Despite more than five decades of state-led industrial development, 'dualism' even 'multi-structuralism', has been an abiding characteristic of India's industrial sector. Early analyses of the structure of industry at independence had pointed to the domination of 'lower forms of production', or production characterized by the use of non-power-driven techniques, and the absence of hired labour in predominantly rural and semi-urban areas. Thus, according to the national income data relating to 1948–49, 'factory establishments' accounted for just 6.34 per cent of national income, while 37 per cent was generated in the mining and manufacturing sectors¹. Further, going by the 1951 Census, factory establishments accounted for just 26 per cent of the employment in mining and manufacturing, which in turn amounted to only 9.3 per cent of total employment².

Although organized sector units, or those that correspond to the registration criteria set by sections 2m(i) and 2m(ii) of the Factories Act of 1948, are not always units that reflect the attributes of modern industrial establishments, this is the closest one can get to making a division between the unorganized and organized, or informal and formal, a classification that must necessarily be arbitrary. However, since by law these units have to meet the requirements of labour legislation in the country, this is at least one sense in which they may be termed formal or organized.

Conventional wisdom based on the experience of developed countries would have it that industrialization is process in which an economy witnesses the gradual demise of excessively small units and units based on primitive techniques and primitive forms of organization, which give way to large or larger units working with hired labour and more advanced techniques and increasingly adopting the impersonal joint-stock company form of organization. It hardly bears stating that state intervention to ensure minimum wage payments, a 'normal' working day and reasonable conditions of work, by encouraging productivity-enhancing technical change, contributes to the above-described transition.

This would imply, as a corollary, that the implicit 'exemption' from regulation of units that do not meet the criteria set by sections 2m(i) and 2m(ii) would itself slow the pace of 'modernization' and contribute to some degree of persistence of dualism. This is a factor that favours the use of the Factories Act definition to draw the dividing line between the organized and unorganized sectors. In addition, since historically the statistical system has sought to cover registered units through the Annual Survey of Industries (ASI), and unregistered units through the Economic Censuses and the follow-up surveys undertaken by the National Sample Survey Organization (NSSO), a body of statistical evidence exists to assess the structure and evolution of the unregistered sector.

Needless to say, dualism is not just a function of the implementation of the Factories Act, allowing for wage differentials between the 'organized' and 'unorganized' sectors. Rather, as analysts have often pointed out, a number of other factors on the demand side, such as the persistence of 'traditional tastes' that can be catered to only by more primitive techniques, and the existence of poverty and inadequate market integration, which generate a different kind of 'niche' market for cheap but primitive products, have also encouraged dualism. Further, inasmuch as poverty-inducing factors like unemployment and underemployment result in a constant search by the poor for supplementary work, and since barriers to entry into many areas of unorganized production are limited, the supply of commodities from these unorganized sector units tends to be elastic, with production occurring at extremely low wages and prices that reflect small or negligible 'margins', as when the above-mentioned demands manifest themselves. In the event, the unregistered manufacturing sector would be characterized by three kinds of 'instability'-that stemming from the fact that some of its activities are seasonal; that resulting from the high rate of mortality of unregistered units, given low wages, small margins and extreme competition, and that resulting from the precariousness of the demands it caters to.

Besides all these, backward techniques and backward forms of organization survive also because of the subordination of these activities by merchant or trading capital, which is able to earn for itself a suitable margin even while remaining competitive with production based on modern techniques because of its ability to exploit the benefits of the low wages associated with production in the unorganized or unregistered sector. This is particularly true of primitive production units that cater to national markets, like handloom, beedi and match production units. In fact, the irrational concentration of match production in a few contiguous districts of Tamil Nadu, accounting for an overwhelming share of the matches produced in the country and catering to markets nationwide, can only be explained by a trading chain dominated by merchant capital that controls a complex, historically evolved production system involving home- and unit-based female and child labour and extremely low costs of production.

Thus 'dualism' or 'multi-structuralism' is not determined primarily by the existence or otherwise of factory legislation, but is a consequence of the larger socio-economic context and its evolution. The Factories Act merely provides an arbitrary dividing line to be drawn between the organized and unorganized sectors, and an ambiguous contribution to the differences between the two sectors. 'Ambiguous' because, evidence regarding the enforcement of the Factories Act does not inspire confidence in the ability of the implementing mechanism to ensure minimum wages and reasonable conditions of work in the factories that are formally registered with the Chief Inspector of Factories.

This note has a limited objective: to delineate the structure of the unregistered manufacturing sector on the basis of data yielded by the 56^th Round of the NSS, conducted during July 2000 and July 2001. The 56^th Round covered all unorganized manufacturing enterprises (UMEs) under the two digit codes 15 to 37 and enterprises under cotton-ginning, cleaning and baling³. Out of these 5,586 rural and 8,942 urban units were finally surveyed. The survey covered manufacturing enterprises (MEs) not covered in the (ASI)⁴ (i.e. those not registered under Section 2m(i) and 2m(ii) of the Factories Act 1948), manufacturing enterprises registered under Section 85 of the Factories Act, 1948, and enterprises manufacturing beedis and cigars that are not covered under the ASI.

The NSS estimates the total number of workers employed in the unregistered manufacturing sector in 2000–01 at 3.71 crore. If we exclude industries with NIC codes 01405 and 37, and compare the remaining industries with the same set of 22 two-digit industries in the ASI, we find that the 3.71 crore workers in the unregistered sector in 2000–01 compare with 79 lakh workers in the registered factory sector in 1999–2000. Assuming no change in the number of workers between 1999–2000 and 2000–01 in ASI factories⁵, the share of the unregistered sector in total manufacturing employment thus works out to 82 per cent. Similarly, gross value added in the unregistered sector of the 22 two-digit industries mentioned above in 2000–01 by the product approach works out to 24.3 per cent of the combined gross value added in registered manufacturing in 1999–2000 and unregistered manufacturing in 2000–01⁶.(Interestingly, this is substantially different from the contribution of the unregistered sector to manufacturing GDP, which is placed by National Accounts Statistics at 35 per cent in 2000–01.) Clearly, therefore, if the figures relating to the immediate post-independence years are reliable, the importance of the unregistered manufacturing sector has increased significantly in employment terms, even if its contribution has fallen in terms of value added shares.

[1] Computed from CSO figures quoted in Reserve Bank of India (1956), Report on Currency and Finance, RBI: Bombay, p. 127.
[2] Ref. Shirokov, G.K. (1973), Industrialization of India, Moscow: Progress Publishers.
[3] The Survey covered almost the entire country except Leh and Kargil districts in Jammu and Kashmir, villages beyond five kilometers of bus routes in Nagaland, inaccessible villages in Andaman & Nicobar Islands, and some first stage units where EC 1998 couldn't be undertaken. A total of 14788 first stage units (5696 villages and 9092 urban blocks) were selected for the survey.
[4] Enterprises with power with ten people or less, or those without power with 20 people or less are left out of the purview of the Factories Act 1948. 
[5] We must recall that the total number of workers in ASI factories fell from 85.5 lakh to 81.7 lakh between 1998-99 and 1999-2000.
[6] Inflating the 1999-2000 ASI GVA figure using the rate of growth of that magnitude between 1998-99 and 1999-2000 to arrive at an estimate for 2000-01 and using that figure changes the ratio to 22.9 per cent as opposed to 23.4 per cent.

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