Unorganized Enterprises in India: Constraints and Prospects

Labour productivity (gross value added per worker) turned out to be much lower in manufacturing than in trade and services. The own account enterprises are worse off compared to the establishments. Further, the performance of the urban units is better than their rural counterparts. Capital–labour ratio proxied by fixed asset–labour ratio also follows a similar pattern. Manufacturing in both the rural and urban areas is endowed with lower capital–labour ratio and the establishments are more resourceful than the own account enterprises. Hence, it may be inferred that those who are self-employed are usually grossly engaged in low-productivity activities with poor capita endowment. In other words, the own account enterprises are the ones which comprise residual type employment while some of the establishments are dynamic and may have decided to remain small in order to avoid the tax burden. It may be further inferred that the subsidy and the provision of state support to the relatively larger units falling within the domain of the formal sector may not be adequate to encourage the unorganized sector units to register and become a part of the organized sector. The gains will have to be substantial for a firm to register itself as a formal sector unit. The unorganized manufacturing sector comprises a large majority of the total manufacturing employment in India. To ensure decent wages to the workers in this sector and to ensure pro-poor growth the units in this sector have to be made economically viable. One way of judging their economic viability is to consider the performance index in terms of technical efficiency relative to the organized sector units. The unorganized sector includes both household and non-household units. The analysis tends to offer little evidence in favour of positive links between the organized and the unorganized sector units perceived in terms of inter-sectoral efficiency differences and associations between them. Within the unorganized sector, units rather seem to reveal similar characteristics in terms of performance indicators while the organized sector units are much better performers. More importantly, the unorganized sector units are not able to benefit in the process of rapid economic growth.