Although the informal and small
enterprises sector contributes significantly to India’s GDP, and engages
the majority of the country’s workforce, it is barely reflected in
official growth numbers. Strengthening this segment will revitalise the
economy and substantiate the government’s ‘Make in India’ policies
Where is India’s GDP coming from? Official statistics do
not reveal the entire picture, and a closer look at the ground level is
necessary in order to recognise the reality and to respond to it in the
context of the government’s “Make in India” framework.
It is well known that the micro, small, and medium enterprises (MSME)
sector is growing in terms of output, employment, energy, and
visibility over the last five decades. But the actual contribution of
this sector has not been sufficiently highlighted—and the contribution
is huge.
The Organization for Economic Cooperation and Development (OECD)
estimates that 65% of all employment in the manufacturing sector in
India is in firms with less than 10 employees.
[1]
This makes the MSME sector the most labour-intensive industrial segment
in the country. In 2005, India had 42 million enterprises but less than
a million companies, according to the Economic Census.
[2]
A 2013 Credit Suisse report states that 90% of India’s workforce is engaged in the informal economy, mostly in rural areas.
[3]
About half of India’s GDP is informal—it is not generated by
incorporated enterprises. Productivity growth, the report argues, has
been the most dramatic on the informal side of the economy.
But why are these sources of half of India’s GDP, which engage the
majority of the country’s workforce, not reflected in growth numbers?
They remain “invisible” because the definitions used by official data
collection systems to identify economic enterprises tend to exclude
informal sector activities. The gaps in how data is collected and
evaluated mask the reality on the ground.
Another report by Credit Suisse
[4]
states that between 1999 and 2009, 75% of all new factories came up in
rural India, and 70% of all manufacturing jobs were created there. The
average employee count of these 42 million enterprises was 2.4 per unit.
The small enterprises sectors, in addition to contributing to GDP,
are also increasing their share of exports. According to the Small and
Medium Business Development Chamber of India,
[5] they contribute approximately 40% to the total exports and 45% of the industrial output, creating one million jobs every year.
In the handloom sector, for example, exports rose by 32% in 2010-11 as compared to the previous year.
[6]
According to the National Handloom Census (2009-10) of the Ministry of
Textiles, the handloom sector provides employment to about 4 million
persons who are engaged in weaving and allied activities; of these, more
than 75% are women.
[7]
In the handicrafts sector, output has been growing steadily even
during the economic downturn. In 2000-01, India exported handicrafts
worth Rs. 9,270.56 crores; by 2010-11, despite the preceding worldwide
slowdown, steps taken by the government had increased the total exports
to Rs. 13,526.70 crores. The handicrafts sector employed 7 million
persons in 2011-12, of which 48% were women. This sector accounts for
15-20% of the country’s manufacturing workforce, and contributes 8% of
the GDP in manufacturing.
[8]
In the
khadi village industries sector the total cumulative
employment, according to estimates of the Ministry of Micro, Small and
Medium Enterprises, increased to 14 million persons in 2013-14 from 12.5
million in the previous year.
[9]
It is also worth noting that this vast workforce includes not only a
high proportion of women, but also a high proportion of workers from the
scheduled castes and scheduled tribes. Of the 4 million employed in the
handloom sector, 11% are from the scheduled castes, 19% are scheduled
tribes, and 45% belong to other backward classes. A majority of 87% are
located in rural areas. Of the 7 million engaged in the handicrafts
sector in 2011-12, 25% are from the scheduled castes, 5% are scheduled
tribes, and 23% belong to minority groups.
[10]
However, it is well known that this workforce earns its livelihood in
the most unjust, exploitative conditions of low wages, harsh working
conditions, and no legal protection. The self-employed need support to
build organisations as well as marketplaces for vending, and they need
credit. Home-based workers, often women, who are a part of the value
chain, require the government’s intervention to ensure that the
companies that promote the value chain provide better support, both
legal and financial.
Strengthening this supply chain in the manufacturing sector can
contribute enormously to revitalising the Indian economy, generating
higher and a more steady demand, reducing the dependence of the national
economy on international finance, and insulating India from financial
crises
.
Mahatma Gandhi’s
charkha programme during the campaign for
freedom from the British was based on the principle of ensuring that
every household in India had a means to earn a wage every day. Gandhi
spoke of backward and forward linkages—now considered essential in
manufacturing—and the Khadi and Village Industries Commission was set up
in 1956 to help distribute products all over the country.
Millions of such wage earners, Gandhi reasoned, would provide the
fuel for the engines of production—the demand for goods and services by
Indians. Many modern economists put forth a similar argument—effective
domestic demand is a much more efficient way to maintain GDP growth. It
is more secure than an over-dependence on exports and international
demand. Gandhi called the purchasing power of these workers the economic
vote, which will lead to “economic democracy.”
These sectors provide wages even in times of hardship, and generate
the broadest field for livelihood and employment. By focussing on these
sectors, India can generate wage-led growth instead of capital-led
growth. This paradigm shift from current priorities will be a suitable
growth model for India, one that fits the reality on the ground.
