively address the concerns. The issuance of a vendor licence in exchange for fees could also help increase local government revenue. The government must seriously look into the grievances shared by the members of its various benefit schemes mentioned above to identify the depth of their problems.
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