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By Sidheswar Jena-PhD Scholar -Law

Abstract

India’s economy is often celebrated as one of the world’s fastestgrowing, with official GDP figures placing it as the fifthlargest globally at approximately $3.57 trillion in 2024. Yet, beneath this narrative lies a stark divide: the unorganized sector, which employs over 90% of the workforce, continues to grapple with structural challenges exacerbated by policies like the Goods and Services Tax (GST). This article examines whether recent GST rate restructurings—effective from September 22, 2025—represent true reform or merely a superficial adjustment. Drawing on empirical data, industry examples, and economic reports, we argue that while these changes may ease burdens for the organized sector, they risk further marginalizing the unorganized economy, potentially stifling inclusive growth. My analysis reveals a “real” growth rate closer to 12% when accounting for informal contributions, highlighting the need for targeted revival strategies.

Keywords: GST Reforms, Unorganized Sector, Economic Inequality, Informal Employment, India GDP

 Introduction: Growth Narratives vs. Ground Realities

India’s official economic story is one of triumph: a 6.5% GDP growth projection for 2024-25, positioning the nation as a global powerhouse. However, this metric predominantly tracks the organized sector, which accounts for just 610% of employment. In contrast, the unorganized sector—encompassing daily wage laborers, construction workers, house helps, and smallscale enterprises—drives 94% of jobs, with over 30 crore workers registered on the eShram portal as of March 2025.

Demonetization (2016) and GST implementation (2017) were touted as modernization tools, but they have disproportionately burdened this sector. Cumulative shocks from these policies, plus COVID19, have erased ₹11.3 lakh crore in informal sector value and 1.6 crore jobs. Far from the claimed 100 lakh crore net loss over seven years, these figures underscore a systemic bias toward formalization at the expense of the informal majority. As the 56th GST Council announces rate cuts and slab simplifications effective tomorrow (September 22, 2025)—reducing rates on essentials like pressure cookers and leather goods to 5%—the question remains: Who truly benefits?

 Defining the Sectors: Organized vs. Unorganized

The organized sector operates under regulatory frameworks, enabling Input Tax Credit (ITC) claims under GST, which lowers effective costs. In contrast, the unorganized sector—exempt if turnover is below ₹20 lakh (services) or ₹40 lakh (goods)—lacks such benefits. Even composition scheme users (for turnovers under ₹1.5 crore) cannot claim ITC, making their outputs 15% more expensive due to unrecoverable taxes.

| Sector | Employment Share | Key Features | GST Impact |

| Organized | 10% | Formal registration, ITC eligibility | Cost advantages, demand shift |

| Unorganized | 94% | Informal, low turnover, cashbased | Compliance burden, no ITC, higher prices |

This asymmetry has driven demand toward organized players, formalizing the economy but at the cost of informal livelihoods.

 The GST Regime: Boon for Organized, Bane for Unorganized?

Since 2017, GST has increased compliance costs for unorganized entities, with limited digital literacy amplifying the pain. Research shows it has spurred formalization—government revenue rose 12% annually postGST—but at a steep informal price: liquidity crunches and market exclusion. The new 2025 restructure simplifies slabs (e.g., 5% on essentials, 18% standard), aiming to curb inflation. Yet, without ITC access for the unorganized, these cuts may not trickle down, potentially depressing demand further as informal goods remain pricier.

 Practical Examples: Industry Shifts

 Pressure Cookers: PreGST, this was a unorganized stronghold (40% market share). ITC denial made informal products costlier, shifting 60% demand to organized giants like Hawkins. Recent 5% rate cuts may help, but entrenched monopolies persist.

Leather and Luggage: Traditionally unorganized (75% output from small units), GST triggered a demand pivot to formal firms. The Council of Leather Exports noted shutdowns, with exports dipping 5% initially. The 2025, 5% slab on prepared leather offers relief, but recovery lags.

These shifts exemplify “colonization” by the organized sector, as IMPRI research terms it, leading to unemployment and reduced consumption.

 Economic Repercussions: Losses, Unemployment, and Skewed GDP

Demonetization and GST have inflicted ₹11.5 lakh crore in informal losses (4.3% of FY23 GDP), far below exaggerated 100 lakh crore claims but devastating nonetheless. Official growth averaged 67% post2016, but adjusted for informal contributions (e.g., via better base year estimates), it’s closer to 4.5% (201117) or 12% annually when factoring unorganized stagnation.

India’s true rank? Fifth by nominal GDP ($3.57T), though per capita ($2,500) underscores inequality. World Bank data shows poverty at 5.3% ($3/day line, 2022-23), but critics argue this undercounts, with 817 million in multidimensional poverty globally under revised lines. eShram’s 30+ crore registrations reveal a workforce earning as low as ₹100/day for 90% in some segments—data briefly public before removal—highlighting the “neomiddle class” illusion.

Recent indicators: Car inventories swell with discounts (3month waits turned to overstock), signaling demand slump, not just EV shifts. RBI notes 70-75% capacity utilization, deterring investment. The 2025 GST tweaks risk amplifying this, as lower rates without informal support could slash demand by 5-10%, per sector analyses.

 Policy Implications: Beyond Propaganda

Government narratives—via biased media—overshadow these truths, with only 7- 8 cr of Indians filing income taxes (mostly nil returns). Free ration schemes now cover 80 crore, a tacit admission of distress. True reform demands:

1. ITC Extensions: Allow limited credits for composition scheme users.

2. Digital Inclusion: Subsidized training for unorganized compliance.

3. Sector Revival: Incentives for informal clusters (e.g., leather hubs).

4. Holistic GDP Metrics: Incorporate informal data via eShram for accurate growth tracking.

 Conclusion: Toward Conclusive Development

India’s “growing nation” facade masks a bifurcated economy where GST reforms, while progressive on paper, perpetuate inequality. The unorganized sector’s revival isn’t optional—it’s essential for sustainable 78% growth. Policymakers must prioritize the 94% over the 6%, lest depression looms. As the new GST era dawns tomorrow, let’s demand transparency over manifestation.

 References

 Employment Situation in India, April 2024. Directorate General of Employment.

 India Employment Report 2024. ILO.

 Impact of GST on Unorganized Sector. TaxAmicus, 2025.

 Note Ban, GST, COVID Shocks Cost ₹11.3 Lakh Cr. The Hindu, 2024.

 India’s GDP Misestimation. Harvard Kennedy School, 2018 (updated).

 Over 30.68 Crore Unorganised Workers on eShram. PIB, 2025.

 New GST Rates Effective September 22, 2025. The Hindu, 2025.