5-2 Exponential growth in capital and labor productivity in India's organized manufacturing industries in the rural and urban sectors (1997-98 to 2007-08). 5-4 Exponential Growth in Wage Bill and Capital Stock to Wage Bill Ratio in India's Organized Manufacturing Industries in Rural and Urban Sectors (1997-98 to 2007-08).
Background
Stuctural Change: Theoretical Perspectives
Historically, with the development of the economy comes a secular decline in the share of agriculture in national production and employment. In the initial phase of economic development, the share of the industrial sector in both national production and employment increases, while the share of agriculture decreases.
India at Independence and India’s Plans and Policies
- Period 1900 to 1946
- Economic Imperatives at Independence
- The First, Second and Third Five Year Plans (1950 to 1966)
- The Fourth and Fifth Five Year Plans (1969 to 1979)
- The Sixth and Seventh Five Year Plans (1980 to 1990)
- The Eighth and Ninth Five Year Plans (1992 to 2002)
- The Tenth, Eleventh and Twelfth Five Year Plans (2002 to 2014)
Through the Third Plan, only 23.3 percent of the Plan expenditures were allocated to the rural economy (refer Table 1-2a). The labor force grew at a rate of 2.5 percent, while the average annual growth rate of employment was 2 percent.
Structural Change in India
- The Agricultural Sector
- The Industrial Sector
- The Services Sector
- Our Inference
Table 1-7 and Table 1-8 show that the greater employment elasticity of the industrial sector can be attributed to the construction segment. The output of the service sector has exceeded the combined output of agriculture and industry since 2004-05.
The Issues
Calculated using data from the NSS 66th Round of Employment and Unemployment Survey. . decades or more, regardless of its extraordinary contribution to the development of agriculture in particular and the rural economy in general". iv) Poverty and vulnerability to poverty is prevalent, especially in rural India. v) Inability to create productive jobs, especially for unskilled labor. The economic imperatives include alleviating poverty, generating productive employment and improving employment growth rates especially in rural India.
The Rural Scenario
Some researchers (Unni and Raveendran, 2007; Abraham, 2009; Dev, 2017) have commented that the nature of jobs created in the rural unorganized and non-agricultural sector was short-term and of low quality. Organized rural manufacturing industries9 form a small but distinct segment of the rural non-agricultural sector in India.
Research Objectives
Estimating the quantum of growth of the rural non-agricultural sector is a complex problem on two counts. Research Question 1: What does literature and evidence say about the nature of growth of the rural non-agricultural sector in India.
Definitions, Data Sources and Methodology
Definitions
The answers to the questions can give us a clue about the policies to be implemented to promote paid employment in rural areas. However, at this stage we stick to rural non-agricultural employment as employment located in rural areas.
Data Sources and Methodology
To calculate and analyze profit rates and growth in output of the rural organized manufacturing segment (i.e. the second target), the data source is Time-Series Data on Annual Survey of Industries (1998-99 to 2007-08), published by the Ministry for Statistics and Program Implementation, Central Statistical Organization (CSO). To construct an analytical framework, to identify the determinants of short-term output and medium-term output growth in the rural organized production segment (i.e., the fourth objective), we use simple but powerful relationships provided by macroeconomic theory.
Chapter Outline
This chapter is primarily a review of selected literature on the growth of rural non-farm sector in India. This chapter focuses primarily on identifying the factors driving the change in profit rates in rural industries.
An Overview from Developing Economies
In China, the rural non-agricultural sector took off with the introduction of the labour-intensive Township and Village Enterprises (Bardhan, 2010). Bangladesh has a diverse bunch of rural non-agricultural livelihoods such as manufacturing, trade and restaurant, transportation, community and personal service, etc.
Rural Non-Agricultural Sector in India: An Outline
Assessing Growth of the Rural Non-Agricultural Sector
- Share of Rural Non-Agricultural Sector in Rural NDP
- Growth in Size of Rural Non-Agricultural Workforce
- Profit Rates of Rural Manufacturing Industries
This is a period when there was also a significant increase in the rural non-agricultural workforce. Possibly labor intensive jobs were created in the rural non-agricultural sector resulting in increased production.
Emerging Segments of the Rural Non-Agricultural Sector
In the 1990s, the other segments with a significant share of the rural non-farm workforce were trade and community, social and personal services. The share of the rural non-farm workforce in community, social and personal services was significant but trended downward.
Spatial Variations in Rural Non-Agricultural Workforce Size
In the period 1999-00 to 2004-05, there was a marked increase in the share of the rural non-agricultural workforce in Odisha. Some states such as Kerala, West Bengal, Tamil Nadu, Punjab and Haryana consistently had relatively high shares of rural non-agricultural labor force.
Rural Employment Patterns
- Self-Employment
- Regular Wage Employment
- Casual Employment
Since the 1990s, the majority of male and female rural workers have been employed in the service sector. However, the share of female regular wage workers in rural areas has increased in the service sector during the said period.
Rural Wage Rates
- Rural Income: Evidence from Field Studies
- Rural Wages: Studies Based on Secondary Data
- Factors Impacting Wage Rates in Agriculture
Findings to date show that agricultural wages set the wage floor in the rural economy. Agricultural wages increased with the implementation of the MGNREGS rural program (Imbert and Paap, 2012; MGNREGA Sameeksha, 2012; Nagaraj et al, 2014).
Rural Monthly per Capita Expenditure and Consumption Pattern
In the non-food item category, the largest share of expenditure was on miscellaneous goods and services, during 1999-00 to 2004-05. The higher monthly per capita consumption expenditure (MPCE) classes in the rural economy showed significant increases in spending on cereals, milk and milk products, processed food, durables, consumer services and fuel and light.
Chapter Summary
The next chapter examines the factors driving the growth of the non-farm rural sector in India. We begin by describing frameworks that theorize the impact of agricultural performance on rural nonfarm sector growth.
Linkages between Agriculture and Non-Agriculture: Review of Selected
- Mellor’s Posit and Its Relevance in Developing Economies
- Vaidyanathan’s Hypothesis
- Critique of Vaidyanathan’s Hypothesis
- Chandrasekhar’s Analytical Framework
- Distress Driven Growth: Other Findings
- Growth of the Rural Non-Agricultural Sector: Other Factors
- Increase in Public Expenditure
- Increase in Private Investment
In these agriculturally backward regions, the growth of the rural non-agricultural sector appears to be caused by poverty. Thus the virtuous cycle arising from farmers' surplus leads to the growth of the rural non-agricultural sector.
Chapter Summary
Distress-induced growth and increased casualization (as discussed in Chapter 2) of India's non-farm rural sector are exacerbating the problem of inadequacy in the number and quality of rural employment. In Mellor, prosperity is rooted in the agricultural sector, leading to growth in the rural non-farm sector.
Profit Rate and Growth in Output: The Relationship
In his seminal work, Weisskopf (1979) explains how a decline in the rate of profit causes an economic crisis. We empirically analyze the rates and growth of profits, the rate of profit and the output of the segment of organized production in rural areas.
Profits, Profit Rate and Output: An Empirical View from India’s Rural and
- Profits
- Profit Rate
- Growth of Profit Rate
- Output and Growth in Output
Most (six each) industries in the rural and urban sectors recorded profit rate growth in the range 0% ≤ 𝑔𝑟 ≤ 10%, where 𝑔𝑟 is the profit rate growth rate. The higher growth rate of profit margin in the rural sector compared to the urban sector bodes well for the rural economy.
Profit Rate Decomposition Analysis: The Theoretical
Change in profit share and change in output-capital ratio drive change in profit rate in the medium term. Changes in the profit share and the output-capital ratio have also been higher in rural areas.
Chapter Summary
It shows that the capital growth per capita in the rural sector was lower, because the capital intensity in the rural sector industries was already much higher than in the urban sector industries in the considered period.
Economic Indicators
Labour Force Size, Productivity
Labor productivity recorded positive growth rates for most industries in both sectors (17/23 rural industries and 14/23 urban industries). In the first case, increasing capital productivity and capital per unit of labor led to an increase in labor productivity ([5-1]). ii).
Wage Bill, Capital Stock to Wage Bill Ratio
Exponential growth rate of fixed capital-wage ratio in organized industries in rural sector. Exponential growth rate of the ratio of fixed capital to the mass of wages in organized industries in the urban sector.
Data Trends and Relationships between Variables
𝑃1] Output from the organized rural manufacturing sector increases with increases in real wages and labor productivity of rural industrial workers. 𝑃2] The growth rate of output increases with an increase in real wages and real labor productivity for rural industrial workers.
Chapter Summary
The ratio of the capital stock to the wage bill (i.e. the organic composition of capital in the Marxist framework) was higher in rural industries. We capture the influence of agricultural wages on rural industrial wages.
The Objective
The output of the rural industrial sector is described using the fixed coefficient Leontief production function. This is likely to improve investment and lead to the growth of the rural industrial segment.
Dual Sector Models
The rural non-agricultural sector (called 𝑧 sector) produces traditional goods for local consumption (called 𝑧 goods). In addition, our model also determines the factors that drive growth (𝑔) of output of the rural industrial sector in the medium term.
A Model of the Rural Industrial Sector
- Determinants of Rural Wage Rates
- Output, Price and Distribution of Output
- Output in the Short-Run
- Demand
- Equilibrium Condition
- Growth in Output: Demand-Side and Supply-Side Conditions
The short-term production of the rural industrial sector is determined by short-term demand (Weisskopf, 1979). In other words, the short-run equilibrium output of the rural industrial sector increases as rural industrial wages rise and labor per unit of output increases.
Chapter Summary
In our model, output growth increases in the medium term with an increase in profit share and capital productivity. The surplus share rises again with a fall in industrial wages and an increase in labor productivity.
Conclusions
The observed growing profit share and rising wages in the rural industrial segment also point to a high increase in labor productivity. Empirically, the output growth rate, profit share and wage rate of the rural industrial segment were all increasing during the study period.
Policy Implications
Moreover, with an increase in the wage rate, a fairer distribution of income across classes in the rural economy cannot be ruled out either. We suggest that the choice of techniques across different industries should be such that capital productivity increases at the aggregate level so that the growth rate in output of the rural industrial sector is maintained, with rise in the wage rate.
Caveats and Possibilities for Future Research
This is only feasible and sustainable if there is both private and public initiative and investment in the rural industrial segment. In this context, an examination of existing industrial policies and the type of incentives offered to stimulate the growth of the rural industrial sector may be relevant.
The capitalist production process creates an imbalance in the distribution of wealth between classes. To overcome this situation, the capitalist either lowers his level of production (the average level of capacity utilization in the economy as a whole falls) or lowers the price of production.
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