Growth Characteristics of the Unorganized Sector in India in the Post-reform Era

It traces the pattern of growth of the unorganized sector at disaggregated levels identifying the factors responsible for the growth and the associated changes in productivity after reforms. Liberalization affects the unorganized sector through exposing the hitherto protected producers to cut-throat competition in the market leading to decline of a sizeable section of them. However, many competent producers may locate markets beyond their neighbourhood and grow quickly. Further, the corporate develops subcontracting relationships with the small producers and also contracts out non-core activities like housekeeping or security to the unorganized sector enterprises in an effort to minimize costs and avoid labour laws. Moreover, distress-driven growth of the own account enterprises is no less important in the context of liberalization. The sector started with moderate growth of employment and number of enterprises in the 1990s, then to high growth during 2000s, and thereafter in the first half of 2010s it considerably slowed down. Labour productivity growth was however found to be faster when employment growth was slow and vice versa. Since efforts were made to improve the quality of employment, not just growth of employment, the latter is studied together with changes in productivity and other conditions. Size-class-wise estimates reveal that relatively larger sized enterprises like directory establishments could benefit more than the OAEs, both in terms of share of employment and number of enterprises.