NEW DELHI: India’s informal enterprises are getting a productivity and formalisation push from digitalisation, with a one-unit increase in digital adoption being associated with roughly a 76 per cent rise in labour productivity, according to an analysis of the Annual Survey of Unincorporated Sector Enterprises (ASUSE) 2025 by SBI Research.
The study, titled “Empowering Enterprises through Digitalisation and Formalisation”, released on Thursday, shows that adoption of information and communication technologies (ICT) is strongly linked to higher output per worker and a much greater likelihood of firms entering the formal system. This is estimated using a constructed ICT index from 21 digital-adoption variables.
“One-unit increase in the ICT adoption index is associated with nearly a 76 per cent increase in labour productivity, while firm age and capital intensity improve productivity by 11 per cent and 7 per cent, respectively, holding all other factors constant,” the report noted.
According to the report, digitalisation also appears to accelerate formalisation. The report finds that higher ICT scores increase the probability of firm registration by about 84 percentage points on average, with sectoral impacts of roughly 64 percentage points in manufacturing, 82 percentage points in trade and 86 percentage points in other services. “ICT is not only a productivity-enhancing technology, but also a mechanism that pushes firms towards formalisation,” the report highlighted.
Registered enterprises display deeper formal practices — such as accounts in the firm’s name, audited books and online business activity — captured in a formalisation-practice score, where Udyam Assist, Udyam and GST registrants score highest.
The report added that ICT adoption lowers the transaction costs associated with formalisation by improving access to digital payments, record-keeping systems and compliance mechanisms, while simultaneously increasing the benefits of operating within formal markets through better access to credit, markets and institutional networks.
The formalisation dividend shows up in finance, with registered firms being 6.9 percentage points more likely to hold formal credit, and registration under Udyam or Udyam Assist is linked to around 41 per cent higher formal loan amounts compared with other registered firms.
The report flags persistent gender gaps — female proprietors have a 2.44 percentage-point lower likelihood of formal credit access than male proprietors — but finds registration meaningfully narrows that gap for women, boosting their credit access and loan sizes.
SBI Research recommends policy measures to scale the gains, such as affordable internet and payments infrastructure, hands-on digital training in local languages, registration drives (Udyam/GST), and promotion of cash flow-based lending and market access through e-commerce and procurement portals to deepen formal finance and growth for micro and small enterprises.
Source: Business Standard
