A proposed index by India’s Ministry of Statistics aims to provide a clearer picture of the informal economy, which employs around 80% of the workforce but remains largely untracked, potentially influencing monetary policy and economic planning.
New Delhi, India — The Indian government is taking steps to address a significant gap in economic data with the planned introduction of an index to measure the health of unincorporated enterprises, which represent a substantial segment of the informal economy. The Ministry of Statistics and Programme Implementation (MoSPI) announced its intention to create this index, aiming to launch it ahead of the target year of 2031, according to a ministry official.
Currently, India’s economic indicators primarily focus on the formal sector, which includes registered companies and larger enterprises. High-frequency data such as inflation rates, factory output, and corporate earnings provide insights into this segment, but they do not adequately reflect the informal economy, which employs approximately 80% of the country’s workforce and contributes nearly 50% to productivity. The absence of comprehensive metrics for the informal sector has created a blind spot that the proposed index seeks to eliminate.
The Scale of the Informal Economy
When discussing the informal economy, many envision small street vendors or family-run businesses. However, the reality is broader. MoSPI defines unincorporated enterprises as non-agricultural establishments that are not registered under the Companies Act. This category includes numerous small businesses, such as kirana stores, neighborhood retailers, restaurants, transport operators, repair shops, and service providers. While many of these entities may comply with local regulations and hold registrations under the Goods and Services Tax (GST) or the Udyam scheme, they still fall under the unincorporated classification.
According to the Annual Survey of Unincorporated Sector Enterprises (ASUSE) for 2024-25, India had approximately 79.2 million unincorporated establishments in 2025, an increase from 73.4 million in 2023-24. Employment in these enterprises rose from 120.6 million to 128.1 million during the same period. More recent quarterly estimates indicate that the number of unregistered enterprises reached 91.7 million in the March quarter of FY26, employing 151.7 million individuals. This sector’s sheer size underscores the necessity of tracking its performance.
The Need for a Dedicated Index
India already possesses a range of high-frequency economic indicators, including the Index of Industrial Production, the Consumer Price Index, and GST collections, all of which primarily reflect the organized economy. This focus creates a challenge for policymakers who may remain unaware of downturns in the informal sector until annual surveys are completed. Consequently, estimates of economic performance often rely on indirect proxies, which may not accurately represent the realities faced by millions of small enterprises.
The proposed index aims to fill this void by providing a regular assessment of economic activity within this crucial segment, allowing for more informed policymaking. For instance, if food inflation remains high while the index indicates a decline in informal retail sales, it could signal weakening consumer demand, prompting the Reserve Bank of India (RBI) to reconsider aggressive monetary tightening.
Implications for Monetary Policy
The introduction of this index could significantly benefit the RBI’s monetary policy decisions. Currently, the RBI relies on various indicators, such as industrial production and corporate earnings, to gauge economic momentum. However, these metrics may not accurately reflect the performance of small businesses, which often serve as the backbone of the economy.
If the index reveals widespread weakness among informal enterprises, the RBI could adopt a more accommodative policy stance, lowering interest rates to stimulate growth. Conversely, if it indicates robust growth in the informal sector, policymakers may feel more confident about maintaining or increasing interest rates.
Enhancing Employment Forecasts and GDP Estimates
The informal economy serves as an early indicator of labor market health. Employment declines often initiate within smaller enterprises rather than larger corporations. A dedicated index could provide timely insights into employment trends, allowing governments to proactively address economic stress through targeted interventions.
Furthermore, while India’s GDP accounts for output from the informal sector, the measurement of this contribution often relies on extrapolations from the organized sector. The new index would provide direct evidence of informal sector performance, enhancing the accuracy of GDP estimates and bolstering investor confidence in India’s economic data.
Impact on Corporate Strategies and Government Spending
The index would serve as a valuable tool for businesses that derive significant revenues from households dependent on the informal economy. Companies in the fast-moving consumer goods (FMCG) sector, such as Hindustan Unilever and ITC, would benefit from insights into consumer spending patterns influenced by informal sector performance.
Moreover, the government could utilize the index to target economic stimulus more effectively. If the data indicates distress in specific sectors, such as transport or textiles, authorities could direct support measures where they are most needed, improving the efficiency of public expenditure.
Broader Data Modernization Efforts
The proposed index is part of MoSPI’s larger initiative to modernize India’s economic statistics. Recent reforms include the introduction of the ASUSE to produce more frequent data on informal enterprises and the use of administrative databases to strengthen official statistics. This aligns with the government’s objective of reducing reliance on outdated proxies and improving the timeliness of economic measurements. The creation of an informal economy index represents a crucial step in addressing the data blind spot that has long existed in India’s economic landscape.
