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Missing link: The informal sector

Published

9 years ago

on

Urjit Patel

[vc_row][vc_column][vc_column_text]Flawed methodology distorts CSO data about the economy

By Sindhu Bhattacharya

The Government would have us believe that demonetisation has had an almost negligible impact on India’s economic growth in the December quarter of this fiscal. Never mind that most economists have been flummoxed by the GDP data which the Central Statistics Office (CSO) released on Tuesday and whose authenticity many have subsequently questioned. Whether the CSO has been completely honest in gathering and extrapolating data is for the experts to decipher—Opposition parties like the Congress have already begun doubting the veracity of what CSO has laid on the table. But one point cannot be ignored—does the CSO use correct methodology to reflect actual ground realities of India’s economy or is the complete exclusion of our thriving informal economy in data projection the real culprit?

Two caveats: First, the numbers released on Tuesday are advance estimates and therefore an updated version will come in later where corrections will most likely be incorporated. Besides, some growth numbers for previous quarters have been revised downwards and this makes the data for Q3FY17 look rosy in comparison. Second, former Chief Statistician Pronob Sen and some other economists have pointed out that CSO doesn’t cook the numbers. Sen told The Indian Express, “The CSO has made no mistake. Its estimate is based on specific assumptions and it is not allowed to fiddle with these assumptions. For any change in methodology, it has to approach the Advisory Committee on National Accounts.”

Also read: Questioning CSO data is jumping the gun, say experts, wait for revision

Here’s what the CSO data showed: GDP growth at 7% in the December quarter versus 7.4% in the September quarter and 6.9% in the December quarter of the previous fiscal year. Growth in private final consumption accelerated to 10.1% in Q3FY17 versus 5.1% in Q2FY17; growth in manufacturing accelerated to 8.3% in the December quarter against 6.9% in the September quarter of FY17. If demonetisation severely impacted economic activity in India—a widely held perception based on anecdotal evidence—how could these numbers be correct?

But the CSO has been a butt of jokes since Tuesday for something it cannot control—its faulty methodology. Its data collection seems to ignore a very significant portion of India’s economy: the informal sector. According to the brokerage Ambit, the informal sector accounts for over 40% of India’s GDP and provides employment to over 75% of India’s labour force. In absolute terms this means that the informal economy generates GDP worth $907 billion and provides employment to 360 million of India’s total labour force of 480 million people.

“The quarterly estimates published by the CSO by definition are a result of an extrapolation exercise based on partial data… the numbers estimate growth in the informal economy using formal economy-related data,” Ambit had said in a note to clients earlier. It had further noted that the main source of CSO data for the informal sector is the NSSO, which publishes with a lag and captures data with a 2-5 year frequency!

Put simply, this means CSO methodology would anyway have shown the results it has indeed shown since it is not tracking the informal sector directly and using relatively old data. One wonders at the economists for then being surprised at the data – it should have been obvious that the pain of demonetisation, which was largely felt in the informal sector, would not get captured in its entirety by the government’s own statistical office.

Neelkanth Mishra, India equity strategist, Credit Suisse told the Indian Express in the same piece that “Almost 45 per cent of the GDP is informal. The CSO uses different proxies to estimate GDP. For instance, sales tax collections is taken as a proxy for the trade sector. Here, if states post robust sales tax growth, the trade sector growth will reflect it. The CSO doesn’t get influenced by anyone. Yes, we should discuss how quarterly GDP data can be arrived at to make it more useful.”

The question which the economists now need to ponder over is whether the formal sector wasn’t majorly impacted by demonetisation and if this is the case, why did the large companies escape India’s biggest economic disrupter since Independence?

According to Ambit’s note tracking 17 “high frequency” sectors and how they were impacted through demonetisation, 10 of these sectors showed negative growth in the December quarter versus the September quarter. The biggest drop was seen in passenger vehicle sales (29.6%) followed by two wheeler sales (18.7%). Non-oil bank credit fell 6% while retail credit was down 4.5%. Domestic tractor sales fell 7% while cement production was lower by 3%

Soumya Kanti Ghosh, the Chief Economist at the State Bank of India explained how the formal economy continued its growth despite demonetisation. SBI considered the latest quarterly results of listed entities with more than Rs 100 crore turnover; out of 946 listed entities about 720 entities were studied. Ghosh found these 720 entities had average cash sales (assuming 2% of net sales) of Rs 24.40 crore per entity, an increase from Rs 22.98 crore in Q2 FY17 per entity for 731 entities.

Also read: ‘Too early to celebrate’ India’s GDP beat: Former FM Chidambaram

Radhika Rao, an economist at Singapore’s DBS Bank, told CNBC sub-trends suggested the formal sector might have actually benefited from the banknote ban, with more transactions taking place through electronic means.

BJP MP Subramanian Swamy told CNBC though that many of the calculations for the informal sector were based on “guesswork,” “benchmarks” and “ratios” as opposed to raw data. “Therefore, I won’t place too much emphasis on it. The real issues are the slowdown in small-and-medium industries because of the cash crunch,” Swamy said.

The bottomline is, in the absence of data capturing of the small and medium enterprises and the huge parallel economy which thrives in India, CSO’s quarterly exercise lacks meaning. And the data it puts out needs to be checked and cross checked before being accepted. No Prime Minister, this is not a case of Harvard versus hard work, it is more a case of closing one’s eyes to reality. Unless the informal sector gets its fair share in official data capturing, discrepancies will remain.[/vc_column_text][/vc_column][/vc_row]

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Union Budget 2026 highlights: Nirmala Sitharaman Raises Capex to Rs 12.2 Lakh Cr, West Bengal Gets Major Allocation

Finance Minister Nirmala Sitharaman is presenting the Union Budget 2026 in Parliament today. Follow this space for live updates, key announcements, and policy insights.

Published

5 days ago

on

February 1, 2026

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Finance Minister Nirmala Sitharaman arrives to present Union Budget 2026

Finance Minister Nirmala Sitharaman will shortly present the Union Budget 2026 in the Lok Sabha, marking her ninth consecutive Budget. The annual financial statement is expected to outline the government’s policy priorities, reform agenda and spending plans for the coming year. Stay tuned for live updates, key announcements and immediate reactions as the Budget speech unfolds.

Finance Minister Nirmala Sitharaman tabled her ninth Union Budget today, beginning her speech at 11 am.

Nirmala Sitharaman is set to present her ninth Union Budget today, with the finance minister scheduled to begin her speech at 11 am.

Budget 2026 live updates: Presenting the Union Budget for 2026–27, Finance Minister Nirmala Sitharaman said the occasion coincided with Magh Purnima and the birth anniversary of Guru Ravidas. She noted that over the past 12 years, India’s economic journey has been defined by stability, fiscal discipline, sustained growth and moderate inflation.

The budgeted fiscal deficit for fiscal 2026 is estimated at 4.4 per cent of gross domestic product (GDP)

Planned capital expenditure this fiscal year Rs 11.2 lakh crore

Rare earth corrdiors in Odisha and Kerala

Hi-tech tool rooms to be set up by PSUs

Construction equipment scheme to be launched

Container manufacturing scheme for Rs 10,000 crore over 5 years

Rs 10,000 crore SME Growth Fund

Semi-conductor mission to get Rs 40,000 crore

Rs 12.2 lakh crores for infrastructure development

Dedicated RITES to repurpose land of Central PSUs

20 new waterways over next 5 years to be connected

7 high-speed corridors on rail

High-level committee on banking for next phase of Viksit Bharat

Capital expenditure hike of to ₹12.2 lakh crore in Budget 2026, with West Bengal receiving a significant share of allocations.

Mahatma Gandhi Gram Swaraj Initiative aimed at boosting the khadi, handloom, and handicrafts sectors.

High-speed rail corridors: Mumbai-Pune, Pune-Bengaluru, Hyderabad-Bengaluru, Chennai-Bengaluru, Delhi-Varanasi, Varanasi-Siliguri, Pune-Hyderabad

Five university campuses to be established near industrial corridors

Lakpati Didi program expanded in Budget 2026 to reach more beneficiaries across India.

Fiscal deficit for FY26 revised to 4.4%; Budget Estimate for FY27 set at 4.3%.

TCS on overseas tour packages cut to 2% to ease travel costs

Tax holiday to foreign companies that provide cloud services by setting up data centres in India till 2047

17 cancer drugs exempted from import duties

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Union budget 2026 to be presented on Sunday with special trading session

The Union Budget 2026 will be presented on a Sunday for the first time in over two decades, with NSE and BSE announcing special trading sessions for the day.

Published

6 days ago

on

January 31, 2026

By

Nirmala Sitharaman

For the first time in more than two decades, the Union Budget will be presented on a Sunday. Finance Minister Nirmala Sitharaman is scheduled to table the Union Budget for 2026 in the Lok Sabha on February 1 at 11 am, even as the day is usually observed as a holiday for government offices and financial markets.

February 1 falls on a Sunday this year, raising questions about market operations and investor response. To ensure uninterrupted trading and immediate market reaction to budget announcements, stock exchanges have announced special arrangements for the day.

Markets to remain open on budget day

Both the National Stock Exchange and the Bombay Stock Exchange have confirmed that markets will remain open on February 1. The NSE has announced a special trading session, with the pre-open market scheduled from 9 am to 9:08 am, followed by normal trading hours from 9:15 am to 3:30 pm.

The BSE has also declared the day a special trading day, with regular market hours applicable. Trading is expected to continue across equity, derivatives, and futures and options segments.

What the Sunday budget means for investors

A weekend budget presentation is seen as offering certain advantages for market participants. With trading active on the same day, investors will be able to respond to policy announcements immediately rather than waiting for the next working day.

The Sunday timing also gives investors, analysts, and financial institutions additional time to go through detailed proposals, including tax changes, fiscal deficit targets, and sector-wise allocations. The extended window for analysis may help reduce sharp, headline-driven reactions and encourage more informed decision-making.

With fewer competing developments on a non-working day, budget announcements are also expected to receive more focused attention from markets and stakeholders.

Parliamentary schedule and key milestones

The Economic Survey is expected to be tabled on January 29, ahead of the budget presentation. The Budget Session of Parliament began on January 28 with the President’s address to a joint sitting of the Lok Sabha and Rajya Sabha.

The upcoming budget will mark Nirmala Sitharaman’s ninth consecutive Union Budget. It will also be India’s 80th budget since Independence. Since 2017, Union Budgets have been presented at 11 am on February 1, following a timing change introduced during the tenure of former finance minister Arun Jaitley.

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Modi says right time to invest in Indian shipping sector; meets global CEOs

Published

3 months ago

on

October 29, 2025

By

PM Narendra Modi

Prime Minister Narendra Modi on Wednesday exhorted global investors to take bets on the Indian shipping sector, pointing out that this is the “right time” for such a move.

The Prime Minister also met a select chief executives of global majors, including DP World and APM, at a specially convened meeting on the sidelines of the India Maritime Week 2025 held here.

“For all of you hailing from different countries, this is the right time to work in the Indian shipping sector and also expand (your presence),” Modi said during a public address before the closed-door meeting with CEOs.

Modi listed several targets being chased by India in the maritime sector over the next few years, and underlined the importance of the global community in the same.

“You all are an important partner who will help us achieve all our aims. We welcome your ideas, innovations and investments,” Modi said.

He said that India allows 100 per cent foreign direct investment in the shipping and ports sector, and also provides incentives under the “Make In India, and Make For The World” vision.

Addressing an audience, including leaders of various companies, the Prime Minister affirmed India’s commitment to strengthening the supply chain resilience at a global level.

He also said that India is engaged in creating world-class mega ports, and cited the work undertaken on the Vadhavan Port to the north of the financial capital, which entered the top-10 firms in the world on the first day.

The government is also looking to grow the capacity at 12 major ports by four times and increase India’s share in containerised cargo at the global level.

Later, Modi held a meeting with top CEOs of shipping sector companies from across the world.

As per people in the know, he met AP Moller-Maersk Chairman Robert Maersk Uggla, DP World Group Chairman Sultan Ahmed bin Sulayem, Mediterranean Shipping Company Chief Executive Soren Toft, Adani Ports and SEZ Managing Director Karan Adani and French company CMA-CGM’s Senior Vice President Ludovic Renou.

The participation from over 85 countries in the IMW sends a strong message, Modi said, noting the presence of CEOs of major shipping giants, startups, policymakers, and innovators at the event.

The Prime Minister also thanked Port of Singapore (PSA) for the nearly Rs 8,000 crore investment in the Jawaharlal Nehru Port Authority’s fourth terminal, pointing out that this is also the largest FDI in the port sector in India.

Modi said more than 150 new initiatives have been launched under the ‘Maritime India Vision’, resulting in nearly doubling the capacity of major ports, a substantial reduction in turnaround time, and a new momentum in cruise tourism.

—PTI

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