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Introduction

NITI Aayog estimates that India’s informal sector employs nearly 85% of the workforce and contributes about half of total output, yet it remains poorly reflected in national accounts  a gap underscored by the IMF’s recent ‘C’ grade. Outdated base years and weak data coverage distort key economic indicators. Strengthening informal-sector measurement is essential for credible policymaking.

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Structural Challenges in Measuring the Informal Economy

• Fragmented and unregistered enterprises: Most informal units are small, cash-based, and outside regulatory databases, making them hard to enumerate.
  Eg : The IMF notes India’s difficulty in accounting for unregistered, cash-based economic activity.
• High labour mobility and seasonal work: Frequent movement across jobs and regions prevents reliable workforce and productivity estimation.
  Eg: Informal workers shift between rural and urban sectors, complicating output measurement.
• Weak institutional reporting channels: Absence of mandatory record-keeping limits data on sales, wages, and production.
  Eg: Unlike the corporate sector using MCA-21, informal units lack any systematic reporting mechanism.

Methodological Challenges in Measuring the Informal Economy

• Outdated base year and benchmarks: Reliance on the 2011–12 base year distorts informal sector proxies and growth estimates.
  Eg: IMF downgraded India’s national accounts partly due to this outdated base year.
• Inadequate survey coverage and sample frames: Household and enterprise surveys often miss micro-units or rely on non-updated sampling frames.
  Eg: Delays in updating IIP and CPI datasets affect sectoral representation.
• Overdependence on indirect indicators: GDP estimation uses indicators like consumption or input–output ratios instead of direct informal sector data.
  Eg: IMF highlighted that inadequate indicators impair surveillance of investment and consumption trends.

Suggested Reforms for Better Measurement

• Update base years and integrate new data sources: Accelerate 2026 revisions with GST, digital payments, e-invoicing, and geospatial data.
• Expand and modernise enterprise and labour surveys: Conduct frequent, technology-enabled surveys to capture micro and home-based units.
  Eg: Previous upgrades like the MCA-21 adoption show the gains from modern data systems.
• Develop a robust informal sector satellite account: Create a specialised framework within national accounts to track unregistered activity.
• Strengthen coordination between Centre–State statistical bodies: Streamline data flows from local governments, labour departments, and GST networks.
• Leverage digital footprints for estimation: Use UPI transactions, e-commerce data, MSME portals, and Jan Dhan accounts as supplementary indicators.
  Eg: Digitalisation since 2011–12 remains unreflected in current national accounts.

Conclusion

Accurate measurement of the informal economy is vital for understanding India’s true growth trajectory and designing credible fiscal and monetary policies. Updating base years, strengthening datasets, and integrating digital information can bridge long-standing gaps. A modernised statistical architecture will enhance transparency, global credibility, and inclusion in national economic assessments.

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