“India’s nominal GDP has more than doubled over the last decade, the pandemic and other external shocks notwithstanding.” The skeptics would tear apart this statement by pointing at the misleading use of nominal figures and for ignoring the impact of inflation. To their dismay, India’s GDP expanded by over 80% in real terms as well. However, it is the skeptics and constant criticism that make India uniquely successful. Heterogeneity, democratic chaos, and a free exchange of ideas nudge the government in the right direction, often sooner than it would have naturally done so.
Data deficiency has often been pointed out as a significant bottleneck to policymaking in India. Given India’s large and diverse socioeconomic structure, a lacklustre data architecture can be a major impediment to effective impact assessment and research. Whether it is firms or households, balanced data facilitates judicious use of resources and optimal policy design. This has been duly recognised by the government, leading to substantial reform in the data collection, presentation, and organisational framework. Whether it is the quarterly labour market surveys or the aggregation of data on the MOSPI website, Indian economic data is now much more accessible.
Recently, the Government introduced a pilot study on the Annual Survey of Services Sector Enterprises (ASSSE) and the Forward-Looking Survey on Private Sector Capital Expenditure Investment Intentions (PSCII). These two surveys have come up at a critical time, with India standing at a pivotal juncture on its Viksit Bharat journey. Firstly, since the introduction of the 1991 reforms, the services sector has played a crucial role in driving growth and providing jobs. It is imperative that a granular picture of the sector is obtained to understand production structures better and design effective interventions. Second, the lack of consolidated data on private sector capital expenditure often makes it difficult to gauge its interlinkages with government spending and other macroeconomic indicators. Having an idea of the temporal stock of private capex can eliminate much of the perplexity involved in fiscal policies.
Why India needed the ASSSE?
The service sector accounts for more than 50% of India’s GDP, making it the most critical supply-side sector for both output and employment gains. The Annual Survey of Unincorporated Sector Enterprises (ASUSE) focuses mainly on the unincorporated part of the service sector, while the ASSSE will bridge the data gap for the incorporated services sector. The survey covered 10,005 businesses in Phase 1, while 5,020 enterprises were surveyed in the second phase. Thus, the observations of the study are not indicative of the entire sector and are intended to highlight some key characteristics that were observed in the survey firms.
There is observed inequality – large enterprises, which represent only 2.8% of the sample, accounted for 63% of fixed assets and capital formation and 70% of value added. On the employment front, small enterprises, forming two-thirds of the sample, generate only 9% of employment and contribute 3% to total wages. Large enterprises, on the other hand, employ 37% of the workforce and generate 64% of the total wages. This highlights the crucial role played by the services sector for the economy, indicating the existence of enormous potential for increasing returns to scale. Larger firms produce higher output per worker, implying that there are giant incentives for growth in the sector. Moreover, there exists an efficiency wage model that rewards higher productivity with wages above the market rate, since large firms are known to bear higher wage bills. This delineates two direct policy imperatives – incentivising the expansion of small service firms and increasing social protection for their workers.
Private Capex as a critical marker of the Economy
The PSCII surveyed 2172 large, incorporated, private-sector corporate enterprises registered with the Ministry of Corporate Affairs database. In this case, the data is only supposed to be indicative of trends and not representative of the sector, since there are over 18 lakh private companies registered in India. The survey found the largest number of enterprises operating in the manufacturing sector, followed by other sectors such as the IT sector, trade, and financial/insurance services. The manufacturing sector also expressed the highest capital expenditure intentions for 2025-26. The total intended private capex for the financial year 2025-26 is estimated at around INR 4 lakh crores, but this is only the unweighted total for a sample of firms. The government’s projected capex for 2025-26 is only 11.21 lakh crore. The private sector is vast with a remarkable capacity to attract and generate investment.
The data underscores the importance of the private sector not just in its sheer scale but also in its diverse contributions across sectors and consistent performance. For instance, manufacturing is expected to receive almost 30% of the intended private capex, although the realisation ratio is less than 1. This indicates that firms will most likely pull back from their planned investments in manufacturing. In contrast, the opposite is expected to happen in the fields of agriculture and IT. Thus, a policy imperative should focus on reducing uncertainty in the sector. While schemes like PLI provide value-added incentives to boost manufacturing, complementing them with insurance or hedging mechanisms can enhance the realisation ratio in manufacturing. The impact of the PLI scheme is visible in manufacturing firms’ shift towards investing in core and value-added activities, rather than focusing on opportunistic investments.
Need for continuity in Statistical Advancement
The benefits of new data need not be explained, but the urgency should be reiterated. It is evident from the discussion above that these maiden surveys have eliminated multiple research gaps, which are especially relevant for policymaking. These not only enhance the assessment of sectoral performance and investment but also provide a clearer assessment of the sustainability goals. For instance, besides manufacturing, no other sector has any realistic plans to spend on energy transition or conservation. This not only puts the government’s manufacturing priorities in perspective but also highlights the necessity for prioritisation of green initiatives across every other sector. Data discovery is an integral aspect of policymaking, and the government should sustain its focus on progressive strides in this space.
The views and opinions expressed here belong solely to the author and do not reflect the views of BlueKraft Digital Foundation.
