The recent release of the Annual Survey of Unincorporated Sector Enterprises (ASUSE) for 2021-22 and 2022-23 have brought into the discussion the decline in the number of workers in unincorporated manufacturing enterprises. Compared to the 73rd round of National Sample Survey (NSS) which looked at these unincorporated manufacturing enterprises in 2015-16, number of such enterprises have declined by 12% in 2021-22 and workers in these enterprises have declined by 22.5% at all India level. We see some buoyancy in 2022-23. As compared to 2015-16, unincorporated manufacturing establishments in 2022-23 have declined by 9% and workers by 15% at all India levels. The decline is more prominent in urban India as compared to rural India. The decline is sharper for workers as compared to the number of enterprises for both rural as well urban enterprises. (Figure 1 and Table 1)
Figure 1: Changes in unincorporated manufacturing in India
Table 1: Changes in unincorporated manufacturing enterprises as compared to 2015-16
The intervening period between 2015-16 and 2021-22 was tumultuous for businesses in India as it contained withdrawal of high denomination currency notes or demonetization in November 2016, introduction of Goods and Services Tax (GST) in July 2017 and inset of Covid-19 pandemic lockdowns and aftermath since March 2020. Hence, the decline is not entirely surprising.
Some commentators have tried to interpret this decline as a sign of possible move towards formalization. As per this argument, decline in unincorporated enterprises is due to their reincarnation as incorporated entities. Demonetization and GST are seen as forces for this formalization. One of the ways this argument is plausible is as follows. Larger unincorporated manufacturing enterprises, in turnover and number of employees, have become incorporated during this period. This can explain sharper decline in urban as compared to rural and in number of workers as compared to number of enterprises. Nonetheless, the difficult economic environment in the immediate aftermath of each of these three events would have led to some closure and realignment as well. Very broad evidence that aligns with the formalization narrative is from Annual Survey of Industries which shows that number of factories in India have increased by 7% during 2015-16 to 2021-22. It need not be said that much needs to be read, caveats and changes of definitions, between these broad lines.
The All-India change need not reverberate equally among all India states. Same applies to the case at hand. Figure 2 shows that a single state, West Bengal, has a greater decline in the number of rural unincorporated manufacturing enterprises than what is observed at all India levels. For the top 15 states in terms of their share of the number of enterprises in 2015-16, 7 states have shown an increase in the number of enterprises, 2 (Karnataka and Uttar Pradesh) are largely unchanged and others have shown a decline. Maharashtra, Madhya Pradesh, and Gujarat, key states in Western India, all have registered an increase in the number of rural unincorporated enterprises during this period.
Figure 3 shows that a similar pattern is observed when it comes to the number of workers in unincorporated rural manufacturing enterprises. All southern states have registered a decline in the number of workers while Western states have shown an increase. West Bengal has shown decline larger than all India decline. The peculiar nature of the economy of West Bengal is evident by the disproportionately larger share of rural unincorporated manufacturing enterprises it had.
Figure 2: Changes in number of rural unincorporated manufacturing enterprises in India
Figure 3: Changes in workers in rural unincorporated manufacturing enterprises in India
On the other hand, the urban picture is almost uniformly declining across the leading 15 states. (Figure 4 and Figure 5). Maharashtra is a considerable exception to the decline in number of urban unincorporated manufacturing enterprises. But when it comes to the number of workers, Maharashtra too shows the decline. Like all India observations, the decline in workers is of larger percentage magnitude than decline in the number of enterprises.
Figure 4: Changes in number of urban unincorporated manufacturing enterprises in India
Figure 5: Changes in workers in urban unincorporated manufacturing enterprises in India
The decline of employment in unincorporated manufacturing enterprises is concentrated in urban areas while in rural areas, there is region wise variation. One possible implication of the larger decline in the number of workers as compared to the number of enterprises is reduction in the number of enterprises which are hiring employees. We see a somewhat contrasting picture in all India numbers.
Table 2
| Year/Area | Rural | Urban | ||
Percentage of enterprises with hired employees | Average annual emoluments of hired employees (Rupees) | Percentage of enterprises with hired employees | Average annual emoluments of hired employees | |
2015-16 | 8.03 | 56001 | 23.44 | 85515 |
2021-22 | 5.47 | 96851 | 20.39 | 116082 |
2022-23 | 6.93 | 96663 | 21.45 | 129454 |
We see the signs of buoyancy, from 2021-22 and 2022-23, that we observed in the all-India picture before. First, rural unincorporated manufacturing is largely about self-employment and that is largely unchanged. But the emoluments, which include wages/salary as well as other expenditure of the employer on employees, have risen sharply for rural hired workers during 2015-16 to 2021-22 (73%) as compared to urban (36%). Between 2021-22 and 2022-23, urban hired workers in unincorporated manufacturing enterprises have witnessed about 10% increase in emoluments while rural emoluments have stagnated.
The rural-urban demarcation in India is fraught with riddles. The census classification is likely to be disjoint from reality and more so since we lack the updated census classification. It is possible that positive rural changes, at least partly, are driven by changes on administrative urban boundaries, where enterprises have emerged either due to relocation or emergence of economic activity due to spread of urban footprint. A more nuanced analysis can shed more light on it.
In summary, there is a marked loss of urban unincorporated manufacturing employment which is seen uniformly across states. For rural India, we see regional patches of loss and gain. In both cases, we see some signs of buoyancy as the economy has moved further away from the shadow of pandemic. Much remains to be seen in these broad contours, especially in terms of whether loss is concentrated in certain types of enterprises and peculiarity of certain states like West Bengal.
Dr. Kiran Limaye is the Assistant professor at Centre for Excellence in Entrepreneurship and Development, Gokhale Institute of Politics and Economics, Pune. kiran.limaye@gipe.ac.in. Surabhi Sharma has provided support for the analysis.
