India’s informal sector suffered sharpest contraction in Q1 FY27 | Economy & Policy News

India’s unincorporated non-farm sector shrank in the first quarter of financial year 2026-27 (Q1FY27), with enterprise base as well as workforce contracting sequentially by 5.4 per cent and 9.7 per cent, respectively, even as the prints stayed above year-ago levels, according to the latest Quarterly Bulletin of Unincorporated Sector Enterprises released by the National Statistics Office (NSO) on Friday.

This is the sharpest quarter-on-quarter (Q-o-Q) contraction seen on both employment and establishment counts at the all-India level since the NSO started releasing quarterly unincorporated enterprise data in January-March 2025. The Q1FY27 prints are also in sharp contrast to the double-digit Q-o-Q expansion seen in Q4FY26, when establishments had grown by 16.5 per cent and the workforce by 23.6 per cent.

The sector had an estimated 86.7 million establishments in Q1FY27, up 9.20 per cent from 79.4 million a year earlier. Employment rose to 137 million workers, a 6.55 per cent growth year-on-year (Y-o-Y).

The contraction was overwhelmingly dominated by rural India. Between Q4FY26 and Q1FY27, rural establishments fell almost 10 per cent and the rural workforce dropped 13.4 per cent. Urban areas held far steadier: urban establishment base was essentially flat and urban employment slipped a comparatively modest 6.3 per cent.

By activity, manufacturing establishments fell 8.6 per cent Q-o-Q, while their workforce declined 12.1 per cent. Trade saw a sharper decline, with establishments falling by 11.2 per cent and workers by 12 per cent. “Other Services” was the only segment to see its establishment count remain broadly stable, rising 0.4 per cent, though its workforce fell 6.7 per cent.

The composition of employment, meanwhile, continued to tilt towards self-employment. Working owners rose to 62.4 per cent of all workers in Q1FY27, up from 60.2 per cent a year earlier, while hired workers slipped to 22.8 per cent from 24.4 per cent.

The same shift is visible sequentially as well. Between Q4FY26 and Q1FY27, the working-owner share climbed 1.4 percentage points, while the hired-worker share fell a sharper 2 percentage points.

Further, digitalisation continued to deepen during the quarter. About 82.2 per cent of establishments reported using the internet, compared to 80.9 per cent in the previous quarter.

On the other hand, there was a marginal fall in establishments using online financial services, including Unified Payments Interface (UPI), from 80.6 per cent to 79.9 per cent. Additionally, female workers accounted for 30.56 per cent of total employment in Q1FY27, compared to approximately 29 per cent in Q4FY26.