India’s Informal Sector Shows Resilience with 9% Growth in Q1

NEW DELHI – Despite a challenging global economic climate, India’s informal sector—the massive, non-agricultural backbone of the national economy—has demonstrated robust growth in the first quarter of the current financial year. According to the latest official data, the number of establishments within this sector surged by 9% year-on-year, climbing from 8 crore to 8.7 crore.

This expansion has provided a significant boost to the labor market, with total employment in the sector rising by 7% to 13.7 crore during the April-June period. Notably, the data underscores a strengthening role for women in the workforce, who now account for nearly one-third of the sector’s total employees.

Urban Areas Lead the Charge

The report highlights a distinct divide between urban and rural performance, with urban areas serving as the primary engine for this growth. Urban establishments witnessed a 15% jump, reaching 4.2 crore, while urban employment figures rose by 12% to 7.4 crore.

Across various industries, the "other services" sector emerged as the top performer, recording a substantial 21% increase in both the number of establishments and total workforce. This surge suggests a shifting landscape where service-oriented small businesses are increasingly driving economic activity.

Navigating Economic Headwinds

This growth arrives against a backdrop of inflationary pressure. Small businesses in the informal sector have faced mounting challenges from the rising costs of fuel and essential food commodities, exacerbated by the ongoing geopolitical instability in West Asia. These overhead costs pose a persistent risk to the sustainability of small-scale, self-employed enterprises.

Trends in Digital Adoption

A critical observation in the National Statistical Office (NSO) bulletin is the accelerating trend of digitization among these unincorporated entities. Even among small enterprises—which are not registered under the Companies Act—there is an increasing reliance on internet technology to manage operations and reach customers.

Contextualizing the Data

While the year-on-year growth signals long-term vitality, the report notes a sequential decline when compared to the January–March quarter of the 2025–26 fiscal year. During that prior period, the unincorporated sector boasted 9.2 crore establishments and 15.1 crore workers.

The NSO survey continues to serve as a vital pulse check on these micro-enterprises, which remain the primary source of livelihood for millions of Indians who operate outside the formal corporate framework. As these entities increasingly adopt digital tools, analysts remain optimistic that the sector can continue to adapt despite the inflationary pressures currently impacting the broader economy.