Decades of planning and policy making did not lead to adequate growth of output and employment of the labour-intensive manufacturing segment in India. This deficiency led to the bulk of the workforce getting bound to agriculture. This coupled with declining agricultural growth rates has resulted in low land to man ratio, low income from land and poor agricultural wage rates (that are lower than most other rural occupations). All this implies that the bulk of the working poor continues to be in agriculture and in rural India.
Rural employment rates improved during 1999-00 to 2004-05 after years (1983 to 1999- 2000) of low rural employment growth rate (Sundaram, 2007; Unni and Raveendran, 2007; Abraham, 2009). This was due to emergence of employment alternatives with the growth of the rural non-agricultural sector. This provided employment to many in a labour force that was desperate for jobs, as the agricultural sector was going through a bad patch.
This research was an attempt to understand the nature of growth of the rural non- agricultural sector in India. Our observations follow.
Over the last few decades the rural non-agricultural sector grew at a rapid pace in India, as evident from a 13.08 per cent point increase in its share in the rural National Domestic Product during the period 1999-00 to 2004-05. This was not matched by a commensurable change in its share in the workforce indicating a high labour productivity of the rural non-agricultural workforce. Over the last decade or so, the boom in rural
activities with increased public expenditure on the rural economy. These kind of jobs led to the increased casualisation of the workforce. It appears that distress-induced expansion of the rural non-agricultural sector also increased workforce casualisation. The spurt in short-term rural employment as indicated by the rise in rural subsidiary status employment across all employment categories, is possibly due to rise in low skill, seasonal work like assembling, packaging, etc.. Perhaps growth induced expansion of the rural non-agricultural sector generates employment that are more permanent in nature.
We infer that rural regions that have a history of generating surplus or are able to attract private investment due to the presence of certain skills or better rural infrastructure etc., are likely to see rise in self-employment and regular wage jobs. The observed spatial variation in the growth of this sector in India could be partly attributed to inter-regional disparities existing since colonial times. The rest may be attributed to the policies of the concerned state government.
In the course of this work, we focused on constructing an empirical sketch of the rural organised manufacturing segment in India, analyse its data trends and understand the phenomenon underlying these empirical observations, for the period 1998-99 and 2007- 08. Our inferences follow.
Rural organised manufacturing industries (IC 15 to IC 37) as well as urban industries had robust returns to capital during the study period, as evidenced by two-digit profit rates.
Profits got further inflated in the rural industries segment as wage rates of rural workers were lower than their urban counterparts. High capital accumulation may have somewhat dampened the average profit rate of rural industries. The higher growth in profit rate of rural industries is attributed to falling wage share, rising output to capital ratio underpinned by steep rise in labour productivity. Extensive use of capital as indicated by
higher levels of capital per capita in rural industries has possibly driven up labour productivity of this segment. It appears that capital usage is being promoted over labour usage in the rural industries segment. The observed burgeoning profit share and increasing wage rate in the rural industrial segment also points to a high rise in labour productivity. Rural industries also reported higher rate of growth of output92 with rising profit rate levels. The rural industries segment outperformed their urban counterparts as evidenced by higher growth in both profit rate and output and sharper rise in labour productivity. But labour did not get commensurable compensation as evidenced by falling wage share and low wage rates. We infer that distribution of income across classes was far more skewed in the rural industries segment compared to the urban industries segment.
We have attempted to capture the empirical observations in terms of an analytical model.
The model generates the following results. The short-run equilibrium output of the rural industrial sector increases with increases in rural industrial wage rate and labour per unit of output. This is because increases in purchasing power of workers as well as workforce size (demand-side effect) overshadows the effect of price rise (supply-side effect). This is under the assumption that the price mark-up is constant. In the case, where the price mark-up varies with the industrial wage rate the demand-side effect prevails, only if the marginal propensity of consumption of industrial workers is sufficiently greater than zero. We infer that in reality the output increased with a decline in labour per unit of output and increase in wage rate because the impact of the rise in wage rate prevailed over the impact of decline in labour per unit of output.
Next, we examine the growth of output in our model. Growth increases with a decline in
model. In both cases the profit share increases that pushes up the profit rate. Investment improves and results in a higher growth rate of output. Empirically the output growth rate, profit share and wage rate of the rural industrial segment were all rising, during the study period. We ascribe this to the steep increase in labour productivity. The sharp rise in labour productivity pushed up profit share and overshadowed the negative impact of rising wage rate. Rising profit rate resulted in an increase in investment. This in turn improved the growth rate of output. Empirically the rise in capital productivity made an additional contribution to growth.
Our results contribute to the existing body of literature in three ways. First, we extended the profit rate analysis of the heterodox economics tradition for assessing the growth of the rural organised manufacturing industries segment in India as well as to its urban counterpart. The existing studies on the growth of the rural non-agricultural sector in India have not examined profit rates to assess the growth of the rural economy as a whole or any part of it. The few existing studies on profitability analysis of India’s organised manufacturing sector have not provided the rural-urban break-up. Second, by providing an elaborate empirical analysis of the rural organised manufacturing segment in India we added to the scant literature of this particular industrial segment. Third, we provided an analytical model of the rural industrial (modern) sector and examined its macroeconomic behaviour. The framework integrates the impact of industrial worker’s wage rate and labour productivity on the output of this sector. It brings to focus the significance of the worker’s wage rate as well as his productivity in the performance of the rural sector in a developing economy. To our knowledge, Ranis and Stewart’s (1993) dual sector model is one existing dual sector model that associates the modern, industrial sector with the rural; but with a focus on inter-sectoral linkages.