India's informal sector is being tracked better than ever before

Arguments of GDP over- or under-estimation fall flat in the face of statistical progress made to measure this sector closely

- T.C.A. ANANT

Recently, Indian GDP measurement came under considerable discussion in the media on account of an observation emanating from the Niti Aayog based on a projection made by the World Bank—that India has become the world's fourth largest economy. As part of this discussion, some commentators speculated that Indian GDP is underestimated because "a very significant informal sector is not measured in the GDP." This allegation can be fairly easily dismissed.

The 'informal sector' is a term that is loosely used by many economists. There are two different conceptual approaches to defining this term. First, by the International Labour Organization, which tends to focus on 'informal employment,' primarily referring to work that happens without written contracts, job security and often on daily wages. Second, by the UN's System of National Accounts (SNA), which refers to value added within the household sector, covering those establishments that do not maintain regular books of accounts. Since 2011-12, the Indian System of National Accounts has used this globally accepted definition to measure the informal economy. If we look at the recent National Account Statistics 2025 released by the ministry of statistics and programme implementation, in chapter 7 we will find various aggregates pertaining to the household sector of the economy. This alone is enough to indicate that the informal economy is included in India's GDP measurement.