Sectoral Trends In National Income Of India



Sectoral trends in National Income of India

In 1950-51, the share of the primary sec­tor in GDP was as high as 55.8%, while that of the secondary sector was only 15.2%. There has been a steady decline in the share of primary sector since then. It fell to 26% in 2000-01. On the other hand, over the entire plan period, as the industrial sector expanded, its contribution to GDP had been in­creasing and it rose to 22% in 2000-01.  

Along with the growth of the secondary sector, the terti­ary sector has also registered a higher growth dur­ing the last 50 years of planning. In 2000-01 its contribution was 52%.

The share of the tertiary sector (com­prising mainly the service sector) improved much, from 29% in 1950-51 to 52% in 2000-01. -The increase in contribution has been shared equally by the sub-sectors like transport, communication, trade, finance and real estate, community and per­sonal services.

The changing structure of national income, therefore, indicates industrialisation, though at a slow pace. Furthermore, one also notices structural changes within the industrial sector. During the plan period, India’s industrial structure tilted heavily in favour of capital goods industries.

This, of course, is a sign of industrialisation. But since then, industrial structure has become heavily biased in favour of consumer goods industries. It is the organised manufacturing and mining industries that have fared well as compared with unorganised small enterprises. Yet, unregistered small and tiny sectors occupy a dominant position in the Indian economy as necessary supports to these industries are given by the Government.

The tertiary sector is not a homogeneous cat­egory. It indicates trade, transport and communi­cations, banking and insurance, real estate and dwellings, public administration, community and personal services. The combined share of these heterogeneous activities rose from 29% in 1950- 51 at 1993-94 prices to 52% in 2000-01. As a re­sult of a better growth recorded in the tertiary sec­tor one sees a significant change—a “change from a subsistence to a market-oriented economy”.

This is an indication of modernisation of the economy. Modernisation is marked by the increasing use of industrial inputs (like chemicals, machinery, elec­trical and transport equipment) for agricultural sector, particularly after the Green Revolution in agriculture in the late 1960s. Thus, it is clear that all the sectors in an economy do not grow uni­formly; some grow at a higher rate than others.

Another aspect of India’s national income growth is the contribution of the public sector in GDR. The contribution of the public sector in GDP rose from 10.7% in 1960-61 to 20.8% in 1981-82 and to 28.6% in 1993-94. But it fell to 22.1% in 1999-00 mainly due to privatisation of several pub­lic sector units.

Services sector is the largest sector of India. Gross Value Added (GVA) at current prices for Services sector is estimated at 92.26 lakh crore INR in 2018-19. Services sector accounts for 54.40% of total India’s GVA of 169.61 lakh crore Indian rupees. With GVA of Rs. 50.43 lakh crore, Industry sector contributes 29.73%. While, Agriculture and allied sector shares 15.87%.  At 2011-12 prices, composition of Agriculture & allied, Industry, and Services sector are 14.39%, 31.46%, and 54.15%, respectively.  Share of primary (comprising agriculture, forestry, fishing and mining & quarrying), secondary (comprising manufacturing, electricity, gas, water supply & other utility services, and construction) and tertiary (services) sectors have been estimated as 18.57 per cent, 27.03 per cent and 54.40 per cent.

Indian GDP composition in 2017 are as follows : Agriculture (15.4%), Industry (23%) and Services (61.5%). With production of agriculture activity of $375.61 billion, India is 2nd larger producer of agriculture product. India accounts for 7.39 percent of total global agricultural output. India is way behind china which has $991 bn GDP in agriculture sector. GDP of Industry sector is $560.97 billion and world rank is 6. In Services sector, India world rank is 8 and GDP is $1500 billion.

Contribution of Agriculture sector in Indian economy is much higher than world’s average (6.4%). Contribution of Industry and Services sector is lower than world’s average 30% for Industry sector and 63% for Services sector.  At previous methedology, composition of Agriculture & allied, Industry, and Services sector was 51.81%, 14.16%, and 33.25%, respectively at current prices in 1950-51. Share of Agriculture & allied sector has declined at 18.20% in 2013-14. Share of Services sector has improved to 57.03%. Share of Industry sector has also increased to 24.77%.

On the basis of these national income trends and structural changes, we can conclude that the Indian economy can no longer be described as a typical under-developed country. Definitely, some developments have taken place.

Nevertheless, black spots are there. Growth is still inadequate and much of its increase is eaten away by the growing mouths, despite some favourable structural changes. It is hoped that by the turn of the century sectoral composition of India’s national income will move further in favour of secondary and tertiary sectors.

Micro Small and Medium Enterprises (MSME) sector

Micro, Small and Medium Enterprises (MSMEs) are small sized entities, defined in terms of their size of investment. They are contributing significantly to output, employment export etc. in the economy. They perform a critical role in the economy by providing employment to a large number of unskilled and semi-skilled people, contributing to exports, raising manufacturing sector production and extending support to bigger industries by supplying raw material, basic goods, finished parts and components, etc.                

As per the ‘MSME at a Glance’ Report of the Ministry of MSMEs, the sector consists of 36 million units and provides employment to over 80 million persons. The Sector produces more than 6,000 products contributing to about 8% of GDP besides 45% to the total manufacturing output and 40% to the exports from the country.

The MSMEs are classified in terms of investment made in plant and machineries if they are operating in the manufacturing sector and investment in equipment for service sector companies.                 

Though the primary responsibility of promotion and development of MSMEs is of the State Governments, the center has passed an Act in 2006 to empower the sector and also has formed a Ministry (Ministry of MSMEs).  It was the Micro, Small and Medium Enterprises Development (MSMED) Act which was notified in 2006 that defined the three tier of micro, small and medium enterprises and set investment limits.

Classification of the MSME             Ceiling on Investment in Plant and Machinery

Micro                                                    Below 25 lakhs  

Small                                                    25 lakhs to 5 crores

Medium                                                5 crores to 10 crores

For the service sector, the investment limits are Rs 10 lakh, 2 crores and 5 crores in terms of investment made in equipment. In 2015, the government has introduced an amendment bill to enhance the investment limit in all categories.

Credit support for MSME

The Ministry of MSME, Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) with a view to facilitate flow of credit to the MSE sector without the need for collaterals/ third party guarantees. The main objective of the scheme is that the lender should give importance to project viability and secure the credit facility purely on the primary security of the assets financed.The Credit Guarantee scheme (CGS) seeks to reassure the lender that, in the event of an MSE unit, which availed collateral- free credit facilities, fails to discharge its liabilities to the lender, the Guarantee Trust would make good the loss incurred by the lender up to 85 per cent of the outstanding amount in default. The CGTMSE would provide cover for credit facility up to Rs. 100 lakh which have been extended by lending institutions without any collateral security and /or third party guarantees. A guarantee and annual service fee is charged by the CGTMSE to avail of the guarantee cover. Presently the guarantee fee and annual service charges are to be borne by the borrower.

Credit Linked Capital Subsidy Scheme

Ministry implements a scheme called Credit Linked Capital Subsidy Scheme (CLCSS) for technology upgradation of Micro and Small enterprises in the country. Under the scheme, 15 per cent capital subsidy, limited to maximum of Rs 15 lakh (12 per cent prior to 29.09.2005 limited to maximum of Rs 4.8 lakh) is provided to the eligible MSEs for upgrading their technology with the well-established and improved technology as approved under the scheme. 48 products/sub-sectors have been approved under the CLCSS till date. If you are an MSE manufacturing a product and want to upgrade the technology of manufacturing the product with the well established and improved technology as approved under the Scheme, then you may have to approach to the nodal agencies/eligible financial institution for sanction of term loan for purchase of eligible machinery.

Cluster development

wherein support is provided for Diagnostic Study; Soft Interventions like general awareness, counseling, motivation and trust building, exposure visits, market development including exports, participation in seminars, workshops and training programmes on technology upgradaion etc; Hard Interventions ilike setting up of Common Facility Centers (Common Production/Processing Centre, Design Centre, Testing Centre etc.) and creation/upgradation of infrastructural facilities in the new/existing industrial areas/ clusters of MSEs.

Skill Development

The training programmes are primarily focused to promote self employment in the country. Thus all type of programmes have input which provide necessary information and skills to a trainee to enable him to establish his own micro or a small enterprises. The programmes include two week Entrepreneurship Development Prorgamme (EDP), Six Week Entrepreneurship Skill Development Programme (ESDP). One weak Management Development Prorgamme (MDP), One Day Industrial Motivation Campaign(IMC) etc. For Monitoring of the programme a web based system has been developed where coordinator of the programme is bound to feed all details of trainees including his photo and phone no. on the website. The same will be linked to the call centre of Ministry where real time feedback is obtained from trainees.

National Manufacturing Competitiveness Programme

The National Manufacturing Competitiveness Programme (NMCP) is the nodal programme of the Government to develop global competitiveness among Indian MSMEs. The Programme was initiated in 2007-08. This programme targets at enhancing the entire value chain of the MSME sector through the following schemes:(a) Lean Manufacturing Competitiveness Scheme for MSMEs;(b) Promotion of Information & Communication Tools (ICT) in MSME sector;(c) Technology and Quality Up gradation Support to MSMEs;(d) Design Clinics scheme for MSMEs;(e) Enabling Manufacturing Sector to be Competitive through Quality Management Standards (QMS) and Quality Technology Tools (QTT);(f) Marketing Assistance and Technology Up gradation Scheme for MSMEs;(g) Setting up of Mini Tool Room under PPP Mode;(h) National campaign for building awareness on Intellectual Property Rights (IPR);(i) Support for Entrepreneurial and Managerial Development of SMEs through Incubators.(j) Bar Code under Market Development Assistance (MDA) scheme.

Revival of sick industries

The Sick Industrial Companies Act (SICA) was a key piece of legislation dealing with the issue of rampant industrial sickness in India. SICA was enacted in India to detect sick or potentially sick companies owning industrial undertakings, and their revival, if possible, or their closure, if not. This measure was taken to release investment locked up in sick companies for productive use elsewhere.

SICA identified a number of internal and external factors responsible for this epidemic. Internal factors within the organizations included mismanagement, overestimation of demand, wrong location, poor project implementation, unwarranted expansion, personal extravagance, failure to modernize and poor labor-management relationships. External factors included an energy crisis, raw materials shortage, infrastructure bottlenecks, inadequate credit facilities, technological changes and global market forces.

Widespread industrial sickness affects the economy in a number of ways, such as loss of government revenue, tying up scarce resources in sick units, increasing non-performing assets held by banks and financial institutions, increasing unemployment, loss of production and poor productivity. SICA was implemented to rectify these adverse socio-economic consequences.

Revival and Rehabilitation of sick companies under new act 2013

Chapter XIX of the 2013 Act lays down the provisions for the revival and rehabilitation of sick companies.  The chapter describes the circumstances which determine the declaration of a company as a sick company, and also includes the rehabilitation process of the same. Although it aims to provide comprehensive provisions for the revival and rehabilitation of sick companies, the fact that several provisions such as particulars, documents as well as content of the draft scheme in respect of application for revival and rehabilitation, etc. have been left to substantive enactment, leaves scope for interpretation.

The coverage of Sick Industrial Companies  Act, 1985 (SICA) is limited to only industrial companies, while the 2013 Act covers the revival and rehabilitation of all companies, irrespective of their sector.  The determination of whether a company is sick, would no longer be based on a situation where accumulated losses exceed the net worth. Rather it would be determined on the basis whether the company is able to pay its debts. In other words, the determining factor of a sick company has now been shifted to the secured  creditors or  banks and financial institutions with regard  to the assessment of a company as a sick company.  The 2013 Act does not recognise the role of all  stakeholders in the revival and rehabilitation of a sick company,  and provisions predominantly revolve around secured  creditors. The  fact that the 2013 Act recognises  the presence of unsecured creditors, is felt only at the time of the approval  of the scheme of revival and rehabilitation. In accordance with the requirement of section 253 of the 2013.

Overview of the process

  • In response  to the application made by either the secured  creditor  or by the company itself, if the Tribunal is satisfied that a company has become a sick company,  it shall give time to the company to settle its outstanding debts if Tribunal believes that it is practical  for the company to make the repayment of its debts within a reasonable period of time.
  • Once a company is assessed to be a sick company , an application could be made to the Tribunal under  section 254 of the 2013     Act for the determination of the measures that may be adopted with respect to the revival and rehabilitation of the  identified sick company either by a secured  creditor  of that company or by the company itself. The application thus made must  be accompanied by audited financial statements of the company relating to the immediately preceding financial year, a draft scheme of revival and rehabilitation of the company,  and with such other document as may be prescribed.
  • Subsequent to the receipt of the application, for the purpose of revival and rehabilitation, the Tribunal, not later than seven would be required to fix a date for hearing  and would be appointing an interim  administrator under  Section 256 of 2013 Act to convene  a meeting  of creditors of the company in accordance with the provisions of section 257 of the 2013 Act. In certain circumstances, the Tribunal may appoint  an interim  administrator as the company administrator to perform such functions as the Tribunal may direct.
  • The scheme thus prepared, will  need to be approved by the secured  and unsecured creditors representing three-fourth and one-fourth of the total representation in amounts outstanding respectively, before submission to the Tribunal for sanctioning the scheme pursuant to the requirement of section 262 of the 2013 Act. The Tribunal, after examining the scheme will give  its approval  with or without any modification. The scheme, thus approved will be communicated to the sick company and the company administrator, and in the case of amalgamation, also to any other company concerned.
  • The sanction  accorded by the Tribunal  will be construed as conclusive evidence that all the requirements of the scheme relating to the reconstruction or amalgamation or any other measure specified therein have been complied with. A copy of the sanctioned scheme will be filed with the ROC by the sick company within a period of 30  days from the date of its receipt.

Companies Act 2013 – Mergers and Acquisitions 2014

The 2013 Act features some new provisions in the area of mergers and acquisitions, apart from making certain changes from the existing provisions. While the changes are aimed at simplifying and rationalising the procedures involved, the new provisions are also aimed at ensuring higher accountability for the company and majority shareholders and increasing flexibility for corporates.

The section dealing with compromises and arrangements, deals comprehensively with all forms of compromises as well as arrangements, and extends to the reduction of share capital, buy-back, takeovers and corporate debt restructuring as well. Another positive inclusion within  this section is that  objection to any compromise or arrangement can now be made only by persons holding not less than 10% of share holding or having an outstanding debt amounting to not less than 5% of the total outstanding debt as per the latest audited financial statements.

Currently, under the 1956 Act, , there is no mandate requiring companies to ensure compliance with accounting standards or generally accepted accounting principles while proposing the accounting treatment in a scheme.  However, listed companies are required to ensure such compliance as the Equity Listing Agreement mandates such companies to obtain an auditor’s certificate regarding appropriateness of the accounting treatment proposed in the scheme of arrangement. The 2013 Act requires all companies undertaking any compromise or arrangement to obtain an auditor’s certificate (section 230 and 232 of the 2013 Act). This requirement will help in streamlining the varied practices as well as ensuring appropriate accounting treatment. However, another aspect that is yet to be addressed is that the applicable notified accounting standards in India, currently, address only amalgamations and not any other form of restructuring arrangements.

The current procedural requirements in case of a merger and acquisition in any form are quite cumbersome and complex. There are no exemptions even in the case of mergers between a company and its wholly owned subsidiaries. The 2013 Act now introduces simplification of procedures in two areas, firstly, for holding wholly owned subsidiaries and secondly, for arrangements between small companies (section 233 of the 2013 Act). Small companies is a new category of companies, introduced within  the 2013 Act, with defined capital and turnover thresholds, which has been given certain benefits, including simplified procedures.

The 1956 Act, allows the merger of a foreign company with an Indian company, but does not allow the reverse situation of merger of an Indian company with a foreign company. The 2013 Act now allows this flexibility, with a rider that any such mergers can be effected only with respect to companies incorporated within  specific countries, the names of which will be notified by the central government. With prior approval of the central government, companies are now allowed to pay the consideration for such mergers either in cash or in depository receipts or partly in cash and partly in depository receipts as agreed upon in the scheme of arrangement. (section 234 of the 2013 Act). These new provisions can be greatly beneficial to Indian companies which have a global presence by providing them structuring options which do not exist currently.

Industrial infrastructure- Power

Power is one of the most critical components of infrastructure crucial for the economic growth and welfare of nations. The existence and development of adequate infrastructure is essential for sustained growth of the Indian economy.  India’s power sector is one of the most diversified in the world. Sources of power generation range from conventional sources such as coal, lignite, natural gas, oil, hydro and nuclear power to viable non-conventional sources such as wind, solar, and agricultural and domestic waste. Electricity demand in the country has increased rapidly and is expected to rise further in the years to come. In order to meet the increasing demand for electricity in the country, massive addition to the installed generating capacity is required.  In May 2018, India ranked 4th in the Asia Pacific region out of 25 nations on an index that measures their overall power.

Indian power sector is undergoing a significant change that has redefined the industry outlook. Sustained economic growth continues to drive electricity demand in India. The Government of India’s focus on attaining ‘Power for all’ has accelerated capacity addition in the country. At the same time, the competitive intensity is increasing at both the market and supply sides (fuel, logistics, finances, and manpower).

The Government of India has released its roadmap to achieve 175 GW capacity in renewable energy by 2022, which includes 100 GW of solar power and 60 GW of wind power. The Union Government of India is preparing a ‘rent a roof’ policy for supporting its target of generating 40 gigawatts (GW) of power through solar rooftop projects by 2022.

Coal-based power generation capacity in India, which currently stands at 190.29*GW is expected to reach 330-441 GW by 2040. India could become the world’s first country to use LEDs for all lighting needs by 2019, thereby saving Rs 40,000 crore (US$ 6.23 billion) on an annual basis.

All the states and union territories of India are on board to fulfil the Government of India’s vision of ensuring 24×7 affordable and quality power for all by March 2019, as per the Ministry of Power and New & Renewable Energy, Government of India.

 

Growth and structure of service sector in india

Service Sector of Indian Economy contributes to around 55 percent of India’s GDP during 2006-07. This sector plays a leading role in the economy of India, and contributes to around 68.6 percent of the overall average growth in GDP between 2002-03 and 2006-07.

There has been a 9.4 percent growth in the Indian economy during 2006-07 as against a rise of 9 percent in the same during 2006-06. During this growth in Indian economy, the service sector witnessed a rise of 11 percent in the year 2006-07 against the 9.8 percent growth in 2005-06. The service sectors of Indian economy that have grown faster than the economy are as follows:

  • Information Technology (the most leading service sectors in Indian economy)
  • IT-enabled services (ITeS)
  • Telecommunications
  • Financial Services
  • Community Services
  • Hotels and Restaurants

 

The services sector is the key driver of India’s economic growth. The sector has contributed 57.12 per cent of India’s Gross Value Added at current price in H1 2018-19. Net service exports stood at US$ 38.95 billion in H1 2018-19 (P).  Nikkei India Services Purchasing Managers’ Index (PMI) stood at 53.7 in November 2018. The expansion in November 2018 was marked with boost in output, the strongest since July 2018.

The Government of India recognises the importance of promoting growth in services sectors and provides several incentives in wide variety of sectors such as health care, tourism, education, engineering, communications, transportation, information technology, banking, finance, management, among others.

Prime Minister Narendra Modi has stated that India’s priority will be to work towards trade facilitation agreement (TFA) for services, which is expected to help in the smooth movement of professionals.

The Government of India has adopted a few initiatives in the recent past. Some of these are as follows:

  • The government has identified 12 sectors under the Champion Services Sectors Initiative which is aimed at formulating cross-cutting action plans to promote their growth. These include Information Technology & Information Technology enabled Services (IT & ITeS), Tourism and Hospitality Services, Medical Value Travel, Transport and Logistics Services, Accounting and Finance Services, Audio Visual Services, Legal Services, Communication Services, Construction and related Engineering Services, Environmental Services, Financial Services and Education Services. Further, the government has set up a dedicated fund worth Rs 5,000 crore (US$ 693 million) which will be utilised to support sectoral initiatives under the Champion Services Sectors Initiative.
  • Under the Mid-Term Review of Foreign Trade Policy (2015-20), the Central Government increased incentives provided under Services Exports from India Scheme (SEIS) by two per cent.
  • Government of India is working to remove many trade barriers to services and tabled a draft legal text on Trade Facilitation in Services to the WTO in 2017.

Employment trends in Industry and Service sectors

The two most interesting trends in recent employment figures deserve a closer look. There has been an increase in organised sector manufacturing employment during the period January 2000 to December 2011 to the tune of about 5 million, more than half of which is on the basis of contract. More recently during March 2014 to July 2015, total employment in manufacturing including organised and unorganised declined in absolute terms while there had been increase of 0.32 million employment in organised manufacturing and this time the share of contract workers of newly employed in organised manufacturing went up to 85 per cent. In the case of unorganised manufacturing, the only segment that recorded growth in employment is the Own Account Manufacturing Enterprises (OAMEs) which are basically one person enterprises meaning self-employed who do not hire any labour and mostly employ family labour. According to the NSSO survey on Unincorporated Non-agricultural Enterprises (excluding construction) total employment in unregistered manufacturing increased from 34.8 million in November 2010 to 36.04 million in 2015-16, a meagre increase of 1.24 million in five years. The rise has been higher in OAMEs to the tune of 1.84 million. Perhaps the more important fact is employment declined in establishments that are relatively larger in size within the unregistered segment and employ one to ten hired workers, have employed 0.67 million less workers during the same period. Therefore, the rise in employment in the organised manufacturing sector was primarily driven by contractualisation and in the unorganised segment, employment increase was accompanied by fragmentation of productive activities. The situation has further worsened because of demonetisation and introduction of GST, causing suffocating effects on the unorganised segment of the economy that employs 92.8 per cent of India’s workforce.

Overall employment scenario in the recent past had been quite depressing. Labour Bureau’s annual household employment survey shows a decline in total employment in India from 480.4 million (2013-14) to 467.6 million (2015-16). According to the most recent Annual Survey of Industries that captures data for the organised manufacturing sector, employment has increased by a paltry 3,15,140 between 2013-14 and 2014-15. High frequency data provided by Labour Bureau Quarterly Survey suggests that during the quarter July-September 2016, increase in employment was 77,000 and that has come down to an increase of only 32,000 during the quarter October 2016 to January 2017.What seems paradoxical is the fact that expansion of employment in the organised segment and greater absorption of contract workers in proportion is not happening in traditional labour intensive sectors such as textiles, leather or food processing industries as generally expected to be the case. Instead the big ticket employment generators within manufacturing are relatively capital intensive sectors such as manufacture of motor vehicles, trailers and semi-trailers followed by the manufacture of machinery and equipment. The industry that witnessed the largest job destruction was manufacture of fabricated metal products. The overall dismal employment scenario with sluggish growth visible mainly in capital intensive sectors of the organised segment and higher dynamism playing out in the tradeable informal segment that is self-employed producing goods and services linked to global market, is a case in point. These facts are indicative of a particular trend in manufacturing employment, that is, segments which somehow managed to create some jobs are directly or indirectly linked to global market. Rising inequality, stagnating investment growth both in public and corporate sectors and depressing demand in the domestic economy didn’t seem to contribute in recent employment growth. In fact, manufacturing sectors that recorded some employment growth in recent past such as computer equipment, electrical equipment, transport equipment, motor vehicles, machinery, metals and chemicals are more integrated with the global production networks compared to traditional labour intensive sectors such as leather, textiles and light manufacturing.

The 2013 World Investment Report estimates that now over 80 per cent of global trade flows through global production networks led by transnational corporations. The ILO on the other hand estimates that one in five jobs in the world are somehow linked to global value chains. The OECD report in 2012 further indicated that between 1990 and 2010, the share of BRICS economies in the exports of parts and components increased from 0.78 per cent to over 14 per cent. OECD countries’ share, at the same time, declines from over 92 per cent of all exports of parts and components to 70 per cent by 2010. There has been a shift in manufacturing activities towards the global South in the recent past. However, this change need not be overestimated because 69 per cent of global manufacturing value added even today accounts for advanced countries and expansion of global production networks slowed down since the global financial crisis. But the point is, how this shift in manufacturing towards global South has impacted upon employment in the recent past. First of all, technology related unemployment is on the rise in advanced countries due to introduction of artificial intelligence and robotics. Repetitive manufacturing activities and standard services are increasingly replaced by machines. This is creating threat of huge unemployment in developed North which shows its early impacts on developing countries as well. Furthermore, relative cheapening of investment goods has facilitated capital intensive techniques that increasingly replace labour. On the top of that, information technology has reduced transmission cost to such a level that coordination from a distance has become possible. In such scenario, wage gaps between advanced and developing countries’ labour market offers a real opportunity for global multinationals in relocating production facilities to the South. This has led to offshoring of labour intensive activities to developing countries. But what are relatively labour intensive activities in advanced countries and those mainly offshored are actually capital intensive according to developing country averages. Hence global integration is visible more in relatively capital intensive sectors as mentioned above and not in traditional labour intensive sectors like textiles or leather. Secondly most of the developing countries usually having large labour surplus are trying to outcompete each other on the basis of labour costs. It is true that labour cost is not the only factor that provides competitive edge to a producer but it is also the most general element that a producer factors in apart from other favourable determinants that are more specific. Rise in contractualisation in the organised manufacturing is simply a response to such needs. The real wage of a contract worker is 24 per cent less than that of a regular worker leaving aside other benefits and entitlements. And at the terminal point of the chain, producers are increasingly relying on tiny enterprises in the informal segment where wages can be pushed below the value of labour power thus garnering super profits. But such strategy of depressing wages could not be unique for any particular country. Many countries in the global South persuade such strategy leading to a decline in their offer price as a group that ultimately enhances the gains of MNCs and TNCs. In fact, recent World Bank report (2017) on global production network suggests that developing countries, mostly involved in standard manufacturing and services are increasingly losing their share in the global value added. Competition in global market, by the way, takes place on the basis of unit labour cost and not actually upon wage levels. This is precisely the reason why out of top ten exporters of labour intensive goods, seven of them are advanced economies. In 2000 China’s real wage was less than that of India’s, today wages in China are more than double to that of India’s workers. But unit labour cost, that is, ratio of average wage to GDP per capita in China is lower than that of India. If the worker’s productivity increases say four times while wage doubles, then unit labour cost declines even if wages increase. Instead of relying more on R&D and enhancing human capacities competition, India continues to be on the ‘low road’ of depressing wages taking recourse to contractualisation and informalisation of labour process.

 

 

 

 

 

 

 

 


KPSC Notes brings Prelims and Mains programs for KPSC Prelims and KPSC Mains Exam preparation. Various Programs initiated by KPSC Notes are as follows:- For any doubt, Just leave us a Chat or Fill us a querry––

Hope we have satisfied your need for KPSC Prelims and Mains Preparation

Kindly review us to serve even better


KPSC Mains Test Series 2022

20 Quality mock tests and GS Mains Notes

Mains Test Series and Notes

Mains Printed Notes (With COD)


KPSC Prelims Test Series 2022

24 Quality mock tests and GS Prelims Notes

Prelims Test Series and Notes

Prelims Printed Notes (With COD)

[jetpack_subscription_form title=”Subscribe to KPSC Notes” subscribe_text=”Never Miss any KPSC important update!” subscribe_button=”Sign Me Up” show_subscribers_total=”1″]

error: Content is protected !!