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Informal enterprises in non-agriculture activities are often characterized as low productivity entities relative to formal enterprises. However, in India, we observe wide variations in productivity levels of informal enterprises across states. The mainstream literature often attributes low levels of productivity in informal firms to institutional constraints such as lack of access to credit, infrastructure, bargaining power, low technological progress, low levels of managerial capital, and unequal exchange relations between informal and formal firms. These approaches, however, characterize informality in an undifferentiated manner and do not capture the possibility of informal enterprises as the sites of accumulation in a process of market growth and associated structural change.
This paper aims to explore the relationship between accumulation in non-agricultural informal enterprises and the nature of growth and structural change in India. It aims to discuss the variations in the nature of informality across major Indian states in relation to the variations in the nature of agrarian change, market growth, rural non-farm growth, and petty commodity production.
The study uses the data from various rounds of National Sample Survey (NSS) on unincorporated non-agricultural enterprises and employment and unemployment surveys, Census, Handbook of Statistics on Indian Economy of Rerseve Bank of India and Annual Survey of Industries. Major Indian states are classified into four groups based on the relative surplusness of labour (RSL) and per capita income with reference to all India averages. RSL is defined in terms of sectoral shares of employment vis-à-vis output. Variations in output per worker in agricultural and in non-agricultural formal and informal enterprises across the four groups are studied.
It is observed that higher levels of per capita income are associated with higher absolute levels of productivity in agriculture and non-agriculture. Groups with higher levels of per capita income have higher levels of productivity in non-agricultural informal enterprises as well. Two scenarios of high growth emerge: 1) shares of agricultural output and employment fall in tandem (the value of RSL in agriculture is declining and tends towards one i.e., virtuous structural change); and 2) fall in share of agricultural output is greater than the fall in share of employment (value of RSL is rising and moves away from one i.e., distorted structural change). Productivity levels of non-agricultural informal enterprises in the case of virtuous structural change are likely to be higher than in the case of distorted structural change.
The paper suggests that a) per capita income alone cannot explain the variations in informality; b) the nature of market growth and associated structural change may be important factors in explaining the variations in the productivity levels of non-agricultural informal enterprises; and c) it is worthwhile to explore the various regional trajectories of capital accumulation in agriculture and non-agriculture in India.
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