Publication: The Exceptional Persistence of India's Unorganized Sector
Date
2013-05
ISSN
Published
2013-05
Author(s)
Abstract
The transformation of India's
unorganized sector is important to its modernization,
growth, and attainment of regional economic equality. This
paper documents several key facts about India's
unorganized sector in manufacturing and services. First, the
unorganized sector is large, accounting for more than 99
percent of establishments and 80 percent of employment in
manufacturing. Second, the unorganized sector is stubbornly
persistent -- it accounted for 81 percent of manufacturing
employment in 1989 and 2005. Third, this persistence is not
due to particular subsets of industries or states, as most
industries and states show limited change in unorganized
sector employment shares. Fourth, the degree to which
localized unorganized activity exists is important as it is
associated with weaker production functions for
manufacturing firms. Building from these facts, the paper
investigates conditions promoting transformation by
state-industry. Decomposition exercises find that both
within and between adjustments for state-industries weakly
reduce unorganized sector shares. The aggregate persistence
instead comes from the covariance term, where fast-growing
state-industries witness rising unorganized sector activity.
Regressions quantify that growth in the organized sector by
state-industry reduces the unorganized sector employment
share, but only marginally reduces employment levels in
unorganized activity. Analysis of the establishment size
distribution highlights that entrepreneurship and larger
organized sector plants are most important for transitions
in the manufacturing sector, while small establishments play
a key role in the services sector.
Citation
“Ghani, Ejaz; Kerr, William R.; O'Connell, Stephen D.. 2013. The Exceptional Persistence of India's Unorganized Sector. Policy Research Working Paper;No. 6454. © World Bank, Washington, DC. http://openknowledge.worldbank.org/handle/10986/15593 License: CC BY 3.0 IGO.”
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