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While the unregistered sector accounts for a significant
share of manufacturing employment and production, the
structure of the sector remains heavily biased in favour
of small and organizationally 'primitive' units. Across
rural and urban areas, own account manufacturing enterprises
(OAMEs), or those that employ no hired labour on a 'regular
basis', account for an overwhelming 86 per cent of all
enterprises. Though the presence of OAMEs is greater
in rural areas, their share in total enterprises in
urban areas too amounts to a remarkable 71 per cent.
Further, both in rural and urban areas, more than 70
per cent of the units employing hired workers are non-directory
manufacturing establishments, or those employing less
than six workers.
Table
1>> Click
to Enlarge
Table 2 provides a picture of
the two-digit industrial categories in which OAMEs account
for less than 80 per cent of all enterprises in rural
areas, and 66 per cent of all enterprises in urban areas.
While in the rural areas there are just 7 of the 24
industries covered by the 56th Round that
meet these stringent criteria, there are 14 out of 24
in the urban areas in which less than two-thirds of
the units are OAMEs. Further, these sectors account
for less than 1 and 15 per cent, respectively, of all
enterprises in rural and urban areas. Clearly, the spread
of production based on use of hired labour on a fairly
regular basis is limited within the unregistered sector
in both rural and urban areas.
Table
2 >> Click
to Enlarge
In addition to the persistence of small-sized units
and non-hired labour-based forms of organization, the
structure of the unregistered sector points to a relatively
high degree of specialization of activity when analysed
in terms of two-digit categories. Thus as far as OAMEs
are concerned as many as 60 per cent of the total are
food, tobacco, textile and garment units, in both rural
and urban areas. In the rural areas, if we add wood
and wood product units, the cumulative share rises to
as much as 83 per cent. Thus, small OAMEs are concentrated
in traditional areas such as food products, textiles
and wood products, all of which are agro-based rather
than chemical or metal-based. Even NDMEs and DMEs, account
for 60 to 75 per cent of the total in rural areas and
around 45 per cent in urban areas. The other two areas
with a significant number of enterprises are non-metallic
mineral products, especially in the DME category in
rural areas, and fabricated metal products, excluding
machinery and equipment. The former, we must recall,
includes activities such as manufacture of glass and
glass products (including glass bangles), ceramic ware,
bricks, roofing tiles and lime and plaster, all activities
that fall within the broad definition of 'traditional'
and can be seen as predominantly catering to local markets.
Table
3 >> Click
to Enlarge
The concentration of activity
in these areas is visible even when assessed in terms
of the share of employment in unregistered units in
different two-digit industrial categories. Food, tobacco,
textile and wood products account for between 50 and
82 per cent of employment in OAMEs and NDMEs, and if
we include non-metallic mineral products and fabricated
metal products, the ratio rises to 85 to 90 per cent
for all kinds of units.
Table
4 >> Click
to Enlarge
The primitive nature of a substantial
segment of the unregistered manufacturing sector is
also reflected in the fact that 70 per cent of all units
are typically 'household units', in the sense that they
are located in household premises. This high proportion
is of course explained primarily by OAMEs dominating
the sector in terms of number of enterprises and as
many as 80 per cent of OAMEs in rural areas and 70 per
cent in urban areas being located in household premises.
But what is noteworthy is the fact that 35 and 22 per
cent of NDMEs in rural and urban areas respectively,
and 26 and 20 per cent of DMEs, are household units.
If operating out of permanent, non-household premises
is taken as a minimal prerequisite for a unit being
a 'modern' small unit in the unregistered sector, then,
only a little more than a half of the small population
of NDMEs and DMEs in rural areas and about three-quarters
of NDMEs and DMEs in the urban areas would qualify as
modern small units or their precursors.
Table
5 >> Click
to Enlarge
Another way to situate and assess
the character of the unregistered manufacturing sector
is to examine the degree and nature of its integration
with the formal economy. This integration can occur
either through financial, input–output or marketing
linkages. These linkages may in fact complement each
other, with financially-dependent small unregistered
units obtaining inputs from and supplying their outputs
to large players who provide financial assistance. With
nearly 50 per cent of the units surveyed in the 56th
round reporting 'shortage of capital' as the problem
confronting them, these kinds of inter-linkages across
finance, input and product markets is a real possibility.
It needs to be made clear, however, that none of these
needs to be always positive from the point of view of
units in the unregistered sector. As mentioned earlier,
financial dependence could subordination to medium or
large finance capital, especially in industries catering
to large, state or national markets, which could have
as a corollary relatively small margins, as is known
to be true in the production of matches, beedis and
handloom textiles. Input dependence on large oligopolistic
suppliers could also imply high input prices that squeeze
the margins in a sector where demand growth may be sluggish
and the competition intense. And dependence on the supply
of outputs as inputs and products for marketing by large
units can make the small units bear the brunt of any
downturn (through delayed payments, for example) or
hard bargaining by oligopsonistic buyers who can squeeze
margins substantially.
Table
6 >> Click
to Enlarge
As Table 6 indicates, evidence
yielded by the 56th Round suggests that an
inter-linkage between the formal and informal sectors
is indeed present, even if not overwhelming. Thus, 28
per cent of units in rural areas and 38 per cent of
units in urban areas work on contracts, which are likely
to be with units or capital from the formal sector.
What is noteworthy is that in the rural areas and, to
a smaller extent, in the urban areas, the contract system
is more prevalent among OAMEs than establishments, pointing
to the possibility of penetration by merchant capital
in search of cheap home-based production sources that
ensure the required returns. This presumption is supported
by the evidence that, on average, 80 per cent of the
enterprises working under the contract system enter
into contracts solely with a master contractor/enterprise.
Table
7 >> Click
to Enlarge
Contractual links notwithstanding, it does not appear
from the evidence that these have dominated the choice
of product markets for unregistered units: 65 per cent
of rural units and 57 per cent of urban units reported
that they sold some of their final output to private
individuals or households. However, in the case of NDMEs
and DMEs, sale of final output to private enterprises
or contractors/middlemen was reported. About 37 and
55 per cent of NDMEs and DMEs respectively in rural
areas, and 45 and 71 per cent respectively in urban
areas reported such sales. Therefore, some kind of input–output
linkage and ancillarization do seem to be widely prevalent.
Table
8 >> Click
to Enlarge
In sum, we can think of two kinds
of 'dualism' in the unregistered sector. First, dualism
with respect to the formal sector, as reflected in the
persistence of household units with primitive techniques
even while modern industry progresses, even if not in
terms of employment generated. This kind of dualism
need not, however, imply the lack of any linkages with
the formal sector. Rather, financial, input–output and
marketing linkages can exist. The persistence of backwardness
may not reflect just the existence of the peculiar niche
markets that low per capita incomes and poverty create
but also the subordination of backward forms by capital
from the formal sector, which treats a segment of the
unregistered sector as a source of surplus even if that
is at the expense of extremely low wages. Second, dualism
reflected by the signs of coexistence of backward units
with other units, especially among the NDMEs and DMEs,
which are taking on characteristics of ancillaries that
are typical of any modern industrial environment. Analysts
argue that the growth of these kinds of small units
and their integration with the large-scale sector through
a process of 'ancillarization' is positive from the
point of view of generating a modern, well-managed small
industrial sector.
The point to note is that while there is a strong positive
relationship between the rank of a two-digit industrial
sector in terms of estimated number of enterprises and
estimated number of workers (with the rank correlation
coefficient exceeding 0.9 in categories of units excepting
NDMEs and DMEs in rural areas), there is virtually no
relationship or at best an extremely weak relationship
between the rank of an industry in terms of estimated
number of workers and in terms of value added per worker.
While it could be argued that this should be 'expected',
what it does suggest is that in terms of the number
of enterprises and estimated workers, it is not the
more productive units that predominate. Features of
this kind that emerge from this preliminary analysis
of the 56th Round results suggest that the
Indian context is surprising inasmuch as the long experience
with industrialization has not undermined the former
type of units, which in fact not only persist but even
appear to dominate the landscape of the world of unregistered
units. |
