State of India’s unorganized (unincorporated) Sector

The unincorporated sector, popularly referred to as the unorganized or informal sector, – comprising millions of small manufacturers, traders, and service providers – is indubitably the backbone of India’s economy. While informal in structure, it is deeply formal in impact: generating livelihoods, fostering entrepreneurship, and contributing significantly to the country’s GDP.

Recently, the National Statistics Office (NSO) has begun releasing quarterly data on this sector through QBUSE, marking a big step toward more frequent and reliable tracking.

The following is a summary of the data for the first two quarters of the year 2025. The data survey highlights that despite the challenges of formalization, productivity, and sustainability, the sector is expanding. Informal enterprises are growing with rising employment, steady digital adoption, and a strong rural push, and are continuing to be a silent driver of growth.

Key points

·         The unincorporated sector is now creating more than 13 crore jobs – a vital cushion in India’s labour market.

·         Rural rise signals that livelihood opportunities are expanding beyond agriculture.

·         The digitization push, though slow, is steady.

Scale and spread

Enterprises: The number of establishments rose to 7.94 crore in Apr–Jun 2025 from 7.34 crore units in FY24, a steady increase of ~8%.

Employment: The sector employment number crossed the 130 million mark, for the first time ever in 4QFY25. Though the number may have slightly decreased to 129 million in 1QFY26, it is much stronger than the previous annual estimate of just above 120 million.

Who runs these enterprises?

Ownership structure: Nearly 95% of informal enterprises are proprietary or partnership firms.

Market-oriented: Almost 99.5% of informal enterprises operate as market establishments, selling goods or services at economic prices.

Employment generation

These enterprises are becoming an important source of generating employment for other workers. In 1QFY26, 13% of these enterprises employed hired workers.

·         Working owners account for 58–60% of total workforce employed in the informal sector, while hired workers made 24% in Q1FY26.

·         Unpaid family members and others constituted 5% of the workforce in the informal sector.

·         Female participation in the informal sector is growing rapidly. Women not contribute over 28% of the total workforce in this sector.

Sectoral Trends – manufacturing, trade, services

Other Services led the way, contributing the largest share of both enterprises and workers, followed by Trade and then Manufacturing.

·         Trade units had the highest share of hired-worker establishments.

·         Proprietorships dominate across all three categories, though services show slightly more diversity.

·         Workforce composition shows services as the most employment-intensive, with both hired and owner-driven activity rising in this sector.

Digitization and formalization

Registrations: About 35–36% of the informal enterprises are now registered under some authority.

Internet use: Rising steadily, with 36% of informal units using online methods in 1QFY26. This reflects gradual digital adoption even in the informal economy.

Rural vs Urban picture

Rural establishments rose to 4.28 crore in 1QFY26 (appx 54% of the total), highlighting material rise in non-agriculture activities in rural areas. Accordingly, the rural workforce in the informal sector also increased to 6.25 crore, reinforcing the growing role of unincorporated enterprises outside cities.