Research Question 4: From an analytical point of view, what are the determinants of short-run output and medium-run growth in output of rural organised manufacturing industries in India?
The answers to the questions may give us a hint of the policies to pursue in order to promote gainful employment in the rural sector.
Saith in this category. Our study adopts Haggblade et al.’s (2010) definition. No further typography is being introduced at this juncture.
Rural non-agricultural sector: Lack of standard definition also exists on whether rural non-agricultural employment refers to the employment of rural households in any location or non-agricultural employment in rural locations. Saith (1992, cited by Ranjan) points out that “rural sector should include all economic activities which display sufficiently strong rural linkages, irrespective of whether they are located in designated rural areas or not”. This is a valid argument as production units may be set up in the vicinity of rural locations and driven by the rural sector in terms of capital, labour and raw inputs, due to the paucity of land in the villages. Such units generate employment for the rural populace and cannot be overlooked. However, at this stage, we adhere to rural non-agricultural employment as employment located in rural locations.
An absence of standard definitions for this sector is perhaps due to the fact that it “is a poorly understood component of the rural economy of developing countries” (Lanjouw and Lanjouw, 2001). They point out that this lack of understanding persists as not much research work has been done on this sector “both at the theoretical and the empirical level” although evidence shows that it has grown across the developing world (Lanjouw and Lanjouw, 2001).
1.3.2. Data Sources and Methodology
We studied selected books, journal articles, conference papers from the existing body of literature on the rural non-agricultural sector, to understand the growth of this sector (i.e.
the first objective). Our analysis is primarily based on several rounds of NSSO Reports
available. In our analysis, the reference period for employment and unemployment data is 1972-73 to 2009-10. Data from three quinquennial rounds: 50th Round (1993-94), 66th round (2009-10) and the 68th round (2011-12) of NSSO Reports on Employment and Unemployment in India have been used for analysis of distribution of rural usual status (both principle and subsidiary) workers across the rural agricultural and non-agricultural sectors, state-wise distribution across various industry segments of the rural non- agricultural sector and rural unemployment rates of current daily status, current weekly status and usual status rural workers. Data for 1972-73 (27th Round), 1977-78 (32nd Round), 1983 (38th Round), 1987-88 (43rd Round), 1993-94 (50th Round),1999-00 (55th Round) and 2004-05 (61st Round) and associated estimates have been obtained from literature to get a view on the distribution of rural non-agricultural workforce across industrial segments, increment in rural non-agricultural workforce, distribution of non- agricultural workforce by employment status. Data from NSSO Reports: 2000-01 (56th Round), 2002 (58th Round), 2004 (60th Round), 2005-06 (62nd Round),2006-07 (63rd Round),2007-08 (64th Round) and 2011-12 (68th Round) on Household Consumption Expenditure in India have been used to gauge changing rural consumption patterns.
To compute and analyse profit rates and growth in output of the rural organised manufacturing segment (i.e. the second objective), the data source is Time-Series Data on Annual Survey of Industries (1998-99 to 2007-08), published by the Ministry of Statistics and Programme Implementation, Central Statistical Organization (CSO). The results are based on analysis of data of twenty-three industries, industry code 15 to 37 of the aforementioned report, which provides nominal values of key characteristics (output, profits, capital stock, wage bill, number of workers) of rural and urban industries in the organised sector. We had to limit the period of analysis to these ten years because to our knowledge, ASI has not released disaggregated data of urban and rural sectors of other
years. Appropriate statistical and econometric tools and software have been used to calculate the relevant estimates. To realize the next part of the second objective, that is to compute levels and growth of other attributes (workforce size, labour productivity, capital productivity, labour compensation etc.) of the rural organised manufacturing segment, we use the aforementioned data source.
To identify the factors driving profit rate in the rural, organised manufacturing segment (i.e. the third objective), we use Basu and Das’s (2015) two-factor profit rate decomposition from a medium-run perspective, which is based on Weisskopf’s (1979) theoretical framework. We focus on the role played by the two factors, profit share and output-capital ratio, in driving profit rate. As our analysis is restricted to a limited time period, we did not divide the period into shorter time spans, as has been done by Weisskopf (1979) and Basu and Das (2015). Appropriate statistical and econometric tools and software have been used to calculate the relevant estimates.
To construct an analytical framework, to identify the determinants of short-run output and medium-run growth in output of the rural organised, manufacturing segment (i.e. the fourth objective), we use simple yet powerful relations provided by macroeconomic theory. We use the relationship between profit rate and the rate of growth of output provided by Pasinneti (1962) and Robinson’s (1962, cited in Basu and Das, 2016a) investment function, which illustrates the relationship between investment and profit rate.