Undergraduate Economist

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Archive for September, 2009

On the Unorganised Sector in India

Posted by Alex M Thomas on 26th September 2009

This post very briefly touches some aspects of the informal sector in India. Since, this sector is not organised strictly on the lines of capitalist systems, theoretical models find it difficult to accommodate them. And owing to the wide cultural and social differences in India, the informal sector is to that extent heterogeneous and differentiated. But, the first step is to identify such a sector and to broadly identify similarities, especially with respect to the production process and the organisation of the production process. It should be noted that the existence of a large ‘unorganised sector’ is not a problem; rather, it is a peculiar characteristic of the Indian Economy. And theory is supposed to be made in accordance with specificities of an economy and not the other way around.

The significance of the unorganized sector is seen when one takes a look at the NSS survey 1999-2000 – around 92% the Indian workforce (around 370 million workers) is employed in the unorganised sector. This is an extremely large section of India. Hence, any macroeconomic analysis (fiscal policy, monetary policy, international trade, etc) ought to look at this section of the Indian society.

The unorganized sector consists of small economic entities which are diverse and differentiated in nature. This sector (a.k.a. informal sector) is larger than the organized sector in terms of the relative share in GDP as well as the workforce. Moreover, the unorganised sector produces about 60 per cent of India’s GDP and also provides livelihood to nearly 93 per cent of the work force. [Kabra 2003] Whereas a report by National Commission for Enterprises in the Unorganised Sector (NCEUS) “estimated the un-organised/informal sector workers as comprising about 86% of work force in the Indian economy in 2004-2005 and informal employment both in the organised and unorganised sector as 92%.” How can any macroeconomic analysis/model leave this sector out?

Now, let us move on to how data is generated for this sector. As the ‘establishments’ in the informal sector are not governed by any legal provisions, no regular data is available such as that of the corporate (organised) sector. The Annual Survey of Industries (ASI) “provides statistical information to assess and evaluate, objectively and realistically, the changes in the growth, composition and structure of organised manufacturing sector comprising activities related to manufacturing processes, repair services, gas and water supply and cold storage” pertaining to the organised sector. [ASI 2005-06] Based on the Population Census (PC), the Economic Census (EC) is prepared which forms the reference for carrying out surveys to capture the informal sector. These surveys are conducted by the NSSO and are called as enterprise surveys.

To sum up, it is evident that the informal sector is an important contributor towards GDP as well as in terms of providing ‘livelihood’ to a large section of the Indian populace. And, we have data sources such as NSSO data which try to capture the process of production in the informal sector and their economic characteristics, which need to be looked at urgently. For any development process that does not explicitly address the informal sector will be blind towards the Indian reality!

References:

Kabra, Kamal Nayan (2003), The Unorganised Sector in India: Some Issues Bearing on the Search For Alternatives, Social Scientist, Vol. 31, No. 11/12 (Nov. – Dec., 2003), pp. 23-46.

ASI 2005-06, Introduction, Accessed at http://www.mospi.nic.in/stat_act_t3.htm on 26th September, 2009.

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Posted in Agricultural sector, Development Economics, Economics, India, Informal Sector, Unorganised Sector | 7 Comments »