![Sample our Area Studies journals, sign in here to start your access, latest two full volumes FREE to you for 14 days]({"type":"image" , "src" : "/sda/5922/TOC-Subject-Sample-2021-Area-Studies.jpg"})
Abstract
Importance of the manufacturing sector in bringing about structural transformation in the economy is well appreciated in literature. In India, with more than 70% of manufacturing employment originating in the unorganised segment, it becomes imperative to explore the dynamics of employment and growth of firms in the unorganised manufacturing sector. Additionally, interest in the sector arises since it is one of the prime avenues of employment generation. In particular, this paper examines the economic viability of unorganised manufacturing firms and underemployment therein. Results on underemployment help us to conclude on the prospect of full-time employment opportunities in the sector, whereas an assessment of economic viability brings out the major obstacles to growth plaguing unorganised manufacturing firms. This article identifies the prime areas requiring policy intervention and emphasises the need of implementing existing policies on ground.
Acknowledgements
Author wishes to thank C.P. Chandrasekhar, Satyaki Roy, Debarshi Das and two anonymous referees of this journal for helpful comments on earlier drafts of the paper. Aishwariya Bhuta helped at a later stage. None of them are responsible for the errors that may remain.
Disclosure statement
No potential conflict of interest was reported by the author.
Funding statement
Author received no funding for this research.
Third-party material
No Third-Party Material used in the paper.
Data sharing statement
Paper uses data published by Government of India and available in public domain (http://mospi.nic.in/NSSOa).
Notes
1 This was perceived to be necessary, ‘considering the existence of large surplus labour, including household labour, whose opportunity cost is close to zero, [therefore] promotion of the decentralized methods of production may not only encourage greater use of the abundant resource, but may also contribute to greater equity’ (Nagaraj Citation2014, 287).
2 This is particularly important in the current scenario as India is facing an unprecedented employment crisis with absolute number of jobs declining between 2011–12 and 2017–18; there is a real possibility of India finding her potential ‘demographic dividend’ ending up in a ‘demographic disaster’ (Jaffrelot and Kalyankar Citation2019).
3 The role of manufacturing sector is emphasized in particular for a variety of reasons; Majid (Citation2019, 2) succinctly captures these factors: ‘Kaldor’s growth laws are more specifically about the primacy of manufacturing over services, where manufacturing as the initial engine of growth is superior in scale economies and has a higher income elasticity of demand and a higher propensity to employ less-skilled workers’.
4 Right after Independence, in 1951, the manufacturing sector contributed 9% of GDP, employing an equal percentage of workforce.
5 This does not mean manufacturing growth did not pick up after reforms, as trend ‘growth rate [in manufacturing] after the reforms is higher than in the preceding quarter century’ (Nagaraj Citation2017, 61). But it is equally true that: ‘Between 1980–81 and 2009–10, manufacturing sector’s share in domestic output, for instance, barely inched up by 2 percentage points to 16% in 2009–10, compared to a 6-percentage point rise in GDP during the three decades, 1951–52 to 1979–80’ (Nagaraj Citation2014, 274). Thus, there seems to be over enthusiasm around reforms insofar as their ability to bring about structural transformation in the economy is concerned.
6 Although raising manufacturing share in output may not be sufficient in bringing about structural change – defined as drawing out people from traditional agriculture – if capital-intensive methods are used, nonetheless, it may be necessary since services sector typically has low employment elasticity of output for most South Asian countries (Ghose Citation2019).
7 Firms covered by ASI employ either 10 or more workers using power, or 20 or more workers without using power.
8 Earlier follow-up surveys of NSS covered only unorganised manufacturing sector. However, both 67th and 73rd round cover trade and other services in the unorganised sector along with manufacturing. This study concentrates only on unorganised manufacturing activity.
9 However, the registered–unregistered/organised–unorganised divide in gross value added (GVA) obtained from National Accounts Statistics (NAS) is substantially different from the NSSO; for example, in 2012–13, share of unregistered segment in manufacturing GDP was 28.9% (NAS 2014; NAS discontinued providing division of output between registered–unregistered segments from 2015).
10 This more or less matches with the Census estimate; for example, employment share of factory (i.e. registered/organised) manufacturing was 27.7% in 2011.
11 Predominance of simple activities can be understood given the weightage of OAEs.
12 Although recently India has recorded very high open unemployment rates; for example, PLFS 2017–18 reported highest unemployment rate in 45 years at 6.1%. PLFS 2018–19 also showed 5.8% unemployment rate.
13 This is to ensure capitalists’ surplus and has nothing to do with marginal productivity theory of wage determination.
14 We did not use the 2009–10 figures since it was a drought year and the labour market was unusually depressed. However, by 2011–12, employment growth picked up and there was some tightness observed in the labour market (Mehrotra et al. Citation2014).
15 This also helps us to draw a comparative picture about the prospect of wage employment in unorganised manufacturing vis-à-vis rest of the unorganised sector.
16 Figures (in columns A, B, C) at the average firm level are obtained by dividing the aggregate sector-wise values by total number of firms, all through.
17 Note that casual wage is imputed to unpaid family labour to check full-time employment opportunities. Similarly, the surplus mentioned here is notional surplus for the workers and owners are indistinguishable in OAEs.
18 It is assumed that the person works for 26 days each month throughout the year.
19 Emolument per firm is obtained by multiplying emoluments per worker with number of workers per firm (column D), on average.
20 The condition for simple reproduction is thus met.
21 For a similar discussion in case of organized manufacturing sector, see Nagaraj (Citation1994).
22 In fact, 90% of unorganised manufacturing firms are microenterprises, owning plant and machinery valued up to Rs. 25 lakh (Basole and Chandy Citation2019, 10).
23 Credit guarantee fund scheme is another benefit that firms derive to avail collateral-free credit and the eligibility condition is same as for priority sector lending (see ).
24 The new labour code on industrial relations (IR Code 2020) raised this threshold to 300 workers at one go and would be implemented very soon.
25 Scheduled employment means an employment mentioned in the Schedule added to the Minimum Wages Act 1948, applicable to industries with a minimum of 1000 workers. Moreover, the Code on Wages 2019, although yet to be implemented, extends minimum wage payment to all categories of employment, that is, irrespective of schedule or non-schedule employment.
26 The proposed daily national floor level minimum wage for unskilled work in September 2016 was Rs. 350 (see https://labour.gov.in/sites/default/files/MW_notification.pdf, 15), whereas, in 2015–16, rural (urban) casual wage was Rs. 190.89 (232.19). Majority of firms were unable to pay even casual wages.
27 Prevalence of such low wages is well recognised in literature; for example, Chandrasekhar (2004, 18) notes, ‘[as] barriers to entry into many areas of unorganised production are limited, the supply of commodities from these kinds of [manufacturing] units tends to be elastic, with production at extremely low wages and prices that reflects small or negligible “margins” occurring as when … demands manifest themselves’ (emphasis added).
28 Except firms in the establishment segment in 2010–11; this, however, changed dramatically in 2015–16.
29 Such that the Ministry of MSME in 11th Five Year Plan (2007–12) identified cluster development as one of the thrust areas of policy.
30 For example, the Micro and Small Enterprises – Cluster Development Programme (MSECDP) and Scheme of Fund for Regeneration of Traditional Industries (SFURTI) initiatives run by Ministry of MSME.
Additional information
Notes on contributors
Anamitra Roychowdhury
Anamitra Roychowdhury teaches economics at Jawaharlal Nehru University, New Delhi, India. His areas of interest include development economics, labour economics, Indian economy and macroeconomics. His book titled Labour Law Reforms in India: All in the Name of Jobs was published by Routledge in 2018.