The survey, which will now be conducted every year, has had previous versions which were conducted every five years with the last five-yearly round dating to July 2015 and June 2016. This was just before demonetisation was announced.

How have things changed between 2015-16 and 2022-23?

Numbers speak for themselves. sBy 2022-23 these numbers had changed to ₹15.4 lakh crore for nominal GVA and 109.6 million workers. In terms of share in overall GVA excluding agriculture and construction, the share of informal sector enterprises has gone down from 12% to 8.2% between 2015-16 and 2022-23.

While there are no clear-cut estimates for the sector-wise break-up of the workforce for 2015-16 because the last Employment Unemployment Survey was done in 2011-12 and the Periodic Labour Force Surveys (PLFS) only started in 2017-18, the decline in the informal sector’s share in overall non-farm non-construction employment is not likely to be very large as well. It is expected to be in the ballpark of about 20%. When read with the 45% employment and 18% income share of agriculture in the overall GVA, these numbers show that around two-thirds of workers account for just about one-fourth of India’s GVA. This means that the Indian economy still has a systemic employment-income asymmetry problem.

What does this mean for India’s economic trajectory going forward?

The most important takeaway is that a very large majority of Indian workers are engaged in work which produces very little income. This is the biggest constraint on India’s overall income growth.

How can this imbalance be corrected? It is important to realise how this will not correct itself. Following policies which seek formalisation in the sense of forcing firms to leave a financial trail (such as GST or nudging cashless transactions) is not going to work. The experience of the last eight years is instructive on that count.

It is equally important to realise that arguing for more welfare handouts from governments without changing the overall economic framework is also not going to help matters. This does very little in terms of providing the right incentives to reorganise production on more efficient and high-value lines.

Between these two approaches lies the entire political economy framework of the last two terms of the Narendra Modi government and 10 years of its predecessor, the Congress-led United Progressive Alliance (UPA) government.

So how does one solve this problem? It would be plain hubris if anyone even claimed to have an answer to this question. The size of India’s economy and its population – the former is at the cusp of becoming the third largest in the world the latter is the largest in the world – and its unique historical trajectory means that there are no comparable case studies in capitalism’s history to draw the right lessons.

It is important to dwell a bit on the importance of India’s economic trajectory in complicating its structural transformation problem. Because India did very little to break the inequality in its agricultural land ownership post-independence, agricultural growth and therefore rural incomes lost a big opportunity to make initial gains. While the introduction of modern inputs and government subsidies in both production and distribution helped us attain basic food self-sufficiency, most people who were looking for anything more than two square meals a day had no other option but to migrate to cities.

Those with better socio-economic endowments who had access to quality higher education managed to locate themselves in high-paying government and private sector jobs. The resource-poor have increasingly populated the ranks of the informal sector workforce or joined work on construction sites.

That India never prohibited or restricted rural-urban migration and the interplay of democracy and demand for cheap labour in cities has allowed the creation of enclaves of the poor in cities has been critical to this migration and growth in the size of the informal sector. Any attempt to stall or reverse this process on a large scale is bound to lead to a major precipitation in the realm of politics. While there are other examples in the Global South of such economic transformation paths, none of them would even come close to India in terms of scale.

How does one even begin to think about solving this problem from a policy perspective?

There are no easy answers here. Unlike in the case of farming, the evidence of petty manufacturing and services being less efficient and low-income generating is more unambiguous. This means that any government support to preserve these so-called enterprises (most of them employ 2-3 workers) in their current form will be counter-productive.

Is there a way in which at least some of the informal sector manufacturing can be reorganised and perhaps centralised under a cooperative or subsidised model? Can we think of making a large factory of, say, low-priced consumption goods which people working in informal sector enterprises make in any case? Is it possible to aid such a process by analysing unit-level data from such surveys to gather information on potential consolidation and then encouraging players to take up such a task? This would basically entail launching a PLI-like scheme with smaller and many more players.

How about merging informal sector trade enterprises, most of which are likely to be mom-and-pop stores, to form a giant cooperative operation which competes with big business-owned trade companies? This will require not just capital infusion and management but also hurting the interests of big capital.

None of these policies can claim to have guarantee of success. But at some point, India’s economic policy establishment, both at the level of centre and states, will have to realise that we cannot keep playing our economic game by kicking the can of demographic reckoning down the road.

In the worst-case scenario, this will mean getting stuck at a lower middle-income per capita level with a very large population past the working age and without any significant savings or social security. Solving this problem in time requires engaging with the challenges and possible but not the only solution discussed above. This also means moving beyond the narrative of formalisation and welfare binaries. In realpolitik terms, it means moving beyond the election cycle in terms of both votes and political funding.

Roshan Kishore, HT's Data and Political Economy Editor, writes a weekly column on the state of the country's economy and its political fall out, and vice-versa.