Small is not necessarily beautiful

Continuing from yesterday…(see here)

The recently released report of Annual Survey of Unincorporated Small Enterprises (ASUSE 2025) is a detailed report on the current state of the unorganized sector in the country. The headline numbers — 7.92 crore enterprises, 12.81 crore workers, Rs. 19.93 lakh crore in GVA, 11% GVA growth — make an attractive story of expansion and progress.

That story is not false. But it is incomplete. The data, read carefully and with some elementary arithmetic, reveals a picture that the official narrative tends to gloss over: this is a sector where the majority of participants earn incomes that would be considered inadequate by almost any standard, where women's participation often reflects compulsion rather than empowerment, where capital is thin and productivity is low, and where digitization and formalization are advancing from a very modest base. The ASUSE numbers deserve to be read not just with appreciation — but with questions.

 The income problem: Rs. 9,700/month for a self-employed worker

The single most important number in the ASUSE 2025 report is the one that receives the least attention: GVA per worker for Own Account Establishments (OAEs) — the 6.86 crore single-person or family-run units that constitute 87% of all unincorporated establishments. This figure stands at Rs. 1,16,583 per year — or approximately Rs. 9,715 per month.

GVA, it must be remembered, is not take-home income. It is gross value added — output minus intermediate inputs — and it must still cover the owner's own labour, any unpaid family labour, depreciation on assets, and loan repayments before anything resembling a profit or wage reaches the household. The actual monthly income of the typical OAE operator is likely considerably lower than Rs. 9,715. A conservative estimate, after accounting for these deductions, might put it somewhere between Rs. 7,000 and Rs. 10,000 per month.

Compare this to India's per capita net national income for 2024-25: approximately Rs. 1,84,000 per year, or Rs. 15,333 per month. The OAE worker in the unincorporated sector earns, in GVA terms, roughly 60% of the national per capita average — and in take-home terms, possibly 40-50%. This is not prosperity. This is subsistence.

The arithmetic becomes starker at the household level. India's average household size is approximately 4 persons. If an OAE's GVA of Rs. 9,715 per month is the household's primary income — which it frequently is in rural areas — the implied per capita income for that household is around Rs. 2,400 per month, or roughly Rs. 28,800 per year. That is well below the national average, and disturbingly close to poverty-line territory in many state definitions. We are talking about a large fraction of the 6.86 crore OAEs — likely representing over 50 crore people in associated households — living at or near this level.

Even if one takes the aggregate GVA per worker figure of Rs. 1,56,539 per year (Rs. 13,045 per month) — which blends in the more productive Hired Worker Establishments — the picture is not reassuring. This overall figure is still below the national per capita income, and GVA is still not the same as household income.

The ASUSE report duly presents these numbers. It does not dwell on what they imply.

A productivity crisis hidden in plain sight

OAE GVA per establishment — a proxy for establishment-level productivity — is Rs. 1,40,005 per year, or roughly Rs. 11,667 per month. That is the gross value added of an entire enterprise — typically run by an owner who works full time, often with unpaid family assistance.

For context, a single semi-skilled factory worker in the organized sector typically earns more than this in wages alone — before the employer counts any value added the worker contributes to output.

HWEs, by contrast, generate Rs. 10,00,868 GVA per establishment — seven times more than an OAE. The gap tells the story of what scale, hired labour, fixed capital, and formalization can do. But the sector is 87% OAEs. The productivity uplift available at the HWE level remains out of reach for the overwhelming majority.

What traps OAEs at this level? The data offers some clues:

·         Thin capital base: Fixed assets owned per OAE establishment average only Rs. 2,18,431; and a large part of this is likely to be basic tools, a push-cart, a sewing machine, or a modest stock of goods. There is little capital to leverage productivity improvements.

·         Minimal credit access: Outstanding loan per OAE establishment is a negligible Rs. 19,520 — barely enough to cover a month's working capital. Even this small figure is likely inflated by a minority of better-capitalized OAEs. For most, formal or semi-formal credit is not a material resource.

·         Low digitalization among OAEs: Only 34.2% of OAEs use internet for entrepreneurial purposes — versus 72.7% of HWEs. The gap in digital adoption tracks closely with the gap in productivity.

·         Structural isolation: Many OAEs operate within household premises (42% do), are unregistered (about 63% of manufacturing OAEs), and maintain no formal accounts. They are, by design, outside the institutional systems that could help them grow.

The ASUSE 2025 report records 2.85% growth in GVA per establishment and 4.5% growth in GVA per worker, materially lagging the overall GVA growth for the country. At current inflation, this represents roughly zero real productivity gain. The sector is expanding in headcount and in nominal terms. It is not becoming more productive per person.

Female participation: empowerment or compulsion?

The ASUSE 2025 data on women is presented as good news. And in some respects, it is: 27% of proprietors are female, women comprise 29% of the workforce, and female-led HWEs tend to hire other women. These are meaningful facts.

But the headline that demands scrutiny is this: in the manufacturing sector, more than 60% of proprietary OAEs are female-headed.

Manufacturing OAEs, as established above, generate the lowest GVA among all establishment types and categories. They are home-based, capital-light, and almost entirely informal. The top employment categories within manufacturing — wearing apparel, tobacco products, and textiles — are precisely the activities that women in low-income households have historically been pushed into: piece-rate work, home-based stitching, bidi rolling, and handicraft production. These are not typically chosen as entrepreneurial ventures. They are survival strategies.

The data lends itself to a hypothesis that should be tested but cannot be resolved from the ASUSE data alone: a significant share of female OAE proprietorship may reflect economic compulsion — a second household income to supplement an inadequate primary income — rather than entrepreneurial aspiration. This is not a criticism of the women involved. It is a criticism of the conditions that drive the outcome.

The ASUSE survey does not collect data on the occupation or income of the spouse or other household members. This is a significant gap. If such data were available, it would be possible to test whether female OAE participation is correlated with male household member unemployment, low agricultural income, or casual daily-wage work. That correlation — which most fieldworkers would expect to be strong — would fundamentally reframe what the headline female participation numbers mean.

The finding that 72% of female-led HWEs employ at least one other female hired worker is more genuinely positive — HWEs represent greater scale, deliberate employment, and somewhat higher productivity. But female-led HWEs are a small fraction of the total. The dominant story is OAEs.

An additional concern: female workers in this sector are concentrated in precisely the activities with the lowest pay. Wearing apparel manufacturing (48.4% of manufacturing female workers), retail trade (95% of trade female workers), and personal services — these are not high-paying segments. The feminization of the sector, at the OAE level, is occurring disproportionately in its least remunerative corners.

Formalization: progress too slow to matter

The ASUSE 2025 report notes that 37.5% of establishments are now registered under some act or authority, up marginally from 37.2% in the previous survey. Internet use has risen sharply, from 27% to 39%. Bank accounts are held by 82.5% of establishments. These are presented as signs of growing formalization and digitization.

Let us consider what 37.5% registration actually means. More than 62% of unincorporated establishments — over 4.9 crore enterprises — remain entirely outside any regulatory framework. In manufacturing, the registration rate is only 16.4%, meaning more than 5 out of every 6 manufacturing units operate with no formal recognition whatsoever. This matters not just for tax compliance, but because unregistered establishments have no legal standing to enforce contracts, access formal credit, or participate in government procurement.

The 0.3 percentage point increase in registration between surveys — covering roughly a year — implies that at the current pace, it will take many decades to bring the sector into even a minimal formality. The Udyam registration scheme and similar initiatives have made it easier to register. But ease of registration has not translated into a meaningful acceleration in the rate of formalization.

The internet numbers are more genuinely encouraging — a 12% jump in one year is substantial. But a closer look is warranted. 'Use of internet for entrepreneurial purposes' in a largely cash-based, low-margin sector may often mean a basic WhatsApp group for customer communication or using a UPI QR code — both genuinely useful, but a far cry from e-commerce integration, digital bookkeeping, or participation in online marketplaces. The survey does not break down what internet use comprises.

Geographical concentration: The same states, the same story

Uttar Pradesh, West Bengal, and Maharashtra together account for 35% of all unincorporated establishments and about 35% of the sector's employment. These same three states have topped the distribution in every ASUSE. What is missing from the data is any serious analysis of whether the unincorporated sector in these states is a springboard to something better, or a holding pattern for labour that cannot find formal employment.

Uttar Pradesh has the most establishments and the most workers — but Delhi, Haryana, and Tamil Nadu have the highest GVA per establishment and per worker. This divergence between labour concentration and productivity concentration is a structural problem. The states with the most informal workers are not the most productive states; they are states where the formal economy has not generated enough employment to absorb the workforce.

In that sense, the unincorporated sector's size is not merely a reflection of entrepreneurial energy. It is also a measure of formal economy failure. The sector expands, in part, because there is nowhere else for labour to go.

Moreover, if we juxtapose the problem of unauthorized construction by small households and shopkeepers and commercial activities run from residential premises with this survey outcome, the drive to demolish such houses/shops by UP State and other governments might seem extremely unjust.

The data we do not have

ASUSE 2025, to its credit, is a serious survey. But several gaps in what it measures limit its analytical value for policymaking:

No household income linkage: The survey does not connect enterprise income to household income. It is therefore impossible to assess the actual living standard of an OAE proprietor's family, or to determine whether the enterprise is the primary or supplementary income source.

No longitudinal tracking: Enterprises are not tracked over time. We do not know what fraction of OAEs from the previous survey have closed, grown into HWEs, or migrated to the formal sector. The sector looks stable across surveys, but behind that stability may be enormous churn — a revolving door of enterprises entering and exiting subsistence.

No income distribution within categories: The GVA per worker figures are averages. The distribution within each category is likely highly skewed — a small number of more successful establishments pulling up the mean, with a large majority well below it. Medians would be far more informative than means.

No occupational history of proprietors: We do not know whether proprietors were previously employed in the formal sector (and lost that employment), were always self-employed, or are recent entrants to the labour market. This matters enormously for understanding what the sector represents.

No welfare outcome data: Dietary adequacy, housing conditions, access to healthcare, children's schooling — none of these are linked to enterprise data. A sector that employs 12.81 crore workers should be evaluated not just on GVA growth but on whether it is actually improving lives.

What does it all add up to?

The unincorporated sector is not a problem to be solved. It is a reality to be understood. For hundreds of millions of Indians, it is the only economy they have access to. The ASUSE data shows that this economy is growing — in number of enterprises, in employment, and in nominal GVA.

But growing from a very low base, at roughly the rate of nominal GDP, is not the same as transformation. The sector's productivity per worker — at Rs. 1,56,539 per year overall, and Rs. 1,16,583 for the dominant OAE segment — has not broken out of the low-income trap. The gains in GVA per worker, at 4.5% in nominal terms, are likely negative in real terms given inflation.

What India needs from this sector is not just more of the same — more OAEs at Rs. 9,700 a month — but pathways out: credit access that enables capitalisation, registration processes that are genuinely low-cost, skilling that is aligned with market demand, and a formal employment ecosystem large enough to absorb workers who want it. Without those, the unincorporated sector will continue to do what it has always done: absorb everyone the formal economy does not want, and pay them accordingly.

The 12.81 crore workers counted in ASUSE 2025, and the 50-odd crore people in their households, deserve a more honest accounting than the headline numbers provide. The data is there. The questions are obvious. The honest conversation is overdue.

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State of unorganized sector in India