Ninety-nine percent of the businesses are in the unorganised sector and reports suggest that they are declining. The official GDP for Q1 of the current financial year 2022-23 was 3.3% above its pre-pandemic level. https://thewire.in/economy/indias-unorganised-sector-is-being-engulfed-further-marginalised
The government has been pushing for digitisation and formalisation of the economy on the plea that this will curb tax evasion and as more taxes are collected, better services can be provided to the marginalised. But the unorganised sector cannot cope with these changes which increase their costs, compared to the organised sector which is already largely digitised and formalised. No wonder, demand has been shifting from the unorganised and small units to the larger ones, spurring their rapid growth. This is also true of those units that are suppliers to the larger ones.
The GST was designed to formalise the economy. But that does not mean the promotion of the small and unorganised sector; instead, it has led to their displacement by the organised sector. The market of the former is being captured by the latter. This is the colonisation of the unorganised sector by the organised sector.
The GST, digitisation and formalisation are setting the rules of the gains in favour of the organised sector at the expense of the unorganised sector. As the production of the latter declines, the produce of the organised sector finds new markets for its expansion. The growth of the organised sector in a stagnant economy points to that.
by Arun Kumar
18/11/2022