India is plotting a game-changer for RBI, banks, corporates, investors

India currently lacks a frequent data gauge for the part of the economy that employs the most people. While the government regularly tracks inflation, industrial output, tax receipts and listed company results, there is no high-frequency measure showing how the informal sector is doing. That gap may narrow soon. According to ET, the Ministry of Statistics and Programme Implementation (MoSPI) is working on an index for unincorporated enterprises that will periodically capture the state of the informal economy. An official said the ministry plans to introduce this index for unincorporated sector enterprises, with a formal target of 2031 but an internal aim to roll it out earlier.

Though it sounds technical, this index could significantly influence monetary policy, GDP calculation, government programmes, corporate strategy and investment decisions by shining light on a segment that has long been under-measured. The informal sector employs around 80% of India’s workforce and contributes just under half of total output, yet remains poorly tracked.

The informal economy is much broader than the common image of roadside vendors or tiny family shops. MoSPI defines unincorporated enterprises as non-agricultural units not registered under the Companies Act. This covers kirana stores, local retailers, eateries, transporters, repair centres, small factories, salons, home-based ventures, traders, workshops and many other service providers. Many of these may be on GST or Udyam and follow local rules, but they are still treated as unincorporated because they are not companies.

The scale of this universe shows why it matters. MoSPI’s Annual Survey of Unincorporated Sector Enterprises (ASUSE) 2024-25 estimates that India had 79.2 million unincorporated establishments in 2025, up from 73.4 million in 2023-24. Jobs in these units rose from 120.6 million to 128.1 million over the same period. Newer quarterly data from MoSPI indicate that unregistered enterprises reached 91.7 million in the March quarter of FY26, employing 151.7 million people. No other segment matches this employment footprint.

India already publishes many high-frequency indicators: the Index of Industrial Production for factories, the Consumer Price Index for inflation, GST collections for formal activity, PMI surveys for early signals on manufacturing and services, and quarterly results for listed firms. But these largely reflect the organised economy. If millions of small retailers, transporters or workshops slow down, policymakers may not see it until annual surveys are released. In the meantime, they rely on indirect proxies to guess informal sector performance.

The new index is meant to plug this gap by providing a regular reading of activity in the country’s largest but least frequently measured business segment.

For inflation management, the index could sharpen diagnosis. Inflation stems from demand and supply, but it is often unclear whether high prices coexist with strong demand or with already weakening consumption. For instance, if food inflation stays high due to weak monsoons while the new index shows declining informal retail sales and small-scale manufacturing, it would signal soft demand despite elevated prices. In such a case, the Reserve Bank of India (RBI) might avoid aggressive rate hikes that could further depress already weak demand.

The reverse scenario also matters. If inflation rises alongside robust growth in unincorporated businesses, policymakers can infer that demand is strong and price pressures are spreading more broadly. The index would thus improve the interpretation of inflation, not just the headline numbers.

Monetary policy more broadly could be a major beneficiary. At present, the RBI leans on data such as industrial production, bank credit, GST inflows and corporate earnings to assess momentum. These can miss stress in smaller firms. Large listed companies may still post solid profits thanks to strong balance sheets and pricing power, even as local retailers, transporters or small manufacturers see orders fall. Without direct informal sector data, the RBI risks misjudging the true strength of the economy.

A high-frequency informal sector index would narrow this blind spot. If it shows widespread weakness among small businesses, the RBI could tilt towards lower rates or a more supportive stance. If, despite higher borrowing costs, informal enterprises are expanding strongly, policymakers would know that underlying momentum remains firm.

On employment, the index could act as an early warning system. Job losses in India typically start with smaller units, not large corporates. A small workshop under pressure may first cut overtime, then freeze hiring, and eventually lay off workers. When thousands of such decisions occur across the country, household incomes are hit well before official labour data reflect the downturn. Since unincorporated enterprises employ over 150 million people by the latest quarterly estimates, regularly tracking their condition would give policymakers one of the earliest signals of labour market stress. Governments could then ramp up skilling, speed up infrastructure projects or strengthen employment support before unemployment spikes.

For GDP, the informal sector’s output is already included, but measurement is the challenge. In the absence of detailed high-frequency data, statisticians often use organised sector trends as stand-ins for informal activity. This assumption can be misleading. Formal manufacturing might grow on the back of strong exporters while thousands of micro units serving domestic markets struggle with weak demand. A dedicated index would reduce reliance on such extrapolations by providing direct evidence on unincorporated business performance, improving quarterly GDP estimates and boosting confidence in India’s national accounts among investors and global agencies.

Corporates too could use the index as a planning tool. Many industries depend heavily on households whose incomes come from the informal economy. For FMCG players like Hindustan Unilever, ITC, Dabur, Britannia and Godrej Consumer Products, healthier informal activity usually means higher spending on packaged food, personal care and home essentials.

Tractor makers such as Mahindra & Mahindra and Escorts Kubota closely watch rural income trends because tractor demand is tied to farm and non-farm rural earnings. Weakness in rural transport, trade or small manufacturing often hits tractor sales. Two-wheeler manufacturers like Hero MotoCorp and TVS Motor regularly highlight rural demand as a key driver, with small shopkeepers and self-employed workers forming a large base for entry-level bikes and scooters. Paint, cement and building material companies benefit when informal incomes support home building and renovation. Banks and NBFCs that lend to MSMEs would gain another tool to assess credit risk across sectors and geographies.

Currently, such companies rely on scattered signals like rural wage data, monsoon expectations, dealer feedback and management commentary. A national index of informal activity would offer a more consistent benchmark.

For government spending, better data can make support more targeted. Often, stimulus packages are broad-based because authorities lack timely insight into where stress is concentrated. If the index shows that transport operators are under strain due to fuel costs while local retail is stable, the government can focus credit or tax relief on transport rather than multiple sectors. Similarly, if persistent weakness is seen in textile clusters but engineering MSMEs are still growing, support can be channelled to textiles specifically, improving the efficiency of public spending and reducing leakages.

Tax forecasting could also improve. Even though much of the informal sector lies outside the corporate framework, it increasingly connects with the formal economy via GST, digital payments and supply chains. If the index points to sustained weakness among small retailers and manufacturers, the Finance Ministry can anticipate slower GST growth and adjust revenue expectations earlier. Stronger readings would hint at better consumption and healthier tax inflows, making budget management smoother.

Investors, both domestic and foreign, often struggle to judge whether growth is broad-based. Corporate earnings may rise while smaller firms suffer, or the opposite. A dedicated informal sector index would help them see whether expansion is concentrated in a few large players or spread across the wider economy. This would enhance macro forecasts, equity research and long-term allocation decisions. Rating agencies and multilateral bodies would also gain a clearer picture of domestic demand.

The new index is part of a wider revamp of India’s economic statistics by MoSPI. The ministry has replaced older unorganised enterprise surveys with ASUSE to get more frequent information on informal businesses and has started issuing quarterly bulletins on unincorporated enterprises instead of relying solely on annual data. It is increasingly using administrative sources like GST, Udyam registrations, EPFO payrolls and digital payments to strengthen official numbers. The government is also preparing to launch the Index of Service Production with FY25 as the base year, adding another key high-frequency indicator for an economy where services contribute more than half of gross value added.

The revised GDP series, which shifts the base year from 2011-12 to 2022-23, also changes how informal and unincorporated sectors are captured, replacing outdated proxies with detailed inputs from ASUSE and the Periodic Labour Force Surveys (PLFS). Together, these steps aim to cut dependence on indirect indicators and improve the timeliness and accuracy of economic measurement. An index for the informal economy would address one of the biggest remaining data gaps at the core of India’s growth story.