F
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NGINES
3 August 2017
F
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How is unorganized manufacturing doing?
Unorganized segment outperforms organized segment during slowdown
The recent quinquennial survey released by National Statistical Survey Office (NSSO)
indicates that the number of hired workers in unorganized manufacturing declined
for the first time in two decades; however, self-employment grew after a decade of
decline. Overall, employment in the manufacturing sector (organized + unorganized)
during the last five years grew at the fastest pace in a decade.
Further, like in the previous slowdown of the late 1990s, real GVA in unorganized manufacturing has grown faster than
real GVA growth in the organized segment. This is primarily because productivity in the unorganized segment grew
strongly, while it slowed in the organized segment.
Though all details of this survey are not yet published, the outstanding loan per enterprise in the unorganized segment –
as per the 2010-11 survey – was only 0.02% of that in the organized segment. If this is due to institutional financiers’
unwillingness to support the unorganized segment, the economy may be losing out on entrepreneurial talent. If so,
policy makers need to be more sensitive about the lack of institutional financing to the unorganized segment.
In the last couple of
reports,
we discussed employment generation and
other
characteristics
of the organized manufacturing sector in India, represented by the
factories covered under Annual Survey of Industries (ASI). In this note, we discuss
the key characteristics of the unincorporated/unorganized manufacturing
sector
1
,
published under the quinquennial
survey
2
released by NSSO in late June 2017.
While the unorganized
manufacturing sector
accounts for ~17% of total
manufacturing GVA, it
accounts for more than 70%
of total manufacturing
employment
As per the new data available for 2015-16, while the unorganized manufacturing
sector accounts for ~17% of total manufacturing GVA (gross value added), it
accounts for more than 70% of total manufacturing
employment
3
. Over the past two
decades
4
, while the importance of the unorganized sector has maintained itself in
terms of GVA, it has fallen in terms of employment. In terms of GVA, the
unorganized sector accounted for 17.3% of total manufacturing GVA in 2015-16,
higher than 16.5% in mid-1990s and 15.8% in 2010-11
(Exhibit 1).
In terms of
employment
5
though, while the unorganized sector still accounts for more than
70%, the share has fallen consistently over the past many surveys
(Exhibit 2).
Exhibit 2: …but the unorganized sector accounts for more
than 70% of manufacturing employment
Employment in unorganized manufcaturing sector
(% of
total)
82.3
80.0
Exhibit 1: Unorganized manufacturing sector’s GVA less than
20% of total manufacturing GVA…
GVA in unorganized manufcaturing sector
(% of
total)
16.5
25.2
19.4
15.8
17.3
76.5
73.3
71.7
1995-96
2000-01
2005-06
2010-11
2015-16
1995-96
2000-01
2005-06
2010-11
2015-16
Total = unorganized + organized (ASI) data (estimated)
Source: National Sample Survey Office (NSSO), MOSL
Nikhil Gupta
– Research analyst
(Nikhil.Gupta@MotilalOswal.com); +91 22 3982 5405
Rahul Agrawal
– Research analyst
(Rahul.Agrawal@motilaloswal.com); +91 22 3982 5445
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on
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The number of workers per
OAE has fallen consistently
from 1.85 two decades ago in
mid-90s to 1.35 in 2015-16
Share of own account enterprises (OAEs) in total employment falling:
One of the
key characteristics of the unorganized sector is the presence of own-account
enterprises
6
(OAEs), which are run without hiring any worker. Of the total
enterprises numbering 19.7m, more than 85% were OAEs as per the 2015-16 survey,
not very different from 84.4% two decades ago in 1995-96
(Exhibit 3).
Since OAEs do
not hire any worker, by definition, they are run by self-employed individuals. Over
the past two decades, the share of OAEs in total employment of the unorganized
sector has fallen from 68% in mid-1990s to 63% in 2015-16
(Exhibit 4).
The number
of workers per OAE has fallen consistently from 1.85 in 1995-96 to 1.35 recently.
Exhibit 4: …but ~63% of all workers in unorganized sector
(% of total
employment)
Employment in OAEs
Exhibit 3: OAEs account for ~86% of all enterprises…
(% of all
enterprises)
OAEs
85.5%
Establishments
14.5%
68.3
67.6
65.0
59.7
62.9
1995-96
2000-01
2005-06
2010-11
2015-16
Source: NSSO, MOSL
However, total employment grew faster in the recent survey:
Employment
intensity has fallen not only for OAEs, but also for
establishments
6
. Consequently,
the number of workers per enterprise (OAEs + establishments) in the unorganized
sector has declined from 2.29 in 1995-96 to 1.83 workers as per 2015-16 survey
(Exhibit 5).
This is in line with what we found in our
analysis
of the organized
manufacturing sector also. Nevertheless, with total employment in the unorganized
sector
7
increasing for the first time in a decade, total employment in the
manufacturing sector (organized + unorganized) grew fastest in a decade
(Exhibit 6).
Exhibit 5: Number of workers per enterprise in the
unorganized sector has fallen (Number)
Workers/enterprise in the unorganized sector
9.0
6.0
2.29
3.0
2.18
2.13
2.03
1.83
0.0
-3.0
1995-96
2000-01
2005-06
2010-11
2015-16
-6.0
2000-01
2005-06
2010-11
2015-16
Total = Organized + unorganized
Source: NSSO, ASI, MOSL
1.1
0.2
0.5
1.0
Exhibit 6: However, the employment generation growth has
improved in the past five years (% YoY)
Organized
Employment
Unorganized
Total
3 August 2017
2

Over the past five years,
real GVA in the unorganized
sector has grown at ~8%
per year, much faster than
5.6% per year real GVA
growth in the organized
manufacturing sector
Unorganized sector performs better during the slowdown…:
Over the past five
years, real GVA in the unorganized sector has grown at ~8% per year, much faster
than the 5.6% per year real GVA growth in the organized manufacturing sector
(Exhibit 7).
It is interesting to note that even during the previous slowdown in the
late 1990s and early 2000s, real GVA growth in the unorganized sector outpaced
that in the organized sector. During the boom period, however, the unorganized
sector under-performed the organized sector. Further, while real GVA growth over
the past two decades has averaged ~6.5% in both organized and unorganized sector,
real GVA per enterprise in the unorganized sector has grown faster than that in the
organized sector
(Exhibit 8).
Exhibit 8: Real GVA/enterprise in the unorganized sector
also growing faster
Real GVA/enterprise
320
7.9
5.6
240
160
80
Organized
Unorganized
Exhibit 7: Real GVA in the unorganized sector grew faster
than in the organized sector (% CAGR)
Unorganized
8.5
3.3
10.5
Organized
11.9
6.5
(2.4)
2000-01
2005-06
2010-11
2015-16
0
1995-96
1995-96 = 100
2000-01
2005-06
2010-11
2015-16
Source:
CSO, CEIC, MoSL
Over the past two decades,
while productivity growth
has averaged ~6% in the
unorganized manufacturing
sector, it has averaged 4.5%
in the organized sector
…primarily due to strong productivity growth:
One of the key reasons for higher
real GVA growth has been strong productivity (real GVA/worker) growth in the
unorganized sector. Labor productivity in the unorganized sector grew at a CAGR of
7.2% in the past five years, more than double the growth of 3.2% in the organized
sector
(Exhibit 9).
Over the past two decades, while productivity growth has
averaged ~6% in the unorganized manufacturing sector, it has averaged 4.5% in the
organized sector. Due to consistently higher growth in labor productivity in the
unorganized sector, real GVA/worker has grown, leading to lower gap with respect
to the organized sector
(Exhibit 10).
Exhibit 10: …due to which difference in real GVA/employee
falling consistently (Ratio)
Real GVA/worker in organized vs unorganized
Exhibit 9: Labor productivity in the unorganized sector
growing faster than in the organized sector (% YoY)…
10
8
5
3
0
2000-01
2005-06
2010-11
2015-16
Organized
Unorganized
16.4
13.8
16.7
14.7
12.1
1995-96
2000-01
2005-06
2010-11
2015-16
Source: NSSO, ASI, MoSL
3 August 2017
3

For the first time,
emoluments (to hired
workers) in the unorganized
sector have grown faster
than in the organized sector
Payment to hired workers (employees) grew faster in the unorganized sector:
As
per 2015-16 survey, total emoluments per hired worker (hired workers account for
about a quarter of total workers in the unorganized sector) stood at INR75,595 per
annum. It implies that emoluments to hired workers grew at a CAGR of 12.2% over
the past five years, better than 11.1% CAGR in the organized sector. This is, in fact,
the first time that emoluments (to hired workers) in the unorganized sector have
grown faster than in the organized sector
(Exhibit 11).
Due to higher growth in the
unorganized sector v/s the organized sector, the difference in payment gap
narrowed slightly; however, an employee in the organized sector is still paid more
than 3x what an employee in the unorganized sector receives
(Exhibit 12).
Exhibit 12: However, the pay gap between organized and
unorganized sectors remains considerably high (Ratio)
Payment to employees in organized vs unorganized sector
Exhibit 11: Emoluments/hired worker in the unorganized
sector have grown faster (% YoY)
15
10
5
Organized
Unorganized
3.04
0
-5
2000-01
2005-06
2010-11
2015-16
2.05
2.14
3.40
3.23
1995-96
2000-01
2005-06
2010-11
2015-16
Source: CSO, CEIC, MoSL
Conclusion: Economy may not be extracting full potential of entrepreneurial talent
due to lack of institutional financing
The quinquennial survey covering non-agricultural non-construction unincorporated
enterprises in the economy provides useful information on the unorganized sector
in the economy, which (1) is a major employment generator in the economy, and (2)
has performed better than the organized sector during slowdowns.
As per the previous 2010-11
survey, outstanding loan
per enterprise in the
unorganized manufacturing
sector was only about
INR10,000, as against
INR39m in the organized
sector
The extensive survey was released in three parts, last time. It could be similar this
time also, as all data/information is not yet available in the first part released in June
2017. One of the important data points likely to be released in December 2017 is
outstanding loans per enterprise in the unorganized sector. As per the previous
2010-11 survey, outstanding loan per enterprise in the unorganized manufacturing
sector was only about INR10,000, as against INR39m in the organized sector. Total
outstanding loans in the unorganized sector, thus, were only 2% of total outstanding
loans in the organized manufacturing sector.
Either the unorganized sector doesn’t need capital or the institutional sector doesn’t
provide sufficient support. If it is because of the lack of willingness of institutional
financiers to support the unorganized sector, the economy may be losing out on
entrepreneurial talent. If so, this requires the urgent attention of policy makers to
be more sensitive about the lack of institutional financing to
unorganized/unincorporated enterprises in the economy.
3 August 2017
4

Notes:
1
National Commission for Enterprises in the Unorganized Sector (NCEUS) was set up in 2004 by the government, which
does not
distinguish
the unorganized from the informal.
“…The informal/unorganized sector consists of all unincorporated private
enterprises owned by individuals or households engaged in the sale and production of goods and services operated on a
proprietary or partnership basis and with less than ten total workers…”,
NCEUS defines.
Further, ASI data for 2015-16 is not yet released. We have used our estimates.
2
NSSO has discontinued its surveys on the unorganized manufacturing sector and replaced it with a survey on the
unincorporated sector (excluding construction).
All comparisons of the unorganized and organized sector are done by using the sum of organized and unorganized in the
denominator. This is because total manufacturing GVA as per national accounts statists could be different (generally higher)
rd
from the sum of these two parts. The Survey on unincorporated non-agricultural enterprises of NSS 73 round covered all
unorganized manufacturing units and enterprises engaged in cotton ginning, cleaning and baling which are not covered by the
Annual Survey of Industries (ASI) and units engaged in trading, non-captive electricity generation and transmission and other
rd
services activities. The ownership categories of enterprises that were under coverage of NSS 73 round were (a) proprietary and
partnership enterprises, Trusts, Non Profit Institutions (NPIs), Self Help Groups (SHG), etc. The ownership categories (a)
incorporated enterprises (i.e. those registered under Companies Act, 1956), (b) Government and public sector enterprises, and
(c) Cooperatives were not considered for inclusion in the survey.
As mentioned above, the survey on unorganized sector was discontinued a decade ago. Thus, the coverage and scope of the
unorganized sector over the past many surveys may not be strictly comparable. The five surveys used in the report are:
st
NSS 51 round:
Unorganized manufacturing enterprises in India for July 1994 – June 1995 released in August 1998
th
NSS 56 round:
Unorganized manufacturing enterprises in India for July 2000 – June 2001 released in December 2000
nd
NSS 62 round:
Unorganized manufacturing sector in India for July 2005 – June 2006 released in February 2007
th
NSS 67 round:
Unincorporated non-agricultural enterprises (excluding construction) in India for July 2010 – June 2011 released
in June 2012
rd
NSS 73 round:
Unincorporated non-agricultural enterprises (excluding construction) in India for July 2015 – June 2016 released
in June 2017
5
4
3
Worker
is defined as persons working within the premises of the enterprise who are in the payroll of the enterprise as well as
the working owners and unpaid family members who help in entrepreneurial activity. The apprentices at the enterprise will also
be treated as worker. The worker may serve the enterprise in any capacity - primary or supervisory. He/she may or may not
receive wage/salary in return to his/her work incidental to or connected with the entrepreneurial activity. Sales persons
appointed by an enterprise for selling its services and apprentices, paid or unpaid, are also treated as workers.
An enterprise, which is run without any hired worker employed on a fairly regular basis, is termed as an
own account
enterprise.
An enterprise which is employing at least one hired worker on a fairly regular basis is termed as
establishment.
Paid
or unpaid apprentices, paid household member/servant/resident worker in an enterprise are considered as hired workers.
6
Since there are no OAEs or self-employment in the organized manufacturing sector, employment is equal to total persons
engaged.
7
3 August 2017
5

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Contact No.:022-30801085.
Registration details of group entities.: MOSL: NSE (Cash): INB231041238; NSE (F&O): INF231041238; NSE (CD): INE231041238; BSE (Cash): INB011041257; BSE(F&O): INF011041257; BSE(CD); MSE(Cash): INB261041231;
MSE(F&O): INF261041231; MSE(CD): INE261041231; CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset
Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers
wealth management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities
Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products
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