Non-corporate sector: Largest contributor to national income

The share of the non-corporate sector in the national income is a high 35 per cent compared to the private corporate sector’s 14 per cent, clearly under-scoring the importance of unincorporated units. If India Uninc has not got due recognition it is to some extent also because of the problem of its non-inclusion in the various income estimations such as the Annual Survey of Industries, says R. Vaidyanathan.

WE ARGUED earlier (June 3, 2004) that the share of the non-corporate sector consisting of partnership/proprietorship firms and trusts, cooperatives, etc., constitutes a very large portion of India’s economy. We shall look at the share of Uninc in the National income and the manufacturing sector. Traditionally economists discuss national income share as pertaining to primary (Agriculture and Mining) and secondary (Manufacturing) and Tertiary or Service (trade/transport, etc) sector. We will look at it from the point of view of ownership, government, private corporate and Uninc.

Virtually the whole of the agricultural sector is unorganised. Table 1 provides the share of different sectors such as agriculture, government, and private organised and unorganised sectors in the National Income measured as Net Domestic Product (NDP). It may be noted that agriculture here excludes government-owned agriculture and that of private corporate like huge plantations in the company form; they are included respectively under Government and Organised Private Sector. Table 1 provides an insight into the importance of the unorganised sector.

The share of the government (Central, State and all public undertakings) in the NDP in 1999-2000 was around 24 per cent and that of unorganised agriculture around 27 per cent. Of the remaining 49 per cent the estimated share of the unorganised sector was 32 per cent. This is clearly an underestimation, for understanding the non-corporate sector, since the non-corporate sector is present in the organised sector of the manufacturing activity.

Recall that the unorganised sector is only a large subset of the non-corporate sector. As we will see later, according to the Annual Survey of Industries, even in manufacturing activities, the non-corporate sector is having a share in the registered portion (organised).

The share of “non-corporate sector” in registered (organised) manufacturing is around 15 per cent, as indicated later (Table 4). Manufacturing has a share of 15-18 per cent in the NDP and so the share of ” non-corporate” manufacturing from the ” organised” sector would be about 3 per cent. Hence, the share of non-corporate sector in the NDP would be around 35 per cent (the unorganised share of 32 per cent plus the organised, non-corporate manufacturing of 3 per cent). The share of “corporate” in NDP would be nearly 14 per cent (that is, 17 per cent of private “organised” less 3 per cent of the non-corporate portion of organised in manufacturing.

Some attempts have been made to directly estimate the value addition by the corporate sector, using what is called the ” blowing” up procedure using the paid-up capital figures of the Department of Company Affairs (DCA) and sample company data available from the Centre for Monitoring Indian Economy (CMIE) corporate data base or the RBI sample of large and medium public and private limited companies. But this type of estimation does not take into account the leverage aspects of the corporate finance. Hence, we have not followed such procedure.

Developed economies such as the US derive a significant portion of their national income from the corporate sector. Table 2 provides the share of corporate sector in the Gross Domestic Product of the US economy for the past three years. We find that the corporate sector dominates the US economy to the extent of having more than 60 per cent of the GDP share. This is in contrast to our country where the corporate sector is has some 14 per cent of the share in the National Income.

Share in manufacturing

Data are available pertaining to the manufacturing sector for registered (under the Factories Act) and unregistered categories. The former is considered as organised and the latter as unorganised by the National Accounts Statistics (NAS).

Table 3 provides the share of registered (organised) and un-registered (unorganised) sectors in manufacturing for recent years in Table 3. We find that the share of un-organised sector in manufacturing is nearly 40 per cent.

Table 4 gives the share of the non-corporate sector within the registered manufacturing sector. It is to be noted that the net value added figures for registered manufacturing of Annual Survey of Industries (ASI) is smaller than that of National Accounts Statistics (NAS), since ASI does not take into account Defence production which is collected independently by NAS. Also the estimates of value added obtained from ASI include banking charges paid by the manufacturing establishments and value of such services according to NAS forms part of the income originating in the banking sector.

NAS does the adjustment for the imputed bank charges at the aggregate level. Also, NAS adjusts for the non-responses in the ASI data. The non-corporate sector, as per ASI consists of partnership, proprietorship, joint family (HUF), khadi and village industries, handloom units, cooperative societies and others. From Table 4 it is clear that nearly 15 per cent of the registered (organised) value addition is due to non-corporate sector.

Since registered units constitute nearly 60 per cent of the manufacturing activity (see Table 3), we can say that nearly 10 per cent of manufacturing in organised sector is due to non-corporate sector. This combined with unorganised (all non-corporate) give us an estimation that nearly 50 per cent of the value addition in the manufacturing activity is due to non-corporate sector.

At this juncture, it is pertinent to point out that the estimates of “unorganised” sector in many of these activities, including manufacturing, need improvements to reflect the actual national situation. For instance, it has been pointed out by the National Statistical Commission (NSC 2001pp149-150) that the issue of “non-inclusion” is a serious problem. The National Sample Survey (NSS 51st round) — 1994-1995, considered only those units that were not included in the ASI. That is, units outside the ASI frame.

The findings are:

(a) In 1994-95,as estimated by the NSS 51st round, about 1.45 lakh eligible units (that is, employing 10 or more workers and using power or 20 or more workers but not using power) were not included in the ASI frame; and

(b) Of these 1.45 lakh missing units, about 1.19 lakh units belonged to the employment class 10 to 19 and the rest (about 0.26 lakh units) belonged to the employment size class 20 or more. Hence, the ” actual” share of “non-corporate” manufacturing units may be higher than suggested by our estimates.

To sum up, the share of the non-corporate sector in the national income is of the order of 35 per cent and that of private corporate sector is 14 per cent. Government and private agriculture contribute the remaining more or less equally. Within manufacturing, the share of the non-corporate sector is around 50 per cent. Later we will focus on the service activities where the share of the non-corporate sector is more than 75 per cent and that of private corporate sector miniscule. Whenever we become ecstatic about `India Inc’ we need to exercise caution since “India Inc” is a very small aspect of the economy. But ironically in our context gallons of ink and acres of paper are spent on the inconsequential or the trivia. Therein lies the clue to our distorted priorities leading to debilitating policies.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: