3.3-percentage-point gain but this is hardly adequate for transition to a modern economy. In contrast, China went from 19 percent urbanized population in 1980 to 45 percent in 2008, representing an average gain of 9.3 percentage points per decade. South Korea urbanized even faster during the 1960s and 1970s.
Flight of the Indian Entrepreneur from Labor
At the heart of this slow progress along all three dimensions is the flight of Indian entrepreneurs in the formal sector from low-skilled labor. It is ironic that in a country with nearly 470 million workers, all evidence indicates extreme and even increasing reluctance of Indian entrepreneurs to employ unskilled workers. The number of workers in all private-sector establishments with ten or more workers rose from 7.7 million in 1990â1991 to just 9.8 million in 2007â2008. Employment in private-sector manufacturing establishments of ten workers or more rose, on the other hand, only from 4.5 million to 5 million over the same period. 1 This small change has taken place against the backdrop of a much larger number of more than 10 million workers joining the workforce every year. Three key factors are behind this dismal picture.
Slow Growth of Manufacturing
A common feature of the fast-growing low-income countries has been rapid expansion of manufacturing, with the latter pulling unskilled workers from agriculture into gainful employment. This pattern characterized the rapid growth in Taiwan and South Korea in the 1960s and 1970s and in China more recently. Todayâs industrial economies, such as the United Kingdom, Germany, and the United States, also exhibited a similar pattern when they transformed themselves from primarily agricultural to nonagricultural economies.
But this pattern has failed to emerge in India despite rapid growth. The share of manufacturing in GDP actually fell from 16.8 percent in 1981â1982 to 15.8 percent in 2008â2009. Insofar as manufacturing is often a major source of gainful employment in a low-income but growing economy, its slow growth has been behind the slow movement of the workforce out of agriculture.
Poor Performance of Labor-intensive Manufacturing
Even with a stagnant share of manufacturing, some impetus to gainful employment of the unskilled could have come from a shift in the output composition of organized-sector manufacturing in favor of unskilled-labor-intensive and against capital- and skilled-labor-intensive activities. 2 Unfortunately, this did not happen either.
In a recent study, Das, Wadhwa, and Kalita (2009) analyze precisely this issue, using output and input usage data on ninety-six manufacturing sectors in the organized sector from 1990â1991 to 2003â2004. They identify thirty-one of these industries, such as food and beverages, apparel, textiles manufacture, and manufacture of furniture, as labor-intensive. These sectors accounted for only 12.94 percent of the gross value added in organized manufacturing in 1990â1991. Thus, the labor-intensive sectors were relatively unimportant in overall manufacturing to beginwith. But then they remained so: their share rose to 15.9 percent in 2000â2001 and fell back to 12.91 percent in 2003â2004. And in all likelihood, this share has further declined since 2003â2004. In fact, some of the fastest-growing industries between 2003â2004 and 2010â2011 have been automobiles, two-and three-wheelers, petroleum refining, engineering goods, telecommunications, pharmaceuticals, finance, and software. All these industries are either capital-intensive or skilled-labor-intensive.
What about exports? The changes in the composition of merchandise exports of India corroborate the shift in production share toward capital-intensive goods. As Figure 8.1 shows, engineering goods, chemicals and related products, gems and jewelry, and petroleum products, which are either capital-intensive or semi-skilled-labor-intensive, accounted for 41 percent of
Flight of the Indian Entrepreneur from Labor
At the heart of this slow progress along all three dimensions is the flight of Indian entrepreneurs in the formal sector from low-skilled labor. It is ironic that in a country with nearly 470 million workers, all evidence indicates extreme and even increasing reluctance of Indian entrepreneurs to employ unskilled workers. The number of workers in all private-sector establishments with ten or more workers rose from 7.7 million in 1990â1991 to just 9.8 million in 2007â2008. Employment in private-sector manufacturing establishments of ten workers or more rose, on the other hand, only from 4.5 million to 5 million over the same period. 1 This small change has taken place against the backdrop of a much larger number of more than 10 million workers joining the workforce every year. Three key factors are behind this dismal picture.
Slow Growth of Manufacturing
A common feature of the fast-growing low-income countries has been rapid expansion of manufacturing, with the latter pulling unskilled workers from agriculture into gainful employment. This pattern characterized the rapid growth in Taiwan and South Korea in the 1960s and 1970s and in China more recently. Todayâs industrial economies, such as the United Kingdom, Germany, and the United States, also exhibited a similar pattern when they transformed themselves from primarily agricultural to nonagricultural economies.
But this pattern has failed to emerge in India despite rapid growth. The share of manufacturing in GDP actually fell from 16.8 percent in 1981â1982 to 15.8 percent in 2008â2009. Insofar as manufacturing is often a major source of gainful employment in a low-income but growing economy, its slow growth has been behind the slow movement of the workforce out of agriculture.
Poor Performance of Labor-intensive Manufacturing
Even with a stagnant share of manufacturing, some impetus to gainful employment of the unskilled could have come from a shift in the output composition of organized-sector manufacturing in favor of unskilled-labor-intensive and against capital- and skilled-labor-intensive activities. 2 Unfortunately, this did not happen either.
In a recent study, Das, Wadhwa, and Kalita (2009) analyze precisely this issue, using output and input usage data on ninety-six manufacturing sectors in the organized sector from 1990â1991 to 2003â2004. They identify thirty-one of these industries, such as food and beverages, apparel, textiles manufacture, and manufacture of furniture, as labor-intensive. These sectors accounted for only 12.94 percent of the gross value added in organized manufacturing in 1990â1991. Thus, the labor-intensive sectors were relatively unimportant in overall manufacturing to beginwith. But then they remained so: their share rose to 15.9 percent in 2000â2001 and fell back to 12.91 percent in 2003â2004. And in all likelihood, this share has further declined since 2003â2004. In fact, some of the fastest-growing industries between 2003â2004 and 2010â2011 have been automobiles, two-and three-wheelers, petroleum refining, engineering goods, telecommunications, pharmaceuticals, finance, and software. All these industries are either capital-intensive or skilled-labor-intensive.
What about exports? The changes in the composition of merchandise exports of India corroborate the shift in production share toward capital-intensive goods. As Figure 8.1 shows, engineering goods, chemicals and related products, gems and jewelry, and petroleum products, which are either capital-intensive or semi-skilled-labor-intensive, accounted for 41 percent of
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