India is formalising, gradually...

Informal businesses dominate the business landscape in India. As of 2015-16, the latest year for which data is available, India had 60 million informal enterprises. And this excludes Agriculture and Construction sectors. These two sectors would easily have several million more enterprises operating. In contrast, India had just 1.1 million formal businesses (companies + LLPs active as of March-2016) across all sectors.

But at the margin, the landscape is changing. The number of formal firms is growing rapidly. In the last 5 years, the number of new formal enterprises being set up has almost doubled – from 106,000 in 2015-16 to 198,000 in 2020-21. Worth noting is that the number of new formal firms grew almost 10% YoY in 2020-21 despite the pandemic.

Another interesting thing to note is that the growth in new formal firms is being driven largely by the less industrialised states. The existing business hubs – Maharashtra, Delhi, Tamil Nadu, Karnataka have seen slower growth relative to states like Assam, Chhattisgarh, Madhya Pradesh, or Bihar. Gujarat is a key exception where despite it being highly industrialised, it has seen higher than average growth in new formal businesses.