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Relative Size of Informal Sector

Relative Size of Informal Sector

in the rural areas of Bihar, Karnataka and Orissa and in the urban areas of Gujarat, Size of Informal Sector the number of workers in informal enter prises obtained from enterprise approach ARUP MITRA both the schedules differ substantially from exceeded the number of workers obtained Teach other in terms of the number of from the household survey (Table 1). his is in response to the paper by workers. By and large the household On an average at the all-India level, as S Sakthivel and Pinaki Joddar (EPW, schedule enumerated a larger number of seen from Table 1, around 55 and 47 per May 27, 2006). The authors provide es-workers than the enterprises schedule. Only cent of the non-farm workers are located timates of the informal (unorganised) sector Table 1: Relative Size of Informal Sector in Non-Farm Activities across States Table 1: Relative Size of Informal Sector in Non-Farm Activities across StatesTable 1: Relative Size of Informal Sector in Non-Farm Activities across StatesTable 1: Relative Size of Informal Sector in Non-Farm Activities across StatesTable 1: Relative Size of Informal Sector in Non-Farm Activities across StatesTable 1: Relative Size of Informal Sector in Non-Farm Activities across States workers in non-farm activities based on (1999-2000) the 55th round of NSS (Table 7), which

Discussion

in the rural areas of Bihar, Karnataka and Orissa and in the urban areas of Gujarat,

Size of Informal Sector

the number of workers in informal enterprises obtained from enterprise approach ARUP MITRA both the schedules differ substantially from exceeded the number of workers obtained

each other in terms of the number of from the household survey (Table 1).

T
his is in response to the paper by workers. By and large the household On an average at the all-India level, as S Sakthivel and Pinaki Joddar (EPW, schedule enumerated a larger number of seen from Table 1, around 55 and 47 per May 27, 2006). The authors provide es-workers than the enterprises schedule. Only cent of the non-farm workers are located

timates of the informal (unorganised) sector

Table 1: Relative Size of Informal Sector in Non-Farm Activities across StatesTable 1: Relative Size of Informal Sector in Non-Farm Activities across StatesTable 1: Relative Size of Informal Sector in Non-Farm Activities across StatesTable 1: Relative Size of Informal Sector in Non-Farm Activities across StatesTable 1: Relative Size of Informal Sector in Non-Farm Activities across States
workers in non-farm activities based on
(1999-2000)(1999-2000)(1999-2000)(1999-2000)(1999-2000)
the 55th round of NSS (Table 7), which

Rural Urban are indeed on the high side relative to the State Informal Informal HH Informal Informal Informal HH Informal estimates reported below. Enterprise Workers Enterprise Enterprise Workers Enterprise

Workers as a Per Cent Workers Workers as as a Per Cent Workers

The NSS 55th round collected informa

as a Per Cent of Total as a Per Cent a Per Cent of Total as a Per Centtion on the informal sector non-agricul-of Total Workers of Informal of Total Workers of Informal tural enterprises for the first time as a part Workers HH Workers Workers HH Workers

of the employment-unemployment sur-Andhra Pradesh 59.81 68.15 87.76 53.96 71.36 75.62 vey. Information on workers including Assam 34.64 51.19 67.66 35.20 40.32 87.28 Bihar 57.21 53.12 107.71 44.37 48.30 91.87

those working in the proprietary and

Gujarat 40.14 61.40 65.38 53.03 52.25 101.50partnership non-agricultural enterprises Haryana 30.85 54.47 56.64 48.59 56.82 85.52 was also collected for each member of the Karnataka 69.60 68.56 101.51 45.15 48.84 92.45

Kerala 37.96 64.42 58.93 41.88 54.03 77.51

household during the employment-unem-

Madhya Pradesh 58.37 59.46 98.18 39.37 53.91 73.04ployment survey. (In this survey all un-Maharashtra 51.71 56.05 92.25 44.43 54.46 81.58 incorporated proprietary and partnership Orissa 87.58 67.41 129.91 41.18 62.22 66.18

Punjab 37.64 61.44 61.27 54.28 59.87 90.66

enterprises were defined as informal sec-

Rajasthan 36.89 58.28 63.29 39.02 52.97 73.67

tor enterprises1 (NSSO 2001, see Table 1).

Tamil Nadu 51.69 74.94 68.97 44.12 55.64 79.30 In other words, the estimated number of Uttar Pradesh 68.91 70.64 97.55 57.23 69.30 82.58 West Bengal 69.49 82.05 84.69 40.12 44.58 89.99

workers in the informal non-agricultural

All India 55.20 64.74 85.26 46.84 55.27 84.75

enterprises is given based on the enterprise survey (Schedule 2.0) as well as the Note: Figures on informal sector workers have been given by NSS, following both enterprise survey approach (Schedule 2.0) and household survey approach (Schedule 10).

household survey (Schedule 10) in both

Source: Absolute number of informal sector workers are taken from Informal Sector in India, 1999-2000,the rural and urban areas. Interestingly, Salient Features, NSS 55th round (1999-2000), Report No 459(55/2.0/2).

Table 2: Relative Size and Composition of Informal Sector: All India (1999-2000)Table 2: Relative Size and Composition of Informal Sector: All India (1999-2000)Table 2: Relative Size and Composition of Informal Sector: All India (1999-2000)Table 2: Relative Size and Composition of Informal Sector: All India (1999-2000)Table 2: Relative Size and Composition of Informal Sector: All India (1999-2000)

Category (Industry) OAE Workers Informal Enterprise Per Cent Dist of OAE Workers Informal Enterprise Per Cent Dist of in Informal Sector Workers as a Per Informal Enterprise in Informal Workers as a Per Informal Enterprise (Per Cent) Cent of Total Workers across Secctor (Per Cent) Cent of Total Workers across (Rural) Workers (Rural) Categories (Rural) (Urban) Workers (Urban) Categories (Urban)

Manufacturing 84.06 78.56 44.4 46.53 56.35 29.9 Constructon 78.29 15.14 3.8 60.00 15.36 2.9 Trading and repair services 92.66 87.96* 30.1 63.13 75.63* 41.1 Hotels and restaurants 77.11 4.2 41.83 6.6 Transport, storage and communications 80.24 39.59 6.4 71.11 33.16 6.8 Financial intermediation 57.14 0.2 44.44 0.7 Real estate, renting and business activities 74.19 34.72** 0.8 46.28 38.57** 3.0 Education 35.59 1.5 26.09 2.9 Health and social work 83.33 1.4 35.82 1.7 Other community, social and personal

services (excluding domestic services) 93.81 27.09*** 7.3 68.68 19.95*** 4.6 All 85.76 55.20 100.0 55.32 46.83 100.0

Notes: (1) OAE stands for own account enterprises. Ent. is the short form for enterprises.

  • (2) *Trading, etc, includes hotels, etc, ** real estate, etc, includes finance and ***community services include education and health. Though informal sector corresponding to Community, etc, does not include domestic services, total workers in this category include them, resulting in underestimation of the relative size of informal sector in this category.
  • (3) The percentage of informal sector workers has been calculated by applying the NSS work participation (UPSS) rate to the 2001 Census-adjusted population figures for 1999-2000. For various industry divisions or categories the absolute figures are obtained by applying the NSS figures of per thousand distribution of workers.
  • Source: See Table 1.

    Economic and Political Weekly June 24, 2006

    in the informal sector in the rural and urban areas respectively (obtained from the enterprise survey). On the basis of the household survey the estimates are 65 and 55 per cent for rural and urban areas respectively. Both the estimates, however, are indicative of a very large percentage of workers being engaged in the informal sector. Both in the rural and urban areas, workers from own account enterprises comprise a very significant percentage of the total informal sector workers (Table 2). Though own account enterprises comprise the bulk (85 per cent) of the informal sector workers in the rural areas, urban areas show an almost equal distribution of workers across own account enterprises and establishments.

    Across states as observed from Table 1, the urban areas of Andhra Pradesh, Gujarat, Haryana, Punjab and Uttar Pradesh

    Table 3: The Effect of Industry andTable 3: The Effect of Industry andTable 3: The Effect of Industry andTable 3: The Effect of Industry andTable 3: The Effect of Industry and
    Urbanisation on Informal SectorUrbanisation on Informal SectorUrbanisation on Informal SectorUrbanisation on Informal SectorUrbanisation on Informal Sector

    Exp Var INFR1 INFR2 INFU1 INFU2
    Indus Urban Intercept Adj R2 0.34 (0.38) -0.81 (-1.16) 70.43 (4.78)* -0.01 -0.55 (-1.22) 0.45 (1.28) 62.52 (8.42)* -0.01 0.44 (1.33) -0.16 (-0.61) 41.77 (7.59)* 0.004 -0.19 (-0.42) 0.005 (0.01) 59.62 (8.22)* -0.14

    Notes: INFR1 and INFR2 are the two alternative estimates of informal sector in the rural areas as given in Table 1. Similarly INFU1 and INFU2 are for the urban areas. Indus and urban are the estimates of organised industry’s share in net state domestic product and the percentage of population residing in the urban areas respectively.

    * represents significance at 5 per cent level.

    Table 4: Unorganised SectorTable 4: Unorganised SectorTable 4: Unorganised SectorTable 4: Unorganised SectorTable 4: Unorganised Sector
    Employment from Residual Approach:Employment from Residual Approach:Employment from Residual Approach:Employment from Residual Approach:Employment from Residual Approach:
    All IndiaAll IndiaAll IndiaAll IndiaAll India

    Industry Total Organised Unorganised Division Employment Employees

    in 2000 as a Per Cent of Total Workers in 1999-2000

    Agriculture 14,18,000 99.41 Mining 10,05,000 55.73 Manufacturing 66,16,000 84.88 Utilities 9,87,000 21.89 Construction 11,49,000 93.45 Trade 4,93,000 98.79 Transport 31,47,000 78.34 Finance 16,54,000 65.18 Services 1,14,94,000 65.34 Total 2,79,60,000 92.98 Total non-agriculture 90.20

    Source: Figures on organised sector (public and organised private) are taken from Economic Survey, 2003-04, quoting figures reported by DGE&T, ministry of labour.

    reported a somewhat higher estimate of informal sector employment in relative terms compared to the national average (from the enterprise approach). Even as per the household approach Andhra Pradesh, Haryana, Orissa, Punjab and Uttar Pradesh registered a higher figure than the urban India. As far as the rural areas are concerned, states like Karnataka, Orissa, Uttar Pradesh and West Bengal reported a very large share of informal sector employment, much above the national average, based on the the enterprise approach. However, based on the household approach Tamil Nadu, Uttar Pradesh and West Bengal turned out to be the outliers. On the whole, states with both high and low levels of industrialisation reveal a very large share (more than half) of informal sector in total employment across both rural and urban areas, which tends to support Papola’s (1981) view, though the processes and causes of growth of the informal sector in both the situations are quite different. As Table 3 shows both industrialisation and urbanisation turned out to be insignificant in explaining the variations in the relative size of the informal sector.

    Differing EstimatesDiffering EstimatesDiffering EstimatesDiffering EstimatesDiffering Estimates

    The incidence of informal sector defined as the proportion of informal sector workers to total workers is highest in trade, etc, followed by manufacturing, transport and real estate, business services, etc. Though community, social and personal services are also expected to show a high incidence of informal sector employment, the exclusion of domestic services from the informal sector survey has reduced its share (Table 2). In terms of composition it may be noted from Table 2 that trade and manufacturing account for 70 to 75 per cent of the total informal sector employment. However, in urban areas the share of trade, etc, (41 per cent) exceeds that of manufacturing (30 per cent). Hence, the dominance of the tertiary activities in the informal sector, which was observed three decades back [see Udall 1976 and Mitra 1990], does not seem to have undergone any major change.

    Another estimate of informal sector is obtained by following the residual approach, i e, the number of organised sector workers for the year 2000, as estimated by Directorate General of Employment and Training (DGE&T) of the ministry of labour, has been deducted from the total number of workers for 1999-2000 (Table 4). The figures on the share of unorganised sector across activities are quite similar to the estimates given by Sakthivel and Joddar (Table 8). As per this estimate, unorganised sector comprises around 90 per cent of the workers in the non-agriculture sector in all areas (rural and urban combined). But the organised sector employment as reported by the DGE&T is a gross underestimate, implying that the unorganised sector employment is overestimated.

    Some of these points are indeed important and need to be mentioned in the context of the relative size of the informal (unorganised) sector workforce in India.

    m

    Email: arup@iegindia.org

    NoteNoteNoteNoteNote

    1 This is different from the definition of unorganised sector used in the National Account Statistics, which considers enterprises run by cooperative societies, trusts, private and public limited companies (not covered by ASI), in addition to the units covered by the NSSO’s definition of informal sector as mentioned above.

    ReferencesReferencesReferencesReferencesReferences

    Mitra, Arup (1990): ‘Duality, Employment Structure and Poverty Incidence: The Slum Perspective’, Indian Economic Review, Vol 25, No 1.

    Papola, T S (1981): Urban Informal Sector in a Developing Economy, Vikas Publishing House.

    Sakthivel, S and Pinaki Joddar (2006): ‘Unorganised Sector Workforce in India: Trends, Patterns and Social Security Coverage’, Economic and Political Weekly, May 27, Vol XLI, No 21.

    Udall, A T (1976): ‘The Effects of Rapid Increases in Labour Supply on Service Employment in Developing Countries’, Economic Development and Cultural Change, Vol 24, No 4.

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