Chennai: While the share of the unorganised sector in the gross output has declined in the past five years, its share in gross value-added has increased, it has a higher share of the total operating surplus and receives lesser production subsidies.
The share of unorganised sector, which includes the household sector and private unincorporated enterprises, in the gross output declined to 33 per cent in FY23 from 34.9 per cent in FY18 due to events such as implementation of demonetisation, roll out of goods and services tax and spread of Covid-19.
The unorganised sector, which brings 40 per cent of the economy’s capex, has been acting as a safety net for individuals who join the workforce every year but do not find employment in the organised sector. Further, the organised sector often uses the subcontracting model for engaging labour and sourcing output from the unorganised sector to remain competitive, finds India Ratings.
Unlike the declining share in gross output, the share of the unorganised sector in gross value- added shows a rising trend FY16 onwards. Both organised and unorganised sectors were able to reduce their input - output cost ratio over the years. But better input cost control led to the increase in the unorganised sector’s share in the gross value added. This is because the unorganised sector falls outside the purview of many statutory provisions relating to labour/ employee which are mandatory for the organised sector.
Further, the share of the unorganised sector in the total operating surplus in the economy at 58.5 per cent was higher than 41.5 per cent of the organised sector in FY23. In fact, the operating surplus to output ratio of the unorganised sector was 2.9x of the organised sector in FY23. The operating surplus of the unorganised sector includes the compensation of self-employed/family labour.
The data also shows that while production taxes less production subsidies for the organised sector were negative, it was positive for the unorganised sector in each of the year during FY12-FY23. This means on a net basis the organised sector is receiving production subsidies and the unorganised sector is paying production taxes to the government. This anomaly arises because the goods and services provided by sectors such as electricity, gas, and water supply, railways, road transport, water transport and communication services fall in the category of public goods and hence receive significant government support to make them affordable for the masses.
