How does India’s GDP estimation methodology incorporate the informal sector?

Sunrise Classes
Sep 11
2 min read

Answer:

India’s economy is highly diversified, and nearly 85–90% of the workforce is employed in the informal sector. Capturing their contribution accurately is essential for realistic GDP measurement.

National Accounts System:GDP in India is estimated following the UN’s System of National Accounts (SNA 2008). For the informal sector, indirect methods are used because direct data is scarce.
Use of NSSO/NSO surveys:The NSSO’s unorganized enterprise surveys, Employment–Unemployment Surveys (now PLFS), and Consumer Expenditure Surveys are key inputs. These surveys give estimates of employment, consumption, and production patterns in the informal sector.
Blowing up benchmark estimates:Base year surveys (e.g., 2011–12) provide a benchmark for informal sector output. These benchmarks are blown up to later years using proxies like:
- Growth in IIP for small-scale industries.
- Agricultural output estimates.
- Trade indices and service tax/GST collections.
- Employment data (PLFS, EPFO, etc.).
Mixed Income of Self-Employed (MISE):Since most informal workers are self-employed, GDP includes mixed income—a hybrid of wages and profits—as a component.
Imputed values:Activities not fully monetized (domestic help, owner-occupied housing, small retail) are estimated through imputation methods.

Cross-question:

What are the challenges in measuring the contribution of gig economy workers?

Lack of proper classification: Gig workers (e.g., Uber drivers, Swiggy/Zomato delivery partners, freelancers) fall between formal and informal categories. They are often self-employed but dependent on digital platforms.
Absence of reliable data: Neither PLFS nor ASI fully captures them. Company-level data from startups is fragmented, not standardized, and often confidential.
Multiple job holding: A worker may drive for Uber in the morning, deliver food in the evening, and freelance online at night. Traditional surveys capture only principal or subsidiary status, leading to underestimation.
Earnings volatility: Income depends on algorithms, surge pricing, and demand fluctuations—making annualization difficult.
Policy gap: No social security or uniform definition → hard to include them in labour productivity and GDP measures.

👉 Hence, while India’s GDP does account for the informal sector broadly, the new-age gig economy remains under-represented, posing challenges for accurate measurement of national output.