While it is tempting to think of manufacturing as cutting-edge large factories, the reality in most emerging market economies including India can be very different from this. A lot of manufacturing in India, not just on employment but also the production front, is actually carried in the informal sector which are small sweatshops rather than capital-intensive, high-tech factories. The concluding part of this three-part data journalism series (Part I and Part II) will highlight this aspect of Indian
- Formal sector manufacturing has a disproportionate share in output vis-à-vis employmentThere is official data in India on the scope of both formal sector and informal sector manufacturing. Data on the former comes from the Annual Survey of Industry (ASI) , which looks at factories which are registered and above a threshold size, such as factories employing at least 10 workers using power or 20 without power; although it also looks at some establishments outside manufacturing. Data on the latter comes from the Annual Survey of Unincorporated Sector Enterprises (ASUSE) conducted by the National Sample Survey Office (NSSO) across establishments in manufacturing, trade, and other services. The latest period of data from ASI and ASUSE is for 2023-24. This shows that formal sector manufacturing (as seen in ASI) had Gross Value Added (GVA) which was 6.1 times more than the estimated GVA generated by informal sector manufacturing firms that participate in the market. On the other hand, the estimated employment in ASUSE was 2.2 times that in ASI. This underlines the within sector inequality problem in Indian manufacturing.
- But states that do well in formal sector manufacturing also do better in informal sector manufacturingWhile it is not the case that the ranks of different states are exactly same in formal and informal manufacturing GVA, there is a correlation between the two. For example, Maharashtra, Gujarat, Tamil Nadu, and Uttar Pradesh are ranked in the top five in both ASUSE and ASI manufacturing, but their ranks change by one or two places. Karnataka, which is ranked fourth in ASI manufacturing, does not figure in the top five in ASUSE, but it is still ranked seventh. This suggests that even informal manufacturing needs a formal manufacturing sector to thrive.
- While the formal sector’s long-term share in manufacturing value added has remained stable…This can be seen by comparing ASI manufacturing GVA with India’s total manufacturing GVA. ASI’s share in total manufacturing GVA has hovered between 50% (in 2001-02) and 65% (in 2011-12) between 1995-96 and 2022-23, the period for which the Centre for Monitoring Indian Economy (CMIE) allows one to separate the manufacturing part of ASI. To be sure, it is possible that some fluctuations seen in the data, or its lack, is just because of methodological changes. For example, ASI started counting rent earned from buildings as a factory’s output only from 2018-19. However, ASI’s share in overall manufacturing increasing since 2018-19 must not be read as a long-term trend becoming evident when data became consistent. A like-for-like comparison of GVA is possible using ASI’s unit-level data, which allows one to decide how to calculate output and input. This shows that open factories in ASI manufacturing had a 62% share in country’s manufacturing in 2008-09 (first year of the use of new NIC (expand) codes) and 63% in 2022-23 (last year for which unit-level data is available). These numbers are not drastically different from the ASI manufacturing as published in the reports, which shows this number at 65% in 2008-09 and 62% in 2022-23.
- Labour’s share in fruits of growth are unequally distributedBy one measure, the trend in India’s formal manufacturing has turned in favour of the shop floor workers. The share of workers’ wages – workers in ASI do not include managers – in gross value added has reversed its long-term falling trend in the last two decades. This means that wages are now a bigger share of the value created by workers. However, the data also shows that factories are now employing a greater share of contract workers and this number has increased almost three times in the last three decades. Contract workers are generally given lower wages and other benefits than permanent workers and therefore it ought to be seen as a cost-cutting measure by factories. When seen in the backdrop of the larger trend of manufacturing growth remaining stable over the long-term in India, this suggests a greater preoccupation with cost cutting than unlocking a higher level of value creation.
Abhishek Jha is Assistant Editor-Data at Hindustan Times. He uses statistical programming to generate newsworthy insights from large datasets. He is part of the team that produces Number Theory, a daily data story feature of the paper’s print edition. Since March 2024, he has been writing Weather Bee, a weekly column for the Hindustan Times website. He is a chemical engineer by training, who specialises in stories related to weather, climate, and the environment. Jha has been at HT since 2018, where he offers data-driven perspective and analysis on politics, environment, weather, climate, economy and society. His work includes data coverage of elections in India and abroad, including the 2019 and 2024 Lok Sabha elections; the disasters and extreme weather resulting from changing climate, such as floods, droughts, heat waves, cold waves, and dwindling snow cap in the Himalayas; the factors that drive poor air quality in northern India; the changing patterns of land use; the Covid-19 pandemic and its impact on labour market conditions; the changing pattern of consumer spending seen in the new consumer spending surveys; and social norms seen in the surveys such as the National Family Health Survey.
Roshan Kishore is the Data and Political Economy Editor at Hindustan Times. He heads the newsroom's data journalism team, which produces Number Theory, a daily data-driven feature for the print edition and the HT app. Number Theory uses data analysis and story-telling based on it to add value to the newsroom’s daily coverage by putting stories in a larger context on a range of issues, including politics, macroeconomy, markets, global affairs and climate. Under his leadership HT’s data journalism work has established itself as a niche product in Indian journalism and pushed the boundaries of marrying academic rigour with news sense and speed. Along with writing and editing data stories, he has also been writing a weekly political economy column called Terms of Trade for HT Premium. A trained economist with an MPhil degree from Jawaharlal Nehru University, Kishore has also been a visiting fellow at the Centre for Advanced Studies of India (CASI) at the University of Pennsylvania. Along with his journalistic work, his writings have also appeared in journals such as the Economic and Political Weekly and working papers for CASI and UNESCAP.