ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Growth of Informal Sector Enterprises in India

An Empirical Study of the Key Drivers

Factors that contribute to the growth status of informal enterprises in India are explored using data on the unincorporated non-agricultural enterprises from the National Sample Survey Office. A multinomial logit regression is undertaken to determine the growth status of these enterprises. Results show that the firms which have been either declining or have operated for less than three years are the ones located mainly in the urban sector. Rural firms are expanding in comparison to those in urban areas, implying a decline in the urban informal manufacturing sector.

The authors would like to thank the anonymous referee for their helpful comments and constructive suggestions for improving this work.

Small informal enterprises play a significant role in the process of economic development (Nichter and Goldmark 2009). The importance of informal firms for developing economies emanates from the fact that they are the primary means of employment and income generator for a significant section of the population. According to the International Labour Organization (ILO 2018), the informal sector accounts for 93% of total employment in developing and emerging nations.1 In India, according to the National Commission for Enterprises in the Unorganised Sector (nceus 2009), the informal sector is the highest employment-providing sector, with 93% of the workforce being engaged in informal activities. The dualistic industrial structure in India and the fast-growing informal sector as compared to the organised manufacturing sector (Kathuria et al 2010,  2013) result in a reduction of regional imbalances by industrialising the rural regions and providing employment to those with a poor capital base.

The NCEUS (2007) in India described informal enterprises as “unincorporated private enterprises owned by individuals or households engaged in the sales and production of goods and services operated on a proprietary or partnership basis with less than ten total workers.” Such firms are not registered with any authorities; they are mostly run on a smaller scale (Kansra and Gill 2017). Understanding the potential of these firms in the generation of employment—decent jobs, entrepreneurship for women, and youth and groups in vulnerable situations—the government is eager to assist in their growth. However, in spite of government assistance, many small enterprises face many hurdles in expansion (Dinh and Clarke 2012).

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Updated On : 16th Oct, 2023
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