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Informality in Indian Manufacturing

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Type: Conference Paper
Author: Giri, Rahul; Verma, Rubina
Conference: Informality and Development: A Conference in Honor of Elinor Ostrom
Location: Indiana University, Bloomington, IN
Conf. Date: October 22-23
Date: 2016
URI: http://hdl.handle.net/10535/10165
Region: Middle East & South Asia
Abstract: "The objective of this paper is to characterize informality in output and employment in the Indian economy for the period 1978-2005, with a special emphasis on the manufacturing sector. We first present statistics on growth and employment for India as well as for three sectors - agriculture, industry and services- for the time period 1950-2005. We also present data on employment in informal and formal enterprises and highlight how informality in both formal and informal enterprises has grown over the years. This is further confirmed by comparing India with 40 other developing countries, where we find that the share of informal employment in non-agricultural employment is the highest among all the countries, and Indian manufacturing is a sector where the degree of informality is strikingly high. We document informality in Indian manufacturing carefully by examining detailed data on value added, employment, capital-labor ratios and trade at the 3 digit level for the manufacturing industries during the 1978-2010 period and highlight those industries in which informality has been increasing and dominant. Importantly, the level of informality in Indian employment has remained persistently high despite the rapid growth in GDP and GDP per capita seen since 1991, which is when India initiated the process of liberalizing the domestic industrial policy as well as its trade policy. While the real GDP per capita growth averaged about 5% pre 1990, it jumped to 6% during the decade of the 90s and then increased further to 7:5% during the decade of 2000s. However, this rapid growth in output did not translate into growth in employment - employment growth post 1990 is not significantly different from pre 1990. This pattern of growth in India has been referred to as 'jobless growth'."

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