Is GDP growth overstated because informal sector is under-measured?

Sunrise Classes
Sep 12
1 min read

Is GDP growth overstated because informal sector is under-measured?

Background:

Informal sector = ~80% of employment in India.
After 2011–12, estimation shifted to “blow-up” methods using corporate proxies, reducing reliance on direct informal surveys.
Critics say this underestimates shocks (like demonetisation or COVID) on informal economy.

Balanced Answer: Yes, informal sector is less visible in GDP. Post-2011–12 methods rely heavily on formal sector benchmarks, so downturns in informal work (e.g., small traders, daily wagers) may not be fully captured. But GDP still uses sample surveys like NSSO’s unorganized sector to adjust.

Cross-Question: 👉 If informal sector is so large, does that mean our GDP is unreliable?

GDP is reliable at aggregate level but incomplete. That’s why other surveys (PLFS, NSS consumption, MSME reports) are needed to cross-check informal trends.