NEW SCHINTERROGATING INCLUSIVE GROWTH: Formal-Informal Conflict and Conflict Within Informal Sector

INTERROGATING INCLUSIVE GROWTH:
Formal-I nformal Confl ict and Conflict witin Informal S!ctor

Sa"m#a Ca$ra%arti&
* Senior Lecturer in Economics, Deptt. of Economics and Poitics; Visva-Bharati (Universit!,
Santini"etan, #. Ben$a%, &ndia - '()*(+. E.mai%. saumav,'*-ahoo.co.in. Ph. ./)-/0(()-'//'1.
Ear%ier versions of this paper 2ere presented in 3he 4e2 Schoo%, US5 on ( 4ovem,er *11/ and
in Bro2n Universit, US5 on )) 6une *1)1.
5uthor is sincere% $ratefu% to 7a%an Sana% and 5rup 8a%%i". 5uthor a%so than"s 5para9ita
8u"her9ee, 5nir,an 7undu, Snehashish Bhattachara, :a9esh Bhattachara, Lopamudra
Baner9ee, 5nir,an Das$upta, Dipa" Ba"shi, 5mitava Bhattachara, 5,hra ;ha"ra,ort, 5mit,
Sumandro ;hattopadha, Santanu :a"shit, Patric" <e%%er and Soumadip ;hattopadha. 3he
usua% disc%aimer app%ies.
)
INTERROGATING INCLUSIVE GROWTH:
Formal-I nformal Confl ict and Conflict witin Informal S!ctor
ABSTRACT
#e construct an econom composed of modern sectors and the $overnment and 9u=tapose it 2ith an econom
consistin$ of traditiona% a$ricu%ture and rura% and ur,an informa%>unor$anised sectors. #e find throu$h ana%ses of
cross-section sectora%, cross-section intra-industr and pane% data that the ,ehaviours of ur,an informa%>unor$anised
sector are e=p%ained , forma%>or$anised sector ,ut rura% informa% sector is tru% a ?surp%us popu%ation@. 3he
particu%arities of interactions amon$ modern forma%>or$anised sectors, $overnment and modern a$ricu%ture on one
hand and amon$ traditiona% a$ricu%ture and rura% and ur,an informa%>unor$anised sectors on the other, are discussed
and the departures from the %iterature are identified. 4e=t, 2e propose, 2ith accumu%ation and $ro2th in
forma%>or$anised sectors a %ar$e part of a$ricu%ture is moderniAed and thus there is %on$-run drain of resources from
the non-modern sectors. <o2ever, 2e tr to sho2 that even under such resource drain ur,an informa%>unor$anised
sector ma e=pand throu$h productivit advanta$e ,ut undou,ted% at the cost of the rura% counterpart. &n the short-
run the effects are simi%arB 2hen forma%>or$anised sectors e=pand, a ,asic conf%ict ,et2een ur,an and rura%
informa%>unor$anised ,ecomes na"ed $iven the supp%-constraint of the $eneric traditiona% a$ricu%ture. 3hus the
2ho%e idea of ?inc%usive@ deve%opment throu$h ?deve%opment mana$ement@ in presence or 2ith active ro%e of
capita%istic accumu%ation is Cuestioned. <o2ever, %on$-run $ro2th of traditiona% most% non-capita%istic a$ricu%ture
is e=pansionar in $enera% for a%% the non-a$ricu%tura% sectors. 3his cou%d have serious po%ic imp%ications.
Key wordsB Dorma%E&nforma% ;omp%ementarities and ;onf%ict, ;onf%ict 2ithin &nforma% Sectors,
Feneric Supp%-constraint, 5$ricu%tura%-constraint, 5$ricu%tura% 8odernisation, E=c%usion,
Da%%ac of &nc%usive Fro2th, 7a%ec"i, &ndia.
JEL classificationsB G)), G)', G*1, H)I.
I' Introd"ction
Durin$ the %ast fe2 decades the discourse on deve%opment has ,een e=periencin$ a shift a2a
from the era of ?Le2isian path@ (Le2is, )/+0! and ?,i$ push@. &t is increasin$% ,ein$ reco$nised
that capita% accumu%ation and $ro2th ,ased on modern techno%o$ is una,%e to provide
%ive%ihood for the vast ma9orit of third 2or%d popu%ation.
)
;onseCuent%, the focus of
deve%opment is movin$ a2a from the capita%-centric $ro2th-centric tric"%e do2n tra9ector
to2ards tar$eted intervention 2ith the intentions of povert a%%eviation and of ensurin$ ,asic
?entit%ement@ and ?capa,i%it@ (Sen, )/II!. Simu%taneous%, there is a paradi$m shift from
?deve%opment p%annin$@ to ?deve%opment mana$ement@. 3hus, 2hi%e the traditiona% deve%opment
economics tried to so%ve the pro,%em of ?modern E traditiona% dua%ism@ throu$h e=pansion of
modern sectors, the current discourse of ?deve%opment mana$ement@ direct% focuses on the
?traditiona% se$ment@ as an o,9ect of $overnance and proposes its incorporation not into the
)
&t is noted in a ma9or internationa% meet that, Jthere is a $ro2in$ crisis of unemp%oment around the 2or%d. Fro2th of the past man ears has
not ,een trans%ated into enou$h 9o,s in man countries.KKK.Despite a ro,ust $ro2th of 0.( per cent in *11+, the 2or%d econom did not
de%iver the 01 mi%%ion 9o,s needed annua%% over the ne=t decade for peop%e enterin$ the 2or"forceKKK3he num,er of peop%e unemp%oed
2or%d2ide c%im,ed to ne2 hei$hts in *11+, as $ro2th fai%ed to offset an increase in peop%e see"in$ 2or". Some economists used to term this
L9o,%ess $ro2thLKKK..3he unemp%oment rate in *11+ remained unchan$ed at M.(N. 3he tota% num,er of 9o,%ess stood at )/).I mi%%ion at the
end of *11+, an increase of *.* mi%%ion since *110 and (0.0 mi%%ion since )//+. 5%most ha%f of the 2or%dOs unemp%oed are oun$ peop%e a$ed )+
to *0.P (7hor, *11M!. 3he situation must have 2orsened after *11+ due to ?$%o,a% crisis@.
*
?modern sectors@ rather into the $%o,a%iAed domain of ?free mar"et@ 2hich is supposed to mediate
a ?modern E traditiona% sm,iosis@.
<o2ever, it is ar$ued , the critics that the so ca%%ed route of ?pro$ress@ ,ased on accumu%ation
and $ro2th in modern industr and services not on% ?e=c%udes@ ,ut a%so ?mar$ina%ises@ the
indi$enous popu%ation , ?e=propriatin$@ them from the means of consumption and reproduction.
3he %on$-run course of ?moderniAation@ itse%f creates the mass of ?mar$ina%iAed@ (Sana%, *11';
Sana% and Bhattachara, *11/! 2hich, ho2ever, remains ,arred from capita%istic $ro2th
process. 3hus, accordin$ to them ?modern E traditiona% sm,iosis@ is nothin$ ,ut a mth and the
course of ?modern deve%opment@ itse%f endo$enous% produces ?mar$ina%iAation@.
&t is a%so opined , these critics that, faced 2ith such a ne2 and endo$enous process of creation
of ?modern E mar$ina% dua%ism@ (not the ear%ier ?modern E traditiona% dua%ism@ as in Le2is! the
internationa% a$encies %i"e U4, &LG and the #or%d Ban" are advocatin$ for active $overnment
intervention to $overn>contain and to reha,i%itate the ?e=c%uded@ and ?mar$ina%iAed@ ?surp%us
humanit@ (Davis, *110!.
*
3his departure in the orthodo= deve%opment discourse ,ecomes c%ear
once 2e identif the recent ?discover@ of the ?informa% sector@ and portraa% of this su,-
econom in a positive %i$ht (8e%%or, )/'M; 3o"man, )/'I; 8ead, )/I0; Saith, )//*; :anis and
Ste2art, )//(, )//0; U4, )///; Ban$asser, *111; Lan9ou2 and Lan9ou2, *11); U4-<a,itat,
*11(; 8a%one, *110; see a%so Sana%, *11' for a critica% revie2!. 5s a resu%t of such a vie2 of
informa% sector present da $overnments of the third 2or%d are protectin$, and promotin$ this
sector to reha,i%itate the ?e=c%uded@ and ?mar$ina%iAed@ so that the cou%d participate in the
?$%o,a%ised free mar"et@.
(
3his po%ic has ,een a ver important component of the much ta%"ed
a,out pro9ect of ?inc%usive $ro2th@. &t is ar$ued that the ?e=c%uded@>?mar$ina%iAed@ popu%ation
shou%d ,e ,rou$ht ,ac" to the ?$%o,a% mar"et@ throu$h the corporate $ro2th and>or po%ic driven
promotion of the informa% sectors and there, the fruits of $ro2th cou%d ,e transferred to these
peop%e as 2e%%. <o2ever, the Cuestion that 2e raise is that this reha,i%itation of the ?surp%us
*
U4-<a,itat (*11(! notes that J(2!ith respect to ur,an povert and s%ums, $reater state invo%vement is, in fact, necessar no2 more than ever,
especia%% in deve%opin$ countries, $iven increasin$ %eve%s of ur,an povert, decreasin$ %eve%s of forma% emp%oment and $ro2in$ %eve%s of
income ineCua%it and vu%nera,i%it of the ur,an poorP (pp. ==vii!. Simi%ar%, in rura% areas state support to poor and mar$ina%iAed throu$h %ar$e-
sca%e emp%oment $eneration pro$rammes, micro-credit institutions, se%f-he%p $roups and 4FGs is assumin$ si$nificant position.
(
&t is opined , the U.S. Secretar of State ;.L. Po2e%% that Jmicroenterprise (our informa% sector! provides hope and concrete too%s for the
2or%d@s poorest to improve their o2n %ives and rea%iAe the ,asic di$nit of se%f-sufficiencP. &t is a%so noted that J(a!s these ,usinesses e=pand and
inte$rate into the forma% economies of their countries, the empo2er the 2or%d@s poor, create hi$her incomes and more 9o,s, contri,ute to
economic $ro2th, and stren$then democratic societiesP (Po2e%%, *110, pp. *!. &n fact for the past three decades, support for microenterprise
deve%opment has ,een an important feature of U.S. forei$n financia% assistance and a %ar$e part of it has ,een spent in ,ui%din$ institutions to %in"
sma%% producers to %ar$e firms and %ucrative mar"ets (Simmons, *110; see a%so VasCueA, *110!.
(
popu%ation@ cou%d $enerate severa% tpes of conf%icts in a resource constrained deve%opin$
econom (a%so seeB 4un, *111, pp. )* and ;ha"ra,arti, *11/!.
Gur tas" in this paper is to formu%ate a macroeconomic-frame2or" to capture the fundamenta%s
of the fore$oin$ de,ate. 3his critica% enCuir ,rin$s to the fore certain fundamenta%
contradictions arisin$ out of the prescriptions of the mainstream deve%opment discourse.
;ontrar to the c%aims of ,oth the ?friction%ess mode% of transition to capita%ism@ and the mode%
of ?mar"et-,ased deve%opment mana$ement@ 2e tr to sho2 that ?doin$ deve%opment@ cannot ,e
free from conf%icts of interests and the idea of ?inc%usive $ro2th@ is ridd%ed 2ith contradictions.
3o critica%% eva%uate the orthodo= prescriptions for ?deve%opment@ 2e need to construct an
appropriate theoretica% set-up. #e tr to fo%%o2 a Structura%ist-7a%ec"ian frame2or" $iven a
si$nificant contri,ution of such a frame of ana%sis in the %iterature on deve%opment
macroeconomics (7a%ec"i, )/(0 and )/+0; 3a%or )/I(; 7a%dor, )/I0; Bhaduri, )/IM; 3hir%2a%%,
)/IM; Ba$chi, )/II; Bose, )/I/; ;ha"ra,arti, *11) and *11/; Bhaduri and S"arstein, *11(!.
#e propose to interro$ate the modern paradi$m of ?inc%usive $ro2th@ from the perspective of
forma%-informa% re%ations. <ence 2e tr to ,ui%d our theoretica% positions on the ,asis of the
,ehaviours of forma% and informa% sectors, their re%ations and the crucia% ro%e p%aed ,
a$ricu%ture in this specific conte=t. Dor this 2e ana%se the pro,a,%e intersectora% associations
usin$ some data on &ndian econom. 3his empirica% ana%sis $ives us an idea a,out the p%ausi,%e
pattern of intersectora% re%ations 2or"in$ in &ndia. &t ma a%so provide us 2ith some ,ui%din$
,%oc"s for our su,seCuent theoretica% ana%sis. Fiven this empirica% as 2e%% as theoretica%
,ac"$round of pro,a,%e intersectora% re%ations 2e 2ou%d %i"e to e=tend our studB #hether the
forma%>corporate sectors (throu$h mar"et or direct% throu$h the practice of ?corporate socia%
responsi,i%it@! and>or the $overnment (throu$h ?deve%opment mana$ement@! cou%d ensure an
?inc%usive deve%opment@ process , direct% promotin$ the informa% activities or reha,i%itatin$ the
?surp%us popu%ation@ in informa% sectors via providin$ finance, socia% securit ,enefits, mar"et for
products or temporar emp%oment $uarantee 2ithout arran$in$ for the ?e=tra@
resources>economic ?space@ for the econom as a 2ho%eQ Gr 2i%% it on% e=tend the spatia%,
sectora% and inter-$roup ineCua%it or $enerate ne2er forms of contradictions ,et2een capita% and
?informa%@ non-capita% $iven the %imited resources>economic ?space@ in a deve%opin$ economQ
SummariAin$ our enCuiries 2e as"B ;an capita%istic $ro2th cou%d ever ,e inc%usiveQ #i%% an
attempt of inc%usive $ro2th $enerate e=c%usion e%se2hereQ #i%% the in9ection of capita%istic
0
accumu%ation-%ed $ro2th dnamics 2ithin the ?traditiona%@>@mar$ina%iAed@ communities $enerate
intra-communit>intra-sectora% ?differentiations@Q
II' Som! Em(irical O%)!r*ation)
3.1. Cross-section Sectoral Analysis of Formal and Informal Sectors:
3.1.1. Methodology and data sorce:
&n this section 2e tr to ana%se the p%ausi,%e intersectora% re%ations usin$ some data on &ndian
econom. #e concentrate particu%ar% on the re%ations ,et2een the forma% and informa% sectors
and on the re%ationship of these t2o sectors 2ith a$ricu%ture. Due to %ac" of time-series data on
?informa% sector@ in &ndia 2e primari% $o for a cross-section ana%sis across the ma9or states of
the countr. &n our intersectora% ana%sis 2e ta"e the forma% sector as a sin$%e entit 2ithout
$oin$ for rura%-ur,an divide, thou$h 2e find that the rura% part of forma% manufacturin$ is not at
a%% ne$%i$i,%e. <o2ever, 2e discuss separate% the rura% and ur,an informa% sectors and the
pro,a,%e impacts of a$ricu%tura% chan$es and forma% sector e=pansion on them. #e se%ect the
ear )///-*111, as on% for this ear 2e have detai%ed data on informa% sector for &ndia and her
states pu,%ished , 3he 4ationa% Samp%e Surve Gr$anisation (4SSG!, Fovernment of &ndia.
3hese data present information on ,oth informa% industria% sector and informa% services.
0
Gn the
other hand, data on forma%>or$anised sector manufacturin$ for the ear )///-*111 are co%%ected
from 5nnua% Surve of &ndustries (5S&!, Fovernment of &ndia.
+
Data on 4et State Domestic
Product (4SDP! most% from forma% services and from a$ricu%ture across states are co%%ected
from ;entre for 8onitorin$ &ndian Econom (;8&E!. #e first present fe2 pre%iminar data on
a%% these ,efore 2e $o for the ana%sis of the pro,a,%e intersectora% %in"a$es. #e se%ect thirteen
ma9or states of &ndia as these states individua%% have more than one mi%%ion informa% enterprises
com,inin$ rura% and ur,an and com,inin$ ?o2n account enterprises@ 2ithout hired %a,our on
fair% re$u%ar ,asis and ?esta,%ishments@ 2ith hired %a,our on fair% re$u%ar ,asis.
0
J3he 4ationa% Samp%e Surve Gr$anisation conducted the first ever nation-2ide surve on informa% sector non-a$ricu%tura% enterprises durin$
++th round (6u% )/// - 6une *111!. &nformation on 2or"ers inc%udin$ those 2or"in$ in the proprietar and partnership non-a$ricu%tura%
enterprises 2as a%so co%%ected for each mem,er of the househo%d durin$ emp%oment-unemp%oment surve. &n this surve, a%% unincorporated
proprietar and partnership enterprises 2ere defined as informa% sector enterprises. 3his definition differs from the concept of unor$anised sector
used in 4ationa% 5ccounts Statistics. &n the unor$anised sector, in addition to the unincorporated proprietar or partnership enterprises, enterprises
run , cooperative societies, trusts, private and pu,%ic %imited companies (4on 5S&! are a%so covered. 3he informa% sector can therefore ,e
considered as a su,set of the unor$aniAed sector.P (4SSG, :eport 4o. 0+/, pp. (!
+
5S& Jprovides statistica% information to assess and eva%uate o,9ective% and rea%istica%% the chan$e in the $ro2th, composition and structure of
the or$aniAed manufacturin$ (Dactor Sector! comprisin$ activities associated 2ith manufacturin$ processes, repair services, persona% services,
sanitar services, $eneration and transmission of e%ectricit, $as, 2ater supp% and co%d stora$es.P (5S&, Fovt. of De%hi, *11*-1(, pp. )!. #e have
ta"en the data from EP#:D source 2ith minima% pro,%em of compara,i%it and from 5S& 2e,site.
+
Estimated number of informal enterprises (in No), NSSO 459, pp.23.
(combined for all tabulation categories)
for all enterprises O!E " establis#ment
State $ural %rban &ombined
!nd#ra 'rades# 2(45)2* (+49,4* 3,955+*
-i#ar 23,+93* )))+5* 32+55)*
.u/arat ,+9))* (32*)5* 2*9*,3*
0arnata1a ((424+* ((*9+5* 2252((*
0erala (*((23* 5)(*** (59223*
2ad#3a 'rades# (2),2+* (*5+(+* 234342*
2a#aras#tra (49*99* 24*4+(* 3)95+**
Orissa (4,,++* 3,*+4* ()4)3**
'un/ab 495(9* ,42)2* (23)*(*
$a/ast#an (*,+2(* ,,22* ()4)4(*
4amilnadu (+3)29* ()5((,* 34)94+*
%ttar 'rades# 49(,)3* 3*9+*(* )*(3)4*
5est -engal 342395* (+4()2* 5*+5,,*
Estimated number of informal enterprise 6or1ers (in No), NSSO 459, pp.2,.
!nd#ra 'rades# 3,39+** 3424)+* ,(+445*
-i#ar 34,(5** (49)42* 49+992*
.u/arat (2+3,)* 3*5,25* 432(*4*
0arnata1a 2*92(3* 25,3,(* 4++5)4*
0erala (,)95+* ((+,2)* 295+)4*
2ad#3a 'rades# 2*,*52* 2*9()** 4(+233*
2a#aras#tra 23)459* 5,,5*2* )(59+(*
Orissa 24995** +(*2** 3(*9+9*
'un/ab +,332* (3944** 2*+,,2*
$a/ast#an (543*9* (4*(29* 29443)*
4amilnadu 29)3*+* 4(*+94* ,*9****
%ttar 'rades# ,+,4(** 5+4*2+* (33(43+*
5est -engal 5*45+)* 3*42,2* )*))4**
Estimated annual aggregate 7alue added of informal sector (in $s.), NSSO 459, ''.)48+.
!nd#ra 'rades# 3)9(4()3*** 9()(2(,(*** (3*,2+354***
-i#ar 4+395,9,*** 3553+5)9*** )(9323)+***
.u/arat 24,995++*** (23(5+99)*** (4,95+5+4***
0arnata1a 3*,545+(*** )3*,92+(*** ((3)33)22***
0erala 43+449+2*** 429*,+9+*** )+552+5)***
2ad#3a 'rades# 25(34*44*** 599,52+(*** )5(*93*5***
2a#aras#tra 52*32422*** 239)9(995*** 29(9244(,***
Orissa (922)9((*** (49,4(),*** 342*3*9)***
M
'un/ab (+)94(32*** 5(*,5+32*** +,9+9,+4***
$a/ast#an 2))93,95*** 449(*2)5*** ,3)*4*)****
4amilnadu 43253*)(*** (22(3)494*** (+539(5,5***
%ttar 'rades# (*(3,4499*** (494)49,(*** 25*)594,****
5est -engal +545,9+3*** ,93)5(22*** (44)43*)5***
N"m%!r of ASI Factori!) +Unit),- .///-0111
State $%$!9 %$-!N 4O4!9
!nd#ra 'rades# +*55 ,((* (3(+5
-i#ar (3*) (+)5 2993
.u/arat 4)4, 9)+3 (4,(*
0arnata1a (4,5 54,) +953
0erala 35(4 (33( 4)45
2ad#3a 'rades# (2,4 33,5 4+49
2a#aras#tra 5*2( (39)) (9**9
Orissa ,)( )(( (592
'un/ab )43 +*+, +9(*
$a/ast#an (242 3)2( 5*+3
4amilnadu 9225 ((*24 2*249
%ttar 'rades# 3335 ,5)4 (*9(9
5est -engal (++9 4,*4 +3,3
N"m%!r of ASI Wor$!r) +No)',- .///-0111
State $%$!9 %$-!N 4O4!9
!nd#ra 'rades# 243+5+ 52+)++ ,,*522
-i#ar +(4,* (5492, 2(+39,
.u/arat 25*,)) 3+2+2( +(34*9
0arnata1a )2,)( 2)59+, 3+),4)
0erala (9))*2 5)9)) 25,,9*
2ad#3a 'rades# )93+9 ()59+4 2,5333
2a#aras#tra 3*+4*3 54,945 )5434)
Orissa 3,3,* +23+5 99,35
'un/ab +*(5) 2*5(*3 2+52+(
$a/ast#an 52))* (24*+( (,+94(
4amilnadu 454(*2 43424) )))35*
%ttar 'rades# (+*99, 294+5) 455+55
5est -engal )35+* 3,9(*+ 4+2+++
Gro)) *al"! add!d of ASI cat!2or# +R),- .///-0111
State $%$!9 %$-!N 4O4!9
!nd#ra 'rades# 5*+,29***** +(*599***** (((,32)*****
-i#ar ((49((***** )4+9*2***** 9+()(3*****
.u/arat (4+3*+9***** (*,52+4***** 253)333*****
0arnata1a 223)4****** ,,3)59***** 99,+99*****
0erala 2+9*+9***** (455+(***** 4(4+3******
2ad#3a 'rades# 39()+4***** +(+(*)***** (**,9,2*****
2a#aras#tra (+4)539***** 24533(+***** 4(*()55*****
Orissa +53)9***** 2+52,,***** 33*+++*****
'un/ab 2((2),***** 4+352)***** +,4)(5*****
'
$a/ast#an 3+3,54***** 3(,343***** +)(*9,*****
4amilnadu )(54,(***** (*(*)2+***** ()2+29,*****
%ttar 'rades# 3,44+2***** 9,99,2***** (354434*****
5est -engal (*)(9,***** 5924,5***** ,**+,2*****
From C3IE
2id83ear
population (No.)
Net State :omestic 'roduct (rupees
at constant price)
Net State :omestic 'roduct from
!griculture (rupees at constant price)
Net State :omestic 'roduct from
Ser7ice (rupees at constant price)
:ec82*** :ec82*** :ec82*** :ec82***
!nd#ra 'rades# ,5*,**** ,*9*4*)***** 2*,4335***** 34*4)93*****
-i#ar (*4)(**** 443+5******* (5)*999***** (,*+********
.u/arat 49****** +5(+2******* ((,43******* 29(59*******
0arnata1a 5()2**** 5+5432)***** (,522)3***** 254+2)(*****
0erala 3(43**** 32,)5*(***** )44(),***** (,9*(42*****
2ad#3a 'rades# ,92***** +2(34,,***** 2*243+5***** 232599+*****
2a#aras#tra 943***** (43)+2,)***** 24+5*,3***** ,+(322)*****
Orissa 3+*)**** 2*,(+++***** +),(*5***** ),+59******
'un/ab 23)5**** 3532+)****** (49+5*+***** (29+5+,*****
$a/ast#an 5444**** 4+5,3,)***** (355(*,***** (9*45)5*****
4amil Nadu +(3)**** ,4+)5*4***** (42++((***** 3,()552*****
%ttar 'rades# (+)99**** 9,2*(,5***** 3,952+3***** 39,9*49*****
5est -engal ,))9**** ,352,)(***** 2(2(35****** 3599,92*****
5fter presentin$ a $%impse of the re%evant data 2e enter into our forma% ana%sis. 3he primar
tar$et of our empirica% 2or" is to understand the nature of intersectora% re%ations ,et2een forma%
manufacturin$ and services as one $roup and the rura% and ur,an informa% sectors consistin$ of
,oth manufacturin$ and services. <o2ever, as 2e 2i%% see ,e%o2, a$ricu%ture p%as a pivota% ro%e
and perhaps due to this specific ro%e of a$ricu%ture certain conf%icts ma arise in the 2ho%e
macro-sstem. Durthermore, curious% popu%ation is found to ,e an important determinant of the
siAe of informa% activities especia%% of the rura% informa% sector.
#e ta"e up num,er of informa% enterprises, num,er of 2or"ers of informa% sectors and a$$re$ate
annua% va%ue added of informa% sectors and a%% these for rura% and ur,an areas separate% and
across the a,ove-mentioned thirteen states of &ndia as our "e varia,%es. #e 2ant to e=amine
throu$h our fo%%o2in$ ana%sis the pro,a,%e impacts of other sectora% and a$$re$ative varia,%es
on these "e factors. 3he sectora% and a$$re$ative varia,%es that are hpothesised to have
impacts on informa% sectors across states areB num,er of or$anised>forma% manufacturin$
enterprises ta"in$ ur,an and rura% to$ether (entfor!, num,er of 2or"ers in these units (2"for!,
$ross va%ue added in these units (vafor!, 4SDP across states (nsdp!, 4SDP most% from forma%
services (nsdpserv!, 4SDP from overa%% a$ricu%ture (nsdpa$r! and state popu%ation (pop!
M
. 5s
M
#e have not ta"en rura%-ur,an popu%ation divide as our e=p%anator varia,%es as the cate$ories ur,an and rura% popu%ations are rather the
outcomes of economic processes than the cause of deve%opment of forma% and informa% sectors across rura% and ur,an spaces. &nterestin$% 2e
find differentia% impacts of tota% popu%ation on different sectors. <ence our position of ta"in$ a$$re$ate popu%ation as an independent varia,%e is
9ustifia,%e.
I
a$ricu%ture is ar$ued to ,e a "e determinant for informa% activities 2e a%so 2ant to test the
pro,a,%e impact of the pattern of %and distri,ution captured throu$h share of mar$ina% ho%din$s in
tota% num,er of ho%din$s across states (shmrho%d! and simi%ar% throu$h share of sma%%
(shsmho%d!, semi-medium (shsmeho%d!, medium (shmeho%d! and %ar$e (sh%ho%d! ho%din$s in tota%
num,er of ho%din$s across states.
'
Durthermore, per capita food supp% captured throu$h the
pro= nsdpa$r>popu%ation (nsdpa$rRpop! is a%so ta"en care of. 3o understand separate% the
impact on% on the rura% informa% sector, in some cases, the re%evant va%ues of the varia,%es
pertainin$ to forma% manufacturin$ sector and ur,an informa% sector are c%u,,ed to$ether; thus
the varia,%es, enterprises of forma% manufacturin$ and ur,an informa% sector ta"en to$ether
(entforinun!, 2or"ers of forma% manufacturin$ and ur,an informa% sector ta"en to$ether
(2"forinun!, a$$re$ate va%ue added of forma% manufacturin$ and ur,an informa% sector ta"en
to$ether (vaforinun! are constructed 2henever necessar. 5%% these independent varia,%es are
found to have differentia% impacts on the fo%%o2in$ dependent varia,%esB num,er of informa%
enterprises ,oth manufacturin$ and services ta"en to$ether of ur,an sector (entinun!, num,er of
2or"ers in these units (2"inun!, $ross va%ue added in this su,-sector (vainun!, num,er of
informa% enterprises ,oth manufacturin$ and services ta"en to$ether of rura% sector (entinr%!,
num,er of 2or"ers in these units (2"inr%!, $ross va%ue added in this su,-sector (vainr%!.
<o2ever, other varia,%es are a%so used durin$ the course of ana%sis 2hich 2i%% ,e introduced at
appropriate p%aces. Durthermore, certain varia,%es of the ur,an informa% sector (inun! are used as
independent varia,%es 2hi%e ana%sin$ the ,ehaviour of the rura% informa% sector (inr%!. #ith this
introductor note 2e $o for our actua% empirica% ana%sis. #e use ta,u%ar ana%sis, pair-2ise
corre%ations and most% GLS re$ressions corrected for 8u%tico%%inearit (Variance &nf%atin$
Dactor test! and <eteros"edasticit (Breusch-Pa$an test!. 3he ad9usted :
*
@s are reasona,% hi$h
for a%most a%% re$ressions. #e use the S3535 soft2are.
3.1.!. Informal and Formal "or#ers:
Dirst 2e ta"e up the num,er of 2or"ers in rura% informa% sector, ur,an informa% sector and forma%
manufacturin$ and tr to ana%se the pro,a,%e impacts of the re%evant sectora% and a$$re$ative
varia,%es. #e determine a re%evant partia% corre%ation matri= ).
CORRELATION MATRIX: 1.
'
Data on %and distri,ution is co%%ected from ;8&E thou$h it is comparative% o%d (data for )//M!. Sti%% 2e use that instead of the current 4SSG
data as the %atter is on% a sma%% samp%e information and the other is a census information a%so reported in recent (even in *11+! Fovernment of
&ndia@s ?5$ricu%ture Statistics at a F%ance@. Durthermore, %and distri,ution is hpothesised to ?cause@ non-a$ricu%tura% deve%opment pattern and
hence its %a$$ed va%ues ma ,e considered as appropriate.
/
| wkinrl wkinun wkfor wkforinun pop nsdp nsdpagr nsdpserv
-------------+-----------------------------------------------------------------------------
wkinrl | 1.0000
wkinun | 0.5596** 1.0000
wrkfor | 0.1858 0.7988***1.0000
wkforinun | 0.5206* 0.9964***0.8472***1.0000
populaion | 0.8526***0.6817** 0.2!5! 0.6!54** 1.0000
nsdp | 0.!946 0.9!76***0.7540***0.9!49***0.6100** 1.0000
nsdpagr | 0.768!***0.78!6***0.!411 0.740!***0.8849***0.7150***1.0000
nsdpserv | 0.!077 0.8959***0.7927***0.90!5***0.48!8* 0.9796***0.5898** 1.0000
nsdpagr"pop | -0.!959 -0.1544 -0.081! -0.1479 -0.4294 -0.1619 -0.04!8 -0.1611
s#"$r"#old | 0.5918** 0.0945 0.0499 0.0906 0.!5!9 -0.0197 0.117! 0.0180
s#"s$"#old | -0.2569 0.1978 0.2152 0.2052 -0.107! 0.!08! 0.0197 0.!026
s#"s"$e"#old | -0.6086**-0.082! -0.0264 -0.0764 -0.!5!5 0.0242 -0.111! -0.0148
s#"$e"#old | -0.6265**-0.2412 -0.1916 -0.2402 -0.4088 -0.1590 -0.1676 -0.206!
s#"l"#old | -0.5!27* -0.!457 -0.!!60 -0.!529 -0.!717 -0.258! -0.1929 -0.2982
*, ** and *** imp% )1N, +N and )N %eve% of si$nificance respective% for a%% the corre%ation
and re$ression resu%ts.
Dependin$ on the corre%ation va%ues 2e set the eCuations and run the correspondin$ re$ressions
usin$ GLS method. 3his corre%ation matri= $uides us to se%ect the appropriate re$ressors for a
particu%ar re$ressand. #hi%e se%ectin$ the re$ressors 2e ta"e in most of the cases on% those ones
2hich are corre%ated 2ith the tar$eted re$ressand at %east at the )1N %eve% of si$nificance. 3he
ver first crucia% o,servation that comes out of the corre%ation matri= ) is that 2"inr% is not
si$nificant% corre%ated 2ith 2"for, nsdp and nsdpservS #e first $et re$ressions ) and *.
1. wkinrl wkforinun pop*** s#$r#old s#l#old %d& '-s(uared
.0!4602 .0!41!54 254!9 -974!.56 0.7!62
2. wkinrl wkforinun nsdpagr*** s#$r#old* s#l#old %d& '-s(uared
-.165!12 .0000189 !2708.48 -78409.!5 0.7845
3he t2o re$ressions sho2 dominance of nsdpa$r(.1111)I/!*** or popu%ation(.1(0)(+0!*** as
e=p%ainin$ factors separate%
I
for 2"inr% 2ith some re%ation 2ith shmrho%d((*'1I.0I!*.
/
&nterestin$%, 2"forinun has no percepti,%e %in" 2hi%e 2e contro% the other varia,%es. 3hus %eve%
of or$anised manufacturin$ emp%oment and ur,an informa% emp%oment ta"en to$ether has no
si$nificant inf%uence on rura% informa% 2or"force 2hen 2e contro% for nsdpa$r or popu%ation,
shmrho%d and sh%ho%d. <o2ever, a Cuestion ma ariseB from the corre%ation matri= ) it is seen
that 2"inun and 2"inr% are si$nificant% corre%ated at +N %eve%, hence ho2 far are the variations
of 2"inr% e=p%ained , 2"inunQ 3he resu%t of re$ression ( is revea%in$. 3here is no si$nificant
e=p%anator po2er of 2"inun 2ith or 2ithout contro%%in$ for nsdpa$r.
!. logwkinrl logwkinun %d& '-s(uared
.42187! 0.1281
logwkinrl logwkinun lognsdpagr %d& '-s(uared
-.047149 5.14e-12 0.2667
I
3he t2o cannot ,e ta"en to$ether due to some co%%inearit. But in fe2 cases 2e have ne$%ected that.
/
*, ** and *** imp% )1N, +N and )N %eve% of si$nificance respective% for the rest of the paper. 8oreover, the num,er ,rac"eted represents the
re$ression coefficient va%ue for the si$nificant re$ressors. Si$nificant corre%ation coefficients are sometimes reported in the main ,od of the
paper in a simi%ar fashion.
)1
;ontrari% considerin$ 2"inr% and 2"inun as shares of tota% popu%ation (i.e. 2"inr%Rpop and
2"inunRpop respective%! across states 2e have the corre%ation resu%t * 2here the t2o varia,%es
are ne$ative% re%ated.
| wkinrl"pop
-------------+------------
wkinun"pop | -0.2609
3hou$h the association is not si$nificant, the inverse re%ation ma ,e an important o,servation.
4e=t 2e re$ress 2"inun on 2"for, popu%ation, nsdp, nsdpa$r and nsdpserv and correctin$ for
mu%tico%%inearit and heteros"edasticit $et re$ression 0.
4. wkinun wkfor*** pop nsdpagr* nsdpserv* %d& '-s(uared
2.550185 .005!649 7.!7e-06 2.89e-06 0.9410
3hou$h 2"inr% 2as not si$nificant% associated 2ith 2"for and nsdpserv as e=p%ained , the
corre%ation matri= ), 2"inun is si$nificant% e=p%ained , these t2o varia,%es 2"for(*.++1)I+!***
and nsdpserv(*.I/e-1M!*! over and a,ove nsdpa$r('.('e-1M!* 2hich 2as a%so a si$nificant e=p%anator
varia,%e for 2"inr%. 3he comparison of the re$ression resu%ts ), *, ( and 0 sho2 an important
difference. #hi%e 2"inr% is most% e=p%ained , popu%ation and nsdpa$r, 2"inun is e=p%ained ,
2"for over and a,ove nsdpserv and nsdpa$r and popu%ation p%as an insi$nificant ro%e. 3hus it
ma ,e surmised that, thou$h the ur,an informa% sector can ,e associated 2ith the forma% sectors
the vast and even nota,% %ar$er rura% informa% sector is most% dependent on ?mar$ina%@
a$ricu%ture and its siAe is perhaps determined , the popu%ation of the state as a 2ho%e; the rura%
informa% sector can ,e visua%ised as a reservoir of ?surp%us popu%ation@.
Gn the other hand, corre%ation matri= ) sho2s that 2"for is associated si$nificant% 2ith
nsdp(1.'+01***! thou$h neither 2ith popu%ation nor 2ith nsdpa$r. Durthermore, the corre%ation
matri= ( presents interstin$ re%ationships ,et2een certain "e varia,%es of the forma%
manufacturin$ sector.
| nsdp nsdpagr wkfor asfor enfor vafor
-------------+---------------------------------------------------------------
nsdp | 1.0000
nsdpagr | 0.7150*** 1.0000
wkfor | 0.7540*** 0.!411 1.0000
asfor | 0.796!*** 0.!688 0.7248*** 1.0000
enfor | 0.7427*** 0.!120 0.957!*** 0.8000*** 1.0000
vafor | 0.84!8*** 0.!191 0.74!!*** 0.9!91*** 0.8060*** 1.0000
&t is c%ear from the corre%ation matri= ( that num,er of 2or"ers (2"for!, num,er of enterprises
(entfor!, a$$re$ate $ross va%ue added (vafor! and va%ue of fi=ed capita% i.e. tota% asset (astfor! of
))
forma%>or$anised manufacturin$ are si$nificant% corre%ated at )N %eve% of si$nificance. 8ost
interestin$% entfor, 2"for, vafor and astfor are hi$h% corre%ated 2ith nsdp ,ut not 2ith nsdpa$r.
3.1.3. Informal and Formal $nter%rises:
4e=t 2e ta"e up the num,er of enterprises in rura% informa% sector (entinr%!, ur,an informa%
sector (entinun!, forma% manufacturin$ (entfor! and enterprises of forma% manufacturin$ and
ur,an informa% sector ta"en to$ether (entforinun! and tr to ana%se the pro,a,%e impacts of the
sectora% and a$$re$ative varia,%es. #e determine the partia% corre%ation coefficient matri= 0.
| eninrl eninun enfor enforinun
-------------+----------------------------------------
eninrl | 1.0000
eninun | 0.6814** 1.0000
enfor | 0.042! 0.6766** 1.0000
enforinun | 0.6784** 1.0000***0.6805** 1.0000
populaion | 0.8612***0.7648***0.2054 0.7625***
nsdp | 0.!820 0.8410***0.7427***0.8422***
nsdpagr | 0.7707***0.84!8***0.!120 0.8420***
nsdpserv | 0.2894 0.7792***0.7694***0.7809***
nsdpagr"pop | -0.!78! -0.146! -0.0207 -0.1458
s#"$r"#old | 0.5675** 0.2449 -0.0762 0.24!1
s#"s$"#old | -0.27!7 0.0654 0.2!67 0.0668
s#"s"$e"#old | -0.5855**-0.2155 0.1004 -0.21!7
s#"$e"#old | -0.5841**-0.!578 -0.0!75 -0.!56!
s#"l"#old | -0.4820* -0.4917* -0.1867 -0.4907*
&nterestin$% enou$h the resu%ts of the corre%ation matri= 0 and that of the matri= ) are ver
simi%ar indicatin$ at the point that num,er of 2or"ers and num,er of enterprises ,ehave in
a%most simi%ar fashion. Dependin$ on the matri= 0 2e construct the su,seCuent re$ression
eCuations and derive the correspondin$ outcomes.
#e first re$ress entinr% on entforinun, popu%ation, nsdpa$r, shmrho%d and sh%ho%d and correctin$
for mu%tico%%inearit and heteros"edasticit $et the resu%ts + and M.
5. eninrl enforinun pop** s#$r#old s#l#old %d& '-s(uared
.1926981 .0210546 19717 48506.2! 0.7405
6. eninrl enforinun nsdpagr** s#$r#old* s#l#old %d& '-s(uared
-.!061254 .00001!4 2!491.9 -!21!7.96 0.748!
3he resu%ts of re$ression + and M are ver simi%ar to that of ) and *. <o2ever, a simi%ar Cuestion
as ,efore ma ariseB from the corre%ation matri= 0 it is seen that entinun and entinr% are
si$nificant% corre%ated at +N %eve%, hence ho2 far are the variations of entinr% e=p%ained ,
entinunQ 3he re$ression resu%t ' is revea%in$.
7. logeninrl logeninun %d& '-s(uared
.284!4!7 0.1247
logeninrl logeninun lognsdpagr* %d& '-s(uared
.0410095 4.76e-12 0.!274
)*
;ontrari% considerin$ entinr% and entinun as shares of tota% popu%ation (i.e. entinr%Rpop and
entinunRpop respective%! across states 2e have the corre%ation resu%t + sho2in$ inverse re%ation
,et2een the t2o.
| eninrl"pop
-------------+------------
eninun"pop| -0.1157
4e=t ta"in$ care of the va%ues of the corre%ation matri= 0 2e re$ress entinun on entfor,
popu%ation, nsdp, nsdpa$r, nsdpserv and sh%ho%d and correctin$ for mu%tico%%inearit and
heteros"edasticit $et the resu%t I.
8. eninun enfor*** pop nsdpagr*** nsdpserv s#l#old*** %d& '-s(uared
62.57818 -.0014647 7.78e-06 -!.1!e-07 -89168.84 0.9668
3hou$h entinr% 2as not si$nificant% associated 2ith entfor as e=p%ained , the corre%ation matri=
0, entinun is si$nificant% e=p%ained , it(M*.+'I)I!***. entinun is si$nificant% e=p%ained , entfor
(thou$h not nsdpserv! even after contro%%in$ for popu%ation, nsdpa$r('.'Ie-1M!*** and sh%ho%d(-
I/)MI.I0!***. 3he comparison of the re$ression resu%ts +, M, ' and I sho2 a si$nificant difference
,et2een the ,ehaviours of entinr% and entinun. Durthermore, entinr% is not even associated
si$nificant% 2ith nsdp (as in corre%ation matri= 0!. 3he case is si$nificant% different for ur,an
informa% sector. <o2ever, there is one commona%it ,et2een eninr% and entinunB 2hi%e the
former is si$nificant% e=p%ained , shmrho%d, the %atter is si$nificant ,ut ne$ative% e=p%ained
, sh%ho%d.
#e formu%ate re$ression / to contro% for nsdp as 2e%%, ,ecause the positive corre%ation ,et2een
entfor and eninun cou%d ,e 9ust due to e=pansion of a$$re$ate economic activit captured
throu$h nsdp. #e re$ress entinun on entfor, nsdp, nsdpa$r>nsdp i.e. nsdpa$rRnsdp, nsdpserv>nsdp
i.e. nsdpservRnsdp and sh%ho%d.
9. eninun enfor** nsdp*** nsdpagr"nsdp** nsdpserv"nsdp s#l#old*** %d& '-
s(uared
71.2!!97 1.60e-06 55759!8 -!02252.! -108462.9 0.9044
Even if 2e contro% the chan$es in nsdp, chan$e in entfor(').*((/'!*** si$nificant% e=p%ains
variations in entinun. Durthermore, it seems there is positive impact of nsdp(I.))e-)/!* on eninun,
2hi%e 2e reca%% that entinr% 2as not si$nificant% associated 2ith nsdp. &n this conte=t 2e mention
that entfor is a%so si$nificant% associated 2ith nsdp(1.'0*'***! as is seen in corre%ation matri=
0. Durthermore, there is positive impact of nsdpa$rRnsdp(M.(Ie-1M!*** and ne$ative impact of
sh%ho%d(-*.1'e-1'!*** ,ut no si$nificant impact of nsdpservRnsdp contro%%in$ for nsdp.
3.1.&. Informal and Formal 'ale Added:
)(
4e=t 2e ta"e up the a$$re$ate va%ue added in rura% informa% sector (vainr%!, ur,an informa%
sector (vainun! and forma% manufacturin$ (vafor! and tr to ana%se the pro,a,%e impacts of the
sectora% and a$$re$ative varia,%es. #e first determine the partia% corre%ation matri= M.
| vainrl vainun vafor
-------------+-----------------------------
vainrl | 1.0000
vainun | 0.4722 1.0000
vafor | 0.1709 0.91!5***1.0000
populaion | 0.8524***0.4795* 0.2798
nsdp | 0.5602** 0.9579***0.84!8***
nsdpagr | 0.8004***0.6020** 0.!191
nsdpserv | 0.4948* 0.9545***0.86!1***
nsdpagr"pop | -0.!266 -0.0782 -0.1!46
vapwinrl | -0.147! 0.2105 0.27!7
vapeinrl | -0.1276 0.2660 0.!184
asinrl"en | -0.2290 0.2420 0.2924
asinrl"wk | -0.2605 0.2108 0.2721
wkinrl | 0.9124***0.2717 -0.0!1!
eninrl | 0.9150***0.2467 -0.0444
vapwinun | ---------0.4718 0.588!**
vapeinun | ---------0.6269** 0.7!24***
asinun"en | ---------0.1290 -0.0778
asinun"wk | ---------0.!809 0.4844*
wkinun | ---------0.9!44***0.74!9***
eninun | ---------0.82!7***0.5906**
vapwfor | ------------------0.5102*
vapefor | ------------------0.211!
asfor"en | ------------------0.0512
asfor"wk | ------------------0.2527
wkfor | ------------------0.74!!***
enfor | ------------------0.8060***
s#"$r"#old | 0.5986**-0.0945 -0.2527
s#"s$"#old | -0.!670 0.!424 0.4657
s#"s"$e"#old | -0.6009** 0.1145 0.2808
s#"$e"#old | -0.57!7**-0.0788 0.0557
s#"l"#old | -0.4751 -0.2!76 -0.15!1
<ere 2e introduce vap2inr% and vapeinr% as va%ue added per 2or"er in rura% informa% sector and
the correspondin$ va%ue added per enterprise respective%. Gn the other hand, astinr%Rent and
astinr%R2" are the va%ues of asset o2ned per enterprise and per 2or"er respective% in rura%
informa% sector. Simi%ar% 2e have the correspondin$ va%ues for the ur,an informa% sector and
forma% manufacturin$ as 2e%%. 5n interestin$ resu%t from corre%ation matri= M is that vainr% is not
si$nificant% associated either 2ith vainun or 2ith vafor; it is a%so not associated 2ith the sectora%
varia,%es such as vapeinr%, vap2inr%, astinr%Rent and astinr%R2". <o2ever, vainr% is associated
si$nificant% 2ith most of the a$ricu%tura% %and-distri,ution varia,%es a%on$ 2ith popu%ation and
nsdpa$r. 3he situations are considera,% different for vainun and vafor. Dependin$ on the matri=
M 2e construct the ne=t re$ression eCuation and derive the correspondin$ outcome.
Dirst 2e $et re$ression )1.
10. vainrl vainun"nsdp nsdp*** nsdpagr"nsdp nsdpserv"nsdp s#$r#old*** %d& '-s(uared
1.!2e+11 .0500598 1.15e+11 -6.00e+10 7.01e+08 0.7621
| vainrl"nsdp vafor"nsdp vainun"nsdp
-------------+--------------------------------------
)0
vainrl"nsdp | 1.0000
vafor"nsdp | -0.544!* 1.0000
vainun"nsdp | -0.4077 0.6101** 1.0000
4e=t 2e have the corre%ation matri= '. ;onsiderin$ vainr%, vanun and vafor as shares of nsdp (i.e.
vainr%Rnsdp, vanunRnsdp and vaforRnsdp respective%! across states 2e have the corre%ation
resu%t sho2in$ inverse re%ation ,et2een the first and the other t2o, a,so%ute va%ues of the
corre%ation coefficients ,ein$ su,stantia%(-1.01'', -1.+00(* respective%!. &t ma seem at first
si$ht that the resu%ts are o,vious, ,ecause 2ith rise in the share of vainr% in nsdp the shares of
vainun and vafor shou%d fa%% vainr%, vainun and vafor ,ein$ the constituents of nsdp. But the
economic si$nificance of these ne$ative va%ues of the corre%ation coefficients ,ecomes c%ear
2hen 2e %oo" at the coefficient of corre%ation ,et2een vainunRnsdp and vaforRnsdp, 2hich is
positive, %ar$e and si$nificant at +N %eve%(1.M)1)**!. 3hese resu%ts are crucia% for our 2ho%e
ana%sis. ;ontro%%in$ for nsdp if vainun and vafor rises, vainr% contracts; ho2ever, 2e have
si$nificant rise in vainun 2ith rise in vafor. 3he re%ations ,et2een vaforRnsdp and vainr%Rnsdp on
one hand and ,et2een vaforRnsdp and vainunRnsdp on the other are verified 2ith su,seCuent
re$ression resu%ts )), )* as 2e%%. 3he e=p%anation cou%d ,e that, 2hen vafor rises 2ith $iven
nsdp, nsdpa$r fa%%s the t2o va%ues ,ein$ important constituents of nsdp. 5s nsdpa$r fa%%s, entinr%
and 2"inr% and hence vainr% fa%%. But vainun rises as dra$ of nsdpa$r fa%% is out2ei$hed , pu%% of
vafor rise. Gur ar$ument cou%d $et support in the su,seCuent re$ression resu%t )(.
11. )ainrl"nsdp vafor"nsdp* %d& '-
s(uared
-.2156176 0.2!22
12. )ainun"nsdp vafor"nsdp** %d& '-
s(uared
.281866! 0.!152
3a"in$ care of the va%ues of the corre%ation matri= M 2e re$ress vainun on vafor, popu%ation,
nsdp, nsdpa$r, nsdpserv, vapeinun, 2"inun and entinun and correctin$ for mu%tico%%inearit and
heteros"edasticit $et the resu%ts )(.
1!. vainun vafor"nsdp*** nsdpagr"nsdp* nsdpserv"nsdp** nsdp*** %d& '-s(uared
2.66e+11 1.95e+11 2.80e+11 .1624097 0.9626
;ontrar to the ,ehaviour of vainr%, vainun is e=p%ained si$nificant% , vafor and nsdpserv even
after contro%%in$ for nsdpa$r and nsdp.
4e=t 2e ta"e up certain issues pertainin$ to most% the forma% service sector captured throu$h
nsdpserv. Dirst 2e construct the partia% corre%ation matri= I.
| nsdpserv
-------------+------------
nsdpserv | 1.0000
vafor | 0.86!1***
nsdpagr | 0.5898**
enfor | 0.7694***
)+
wrkfor | 0.7927***
populaion | 0.48!8*
nsdp | 0.9796***
s#"$r"#old | 0.0180
s#"s$"#old | 0.!026
s#"s"$e"#old | -0.0148
s#"$e"#old | -0.206!
s#"l"#old | -0.2982
Based on this corre%ation matri= 2e formu%ate a re$ression eCuation )0.
14. nsdpserv vafor*** nsdpagr"pop pop %d& '-s(uared
1.!15664 1.07e+07 1!15.842 0.750!
Li"e forma% manufacturin$ the variations of nsdpserv are not e=p%ained si$nificant% ,
popu%ation and a$ricu%ture, ,ut are e=p%ained si$nificant% , vafor.
4e=t 2e turn to certain micro-varia,%es pertainin$ to the informa% sectors, such as vapeinr%,
vapeinun, vap2inr% and vap2inun. Su,seCuent% 2e 2i%% a%so tr to understand the ,ehaviours of
forma% manufacturin$ 2a$e (2a$efor! and the sectora% (micro! ratios such as astinr%Rent,
astinr%R2", astinunRent and astinunR2". 2e tr to e=amine ho2 far these micro varia,%es are
associated 2ith sectora% and a$$re$ative macro varia,%es.
Dirst 2e ta"e up vapeinr%. #e construct partia% corre%ation matri= as ,efore and derive re$ression
)+.
15. vapeinrl eninrl asinrl"en*** %d& '-
s(uared
.0007!08 .6988!09 0.9251
3he si$nificant o,servation is that vapeinr% is not e=p%ained si$nificant% , eninr%. &t is rather
e=p%ained , a micro-varia,%e astinr%Rent(.6988!09!***. Durthermore from the correspondin$
corre%ation matri= (unreported! it is c%ear that vapeinr% is 2ea"% associated 2ith vafor and
vainun.
4e=t 2e $o for vap2inr%. 5s ,efore 2e have re$ression )M.
16. vapwinrl wkinrl asinrl"wk*** nsdpagr"pop s#$e#old %d& '-s(uared
.0002701 .6772956 .4470865 -15.91295 0.8598
3he resu%ts of corre%ation matri= (unreported! and re$ression )M are simi%ar to those re%evant for
vapeinr%. Summarisin$ re$ression )+ and )M and the corre%ation matrices at the ,ac"$round 2e
can sa that va%ue added per 2or"er and per enterprise in rura% informa% sector are not
si$nificant% e=p%ained , macro-varia,%es and sectora%-varia,%es. 3hese are dependent on the
factor ratios on%.
4e=t 2e turn to ur,an informa% sector. #e ta"e up vapeinun and after passin$ throu$h the test of
corre%ation matri= 2e re$ress vapeinun on astinunR2", vafor and nsdpserv and $et the resu%t )'.
17. vapeinun asinun"wk** vafor* nsdpserv %d& '-s(uared
.650795 1.28e-07 -2.7!e-08 0.6808
)M
3he resu%t is important as it sho2s that vapeinun is si$nificant% e=p%ained , vafor(1.28e-07!*
(thou$h not nsdpserv! over and a,ove astinunR2"(.650795!**. 3his o,servation $ets stren$thened
, the ne=t resu%t )I for vap2inun (vafor(!.40e-08!** is a$ain si$nificant!.
18. vapwinun vafor** %d& '-s(uared
!.40e-08 0.2867
3hus forma% sector e=pansion cou%d drive up the ur,an informa% sector not on% in terms of its
vo%ume ,ut a%so in terms of per enterprise and per 2or"er va%ue added. &t seems that forma%
sector activit creates an environment con$enia% for ur,an informa% sector. #here forma% sector
is vi,rant ur,an informa% sector is a%so more ?efficient@. &t is not the same for rura% informa%
sector.
8oreover, it is distinct% c%ear that on the avera$e ur,an informa% sector units are %ar$er in siAe,
more asset intensive and these are more va%ue addin$ (ta,%e )!.
TABLE: 1.
-------------+---------------------------
asinrl"wk | *ean 15902.88 +'s.,
-------------+---------------------------
asinun"wk | *ean !!654.24 +'s.,
-------------+---------------------------
wkinrl"en | *ean 1.614886 +-o.,
-------------+---------------------------
wkinun"en | *ean !.257794 +-o.,
-------------+---------------------------
asinrl"en | *ean 25649.87 +'s.,
-------------+---------------------------
asinun"en | *ean 1!!864.1 +'s.,
-------------+---------------------------
vapeinrl | *ean 25729.15 +'s.,
-------------+---------------------------
vapeinun | *ean 6!!91.!8 +'s.,
-------------+---------------------------
vapwinrl | *ean 16048.77 +'s.,
-------------+---------------------------
vapwinun | *ean !1200.77 +'s.,
#ith this ver ,ac"$round 2e $enerate the ne=t partia% corre%ation matri= / and the su,seCuent
re$ression )/ 2hich are rea%% revea%in$.
| vafor
-------------+---------
vafor | 1.0000
asinrl"en | 0.2924
asinun"en | -0.0778
asinrl"wk | 0.2721
asinun"wk | 0.4844*
19. asinun"wk vafor* %d& '-
s(uared
6.62e-08 0.1650
3he vafor ma affect the factor ratio in ur,an informa% sector and it ma not ,e so for rura%
informa% sector. ;onseCuent% vafor ma affect positive% the avera$e (per enterprise and per
2or"er! va%ue added in ur,an informa% units , enhancin$ productivit.
)'
3.1.(. Formal Sector "age:
3hou$h vapeinun and vap2inun E the t2o $ross ?income@ varia,%es
)1
E are e=p%ained
si$nificant% , vafor, forma% manufacturin$ 2a$e (2a$efor! is not si$nificant% associated 2ith
an of the macro or sectora% varia,%esS &t is associated si$nificant% on% 2ith micro-varia,%es as
is c%ear from corre%ation matri= )1. 3his 2i%% have si$nificant imp%ication for our mode%%in$
e=ercise.
| wagefor
-------------+----------
wagefor | 1.0000
nsdpagr | 0.1!52
nsdpagr"pop | -0.!578
enfor | -0.1952
asfor"en | 0.6121*
asfor"wk | 0.!!96
nsdp | 0.2807
vafor | 0.!092
vapefor | 0.8427*
vapwfor | 0.6512*
wkfor"en | 0.4961*
wkfor | -0.1507
asfor | 0.1771
3.1.). *and +istri,tion:
#e have seen ear%ier that informa% sectors especia%% the rura% informa% sector is associated
si$nificant% 2ith sma%%-farm ,ased a$ricu%ture. Gn the other hand, if 2e %oo" at the %and
distri,ution pattern across states an interestin$ feature arises. #e see a "ind of c%usterin$ of %and
distri,ution pattern (corre%ation coefficient matri= ))!. 3his 2i%% have important meanin$ for our
theoretica% mode%%in$.
.airwise /orrelaion 0eween s#$r#old1 s#s$#old1 s#s$e#old1 s#$e#old and s#l#old s#owing
signifi/an/e a 12 level.
| s#"$r"3d s#"s$"3d s#"s"$3d s#"$e"3d s#"l"#3d
-------------+---------------------------------------------
s#"$r"#old | 1.0000
s#"s$"#old | -0.70!4* 1.0000
s#"s"$e"#old | -0.9908* 0.6700 1.0000
s#"$e"#old | -0.9081* 0.!420 0.9159* 1.0000
s#"l"#old | -0.7!97* 0.1!5! 0.70!!* 0.89!7* 1.0000
3he resu%ts sho2 an interestin$ pattern. shmrho%d is si$nificant% (a%% at )N %eve%! ,ut ne$ative%
corre%ated 2ith a%% other shares 2hereas other shares e=cept shsmho%d are hi$h% and positive%
corre%ated (a%% at )N %eve% of si$nificance! amon$ themse%ves. 3his ma mean a s"e2ed
distri,ution of %and-ho%din$ 2ith c%usterin$ at the t2o ends across states. 3his pattern of %and-
distri,ution is of importance for us as informa% activities are associated 2ith a specific pattern of
%and distri,ution.
)1
Va%ue added per enterprise T U3ota% receipts per enterprise E 3ota% production e=pendituresV G: T Uemo%uments to hired 2or"er . rent . interest
on %oan . net surp%us inc%udin$ home consumption of one@s o2n produceV, a%% per enterprise. <ence va%ue added cou%d ,e ta"en as $ross factor
income.
)I
3.1.-. Informal Sector: The Rral-.r,an +ichotomy
5fter the series of corre%ations and re$ressions done a,ove 2e 2ant to test the specific
hpothesesB if ur,an informa% sector has to e=pand under the inf%uence of forma% manufacturin$
and services contro%%in$ for a$ricu%ture and rural informal activities, and, if ur,an informa%
sector has to e=pand in association 2ith its rura% counterpart contro%%in$ for a$ricu%ture and
formal manufacturing and services, va%ue added per enterprise and va%ue added per 2or"er of
ur,an informa% sector have retardin$ outcomes or at the ,est no effect at a%%. 3his is ,ecause of
the ,asic proposition that, rura% and ur,an informa% sectors compete amon$ them for resources in
$enera% (in the present case a$ricu%tura% resources in particu%ar!. <ence direct% and indirect% the
?operatin$ e=penses@ i.e. costs of production and thus va%ue added per enterprise and per 2or"er
in ur,an and rura% informa% sectors are inf%uenced , this competition. Gn the other hand, thou$h
2e have seen in re$ression )' and )I that forma% sector is a,%e to e=p%ain positive% the avera$e
va%ue added fi$ures for ur,an informa% sector, these avera$es have retardin$ outcomes or at ,est
remain the same if 2e contro% for a$ricu%ture and specifica%% siAe of rura% informa% sector, as
rura% and ur,an informa% sectors compete for (main% a$ricu%tura%! resources and this competition
adverse% affects the positive impact of forma% sector on avera$e va%ue added fi$ures. Gur
hpotheses are found to ,e accepta,%e $iven the five re$ression outcomes )/5, )/B, )/;, )/D,
)/E.
19%. eninun enfor*** nsdpagr* eninrl** nsdpserv %d& '-s(uared
65.40888 !.92e-06 .2!91765 4.68e-07 0.9170
194. wkinun wkfor** nsdpagr** wkinrl nsdpserv** %d& '-s(uared
2.!91297 8.01e-06 .078!!51 !.2!e-06 0.940!
195. vainun vafor*** nsdpagr vainrl nsdpserv* %d& '-s(uared
.!197728 .118475 .2126!47 .1216105 0.9498
&t is found that even after contro%%in$ for nsdpa$r and rura% informa% activities (entinr%, 2"inr% and
vainr%! if forma% sectors (vafor and nsdpserv! e=pand, ur,an informa% sector e=pands as 2e%% (and
for the cate$or, ?enterprise@ ur,an informa% sector e=pands 2ith its rura% counterpartS!. But the
Cuestion isB does this mean a ?2in-2in@ situation for ,oth ur,an and rura% informa% sectorsQ 5
pro,a,%e ans2er cou%d ,e found in re$ressions )/D and )/E.
196. vapeinun enfor nsdpagr eninrl** nsdpserv %d& '-s(uared
.6577417 4.94e-08 -.0125952 5.1!e-08 0.6772
197. vapwinun wkfor nsdpagr wkinrl** nsdpserv %d& '-s(uared
-.00062!6 1.94e-08 -.00!0!! 1.80e-08 0.5251
vapeinun and vap2inun are separate% re$ressed on entfor or 2"for, nsdpa$r, entinr% or 2"inr%
and nsdpserv respective%. Gn% entinr%(-.0125952!** or 2"inr%(-.00!0!!!** is found to ,e
si$nificant ,ut havin$ ne$ative re$ression coefficient. 3hus 2ith $iven siAe of nsdpa$r and $iven
)/
rura% informa% enterprise or 2or"er num,er if forma% sectors e=pand, ur,an informa% sector ma
e=pand (as in )/5, B, and ;! ,ut on% at the cost of reducin$ vapeinun and vap2inun. 3he other
2a of %oo"in$ at the resu%ts is that, contro%%in$ for other reported varia,%es in re$ressions )/D
and )/E even if entfor>2"for rises avera$e va%ue added in inun remains unaffected, thou$h in
re$ressions )' and )I 2e had correspondin$ positive impacts on inun avera$e va%ue added. 3his
cou%d ,e due to the fact that, 2hen forma% sectors e=pand and impart a pu%% on ur,an informa%,
demand for a$ricu%tura% output (food and ra2 materia%! rises; ,ut $iven the siAe of rura% informa%
intact and hence $iven its ?food demand@, ?food-price@ rises reducin$ avera$e va%ue added in inun
due to the ina,i%it of inun to increase its price commensurate% and immediate%. Gf course, it is
a short-run ana%sis. <o2ever, it 2i%% act as an important support for an outcome of our
su,seCuent theoretica% e=ercise.
3.!. Cross-section Intra-Indstry Analysis for /rganised and .norganised
Manfactring
&n our a,ove ana%sis 2e have tried to capture the patterns of intersectora% re%ations ,et2een
informa% sectors, different se$ments of forma% sector and a$ricu%ture. <o2ever, in doin$ so 2e
had to ne$%ect %ot of hetero$eneit e=istin$ 2ithin each of the sectors. 3he specificities are
de%i,erate% avoided and at ,est 2e cou%d c%aim to arrive at certain $ross inferences re$ardin$
these intersectora% %in"a$es. Gne ver important issue 2e $%ossed over is the dichotom ,et2een
the manufacturin$ and service activities in ,oth forma% and informa% sectors. 3o rectif this
pro,%em to some e=tent (thou$h at the cost of reducin$ the span of ana%sis! 2e concentrate on%
on the manufacturin$ sectors, ,oth forma% and informa%
))
. ;oncentratin$ on% on manufacturin$
sector has some additiona% advanta$es. Dirst of a%% 2e cou%d use over-time data on or$anised and
unor$anised manufacturin$ sectors 2hich 2as not possi,%e 2ith data on ?informa%@>?unor$anised@
services. Second%, industr specific data cou%d ,e uti%ised for ,oth the or$anised and
unor$anised sectors. Dirst, 2e ta"e up the second aspect.
#e co%%ect secondar data on or$anised manufacturin$ from 5S& as ,efore. So far as the
unor$anised manufacturin$ is concerned 2e use 4SSG data.
)*
Dor our present ana%sis 2e use
data on unor$anised manufacturin$ of the ear *111-1) and correspondin$% data on or$anised
))
#hi%e it is manufacturin$ sector the dua% cate$ories as reported in the &ndian data are ?or$aniAed@ and ?unor$aniAed@ manufacturin$ sectors.
)*
JUnor$anised 8anufacturin$ SectorB KKK.. 8anufacturin$ enterprises, 2hich are not re$istered under Sections *m(i! and *m(ii! of the
Dactories 5ct, )/0I. KKK.. 3he manufacturin$ enterprises, re$istered under Sections *m(i! and *m(ii! of the Dactories 5ct, )/0I are covered in
the 5nnua% Surve of &ndustries (5S&! underta"en , ;SGP (;entra% Statistica% Gr$anisation, Fovernment of &ndia! (4SSG, report no. 0'', pp.
*!.
*1
manufacturin$ of the same ear for the same thirteen states as ear%ier. Dirst 2e identif some
specific industries 2ithin the unor$anised manufacturin$ sector 2hich account for much more
than I1N of tota% num,er of unor$anised manufacturin$ enterprises. #e identif these industries
fo%%o2in$ the 4ationa% &ndustria% ;%assification )//I (4&;@/I, Fovernment of &ndia! code as )+,
*1, )I, )', )M, (M, *M and *I accordin$ to num,er of enterprises in the descendin$ order and
co%%ect the re%evant information from 4SSG. Simu%taneous% 2e co%%ect correspondin$
information on or$anised manufacturin$ from 5S&. Dirst %et us present the industr $roups in
%itt%e detai%.
TABLE: 2.
15 *anufa/ure of 8ood .rodu/s and 4everages
20 *anufa/ure of 9ood and .rodu/s of 9ood and 5ork1 7:/ep 8urniure1 *anufa/ure of
%ri/les of ;raw and .laing *aerials
18 *anufa/ure of 9earing %pparel 6ressing and 6<eing of 8ur
17 *anufa/ure of =e:iles
16 *anufa/ure of =o0a//o .rodu/s
!6 *anufa/ure of 8urniure> *anufa/uring -o 7lsew#ere 5lassified
26 *anufa/ure of ?#er -on-*ealli/ *ineral .rodu/s
28 *anufa/ure of 8a0ri/aed *eal .rodu/s1 7:/ep *a/#iner< and 7(uip$ens
#e co%%ect data on a$$re$ate va%ue added for or$anised and unor$anised manufacturin$ across
these industries and across rura% and ur,an %ocations and re%ate those 2ith nsdp, nsdpa$r,
popu%ation over and a,ove findin$ pair-2ise corre%ation amon$ them. #e si$nif , vainr%)+ the
a$$re$ate va%ue added in rura% unor$anised manufacturin$ under the 4&; code )+, , vainun)+
the a$$re$ate va%ue added in ur,an unor$anised manufacturin$ under the 4&; code )+ and ,
vafor)+ the a$$re$ate va%ue added in or$anised manufacturin$ under the 4&; code )+. Simi%ar%
the other cate$ories are desi$ned. 4o2 2e derive series of corre%ation matrices ((.*.). to (.*.I.!
to sho2 the nature of intersectora% re%ations.
)(
CORRELATION MATRICES: (3.2.1. TO 3.2.6.).
nsdpagr nsdp pop nsdpagr nsdp pop
vainrl15 0.5851** 0.!210 0.6121** vainun15 0.7196*** 0.8429*** 0.5945**
vainrl16 0.18!2 0.0800 0.1466 vainun16 0.5221* 0.!056 0.417!
vainrl17 0.5140* 0.!246 0.4846* vainun17 0.4641 0.8!52*** 0.!808
vainrl18 0.7951*** 0.677!** 0.7761*** vainun18 0.5452* 0.9417*** 0.4186
vainrl20 0.!159 0.2557 0.571!** vainun20 0.680!** 0.8416*** 0.5429*
vainrl26 0.78!!*** 0.!985 0.8478*** vainun26 0.5050* 0.4768* 0.!5!8
vainrl28 0.5875** 0.!984 0.6900*** vainun28 0.6910*** 0.90!6*** 0.5415*
vainrl!6 0.1!!7 0.1857 0.2477 vainun!6 0.1456 0.6116** 0.1091
CORRELATION MATRICES: (3.2.7. AND 3.2.8.).
vainrl15 -0.0!29 vafor15 0.4882* vainun15
vainrl16 0.1497 vafor16 0.!719 vainun16
vainrl17 -0.0848 vafor17 0.7587*** vainun17
vainrl18 0.260! vafor18 0.8501*** vainun18
vainrl20 0.1957 vafor20 0.507!* vainun20
vainrl26 -0.2014 vafor26 0.228! vainun26
vainrl28 0.2566 vafor28 0.77!8*** vainun28
vainrl!6 -0.1!07 vafor!6 0.4847* vainun!6
)(
*, ** and *** imp% )1N, +N and )N %eve% of si$nificance respective% for a%% the fo%%o2in$ corre%ations.
*)

;omparison ,et2een vainr% and vainun across different industr $roups $enerate interestin$
o,servations. 8ost stri"in$% none of the vainr%@s is si$nificant% associated 2ith vafor, 2hi%e the
situation is distinct% different for vainun across different industries. <o2ever, nsdpa$r happens
to ,e important for ,oth vainun and vainr%. Gn the other hand, 2hi%e popu%ation is si$nificant%
associated 2ith vainr% and not 2ith vainun, the opposite occurs for nsdp. &nterestin$% enou$h
these resu%ts are consistent 2ith our ear%ier resu%ts concernin$ informa% sector as a 2ho%e instead
of unor$anised manufacturin$ on%. &t ma ,e counter-ar$ued in the present conte=t that the share
of va%ue added in rura% sector is %ess compared to that of ur,an sector and hence 2e have the
c%ose association ,et2een vafor and nsdp on one hand, and vainun on the other, 2hi%e it is not so
for vainr% in spite of the fact that most of the industr $roups se%ected ,ased on industr siAe are
a$ricu%ture oriented as is evident from the 4&; cate$ories. <o2ever, so far as rura%-ur,an shares
are concerned the a,ove ar$ument is not fu%% tena,%e as per ta,%e (. Durthermore 4&; code *M
,ein$ a non-a$ricu%tura% product is not si$nificant% re%ated 2ith forma% manufacturin$, 2hich
cou%d ,e an interestin$ o,servation. 3hese findin$s have important imp%ications for our
su,seCuent theoretica% mode%%in$.
TABLE: 3.
)
a
r
i
a
0
l
e
v
a
i
n
u
n
1
5
*

v
a
i
n
r
l
1
5
v
a
i
n
u
n
1
6
*

v
a
i
n
r
l
1
6
v
a
i
n
u
n
1
7
v
a
i
n
r
l
1
7
v
a
i
n
u
n
1
8
v
a
i
n
r
l
1
8
v
a
i
n
u
n
2
0
*

v
a
i
n
r
l
2
0
v
a
i
n
u
n
2
6
*

v
a
i
n
r
l
2
6
v
a
i
n
u
n
2
8
v
a
i
n
r
l
2
8
v
a
i
n
u
n
!
6
v
a
i
n
r
l
!
6
*
e
a
n
2
.
8
7
e
+
0
9
4
.
4
8
e
+
0
9
!
.
7
!
e
+
0
8
1
.
4
5
e
+
0
9
!
.
4
6
e
+
0
9
2
.
!
5
e
+
0
9
2
.
8
8
e
+
0
9
1
.
8
!
e
+
0
9
1
.
2
0
e
+
0
9
2
.
6
4
e
+
0
9

7
.
6
6
e
+
0
8
2
.
8
6
e
+
0
9
1
.
7
!
e
+
0
9
6
.
7
8
e
+
0
8
!
.
1
6
e
+
0
9
1
.
2
5
e
+
0
9
* i$plies #ig#er rural s#are.
3.3. Analysis of 0anel +ata for /rganised and .norganised Manfactring
4e=t 2e 2ant to capture the time-dimension of our data. 3o understand the impact of time over
the intersectora% re%ations 2e need to dea% 2ith the data on unor$anised manufacturin$ on%. 3he
other advanta$e of this, as mentioned ear%ier, is that it provides us 2ith the scope of ana%sis 2ith
comparative% more homo$eneous se$ments of the econom. Gf course, , this 2e have to "eep
aside the service sector as a 2ho%e. Data on &ndian unor$anised manufacturin$ are provided ,
4SSG at three time-pointsB )//0-/+, *111-1) and *11+-1M in the post )//1 situation 2ith
minima% pro,%em of compara,i%it. Data on or$anised manufacturin$ are provided , 5S& for
**
these ears. Gther macro-data are co%%ected from ;8&E as ,efore. 5%% these data are co%%ected for
the ma9or thirteen states as a,ove. #ith these data sets 2e co%%ect information on the fo%%o2in$B
num,er of enterprises in or$anised manufacturin$ (entfor!, num,er of 2or"ers in this sector
(2"for!, a$$re$ate net va%ue added in this sector ca%cu%ated 2ith )//(-/0 2ho%esa%e price inde=
of manufactured products as the ,ase price
)0
(vafor! (2e did not $et data of $ross va%ue added for
the ear *11+-1M and hence 2e too" net va%ue added for a%% the ears!, net va%ue added per
enterprise in this sector (vapefor!, simi%ar% net va%ue added per 2or"er (vap2for!, popu%ation
across states and over time (pop!, net state domestic product at factor cost and measured 2ith
constant price (nsdp!, simi%ar% nsdp a$ricu%ture at constant price (nsdpa$r!, num,er of
enterprises in rura% unor$anised manufacturin$ (entinr%!, num,er of enterprises in ur,an
counterpart (entinun!, num,er of 2or"ers in rura% unor$anised manufacturin$ (2"inr%!, num,er
of 2or"ers in ur,an counterpart (2"inun!, a$$re$ate $ross va%ue added in rura% unor$anised
manufacturin$ ca%cu%ated 2ith )//(-/0 consumer price inde= of industria% 2or"ers as the ,ase
price (vainr%!
)+
, a$$re$ate $ross va%ue added in ur,an counterpart ca%cu%ated 2ith )//(-/0
consumer price inde= of industria% 2or"ers as the ,ase price (vainun!, va%ue added per enterprise
in rura% unor$anised manufacturin$ (vapeinr%!, va%ue added per enterprise in ur,an counterpart
(vapeinun!, simi%ar% the va%ue added per 2or"er cate$ories (vap2inr% and vap2inun!, 2a$e in
or$anised manufacturin$ ca%cu%ated 2ith )//(-/0 consumer price inde= of industria% 2or"ers as
the ,ase price (2a$efor!, entinr%>popu%ation (entinr%Rpop!, entinun>popu%ation (entinunRpop!,
entfor>popu%ation (entforRpop!, 2"inr%>popu%ation (2"inr%Rpop!, 2"inun>popu%ation
(2"inunRpop!, 2"for>popu%ation (2"forRpop!, (entinr%Rnsdp!, (entinunRnsdp!, (entforRnsdp!,
(nvaforRnsdp!, (vainr%Rnsdp!, (vainunRnsdp!, nsdpa$r>popu%ation (nsdpa$rRpop!, simi%ar%
(nsdpRpop!, (nsdpa$rRnsdp! and fe2 others 2i%% ,e introduced at the appropriate p%aces. 3he
description of the sectors 2i%% ,e $iven ,e%o2 throu$h ta,%e 0, + and M. 3hese ta,%es sho2 that
rura% sector commands more than t2o-third of unor$anised manufacturin$ and on the other hand
there is increasin$ rura%isation for the or$anised manufacturin$ sector.
3he method 2e fo%%o2 is simi%ar to the ear%ier cases. Dirst 2e poo% the three ears@ data and
ca%cu%ate the partia% corre%ation coefficients amon$ the re%evant varia,%es at )1N, +N, and )N
%eve%s of si$nificance. &nterestin$% 2e find mar"ed simi%arit ,et2een these resu%ts 2ith poo%ed
data and the resu%ts 2e sho2ed ear%ier throu$h series of corre%ation matrices. 4e=t, in the present
)0
Price indices are co%%ected from :eserve Ban" of &ndia 2e,site.
)+
&f 2e def%ate vainr% 2ith ;P& of a$ricu%tura% %a,ourer, 2e have chec"ed, there is no Cua%itative difference in our su,seCuent ana%sis.
*(
case, 2e assi$n t2o dummies for the three ears 2ith *11+-1M as the ,ase cate$or. 3hus the first
dumm is assi$ned for the ear )//0-/+ (ear/0-/+! and the second for *111-1) (ear11-1)!.
Su,seCuent% 2e run GLS re$ressions in presence of ear dummies 2ith tar$eted re$ressands
choosin$ on% those varia,%es as re$ressors 2hich Cua%if the corre%ation coefficient test at %east
at the )1N %eve% of si$nificance. 3hus 2e use the ?Least-sCuare-dumm-varia,%e@ (LSDV!
techniCue. #e do not sho2 here the corre%ation matrices for paucit of space, rather 2e $o
strai$ht a2a into the re$ressions. 5t the ver outset 2e mention that a%% the re$ressions reported
here are corrected for mu%tico%%inearit and heteros"edasticit. 3he ad9usted :
*
@s are a%so
reasona,%e even 2ith t2o ear dummies.
3.3.1. /rganised and .norganised Manfactring "or#ers:
#e first ta"e up the issue of emp%oment in or$anised and unor$anised manufacturin$ sectors
and tr to ana%se their interactions and a%so their dependence on other sectora% and macro-
varia,%es. #e first have re$ress 2"inr% on 2"inun, pop, nsdpa$r, nsdpa$rRpop 2ith t2o dummies
ear/0R/+ and ear11R1) (re$ression *1!.
20. wkinrl wkinun nsdpagr*** nsdpagr"pop*** <ear94"95 <ear00"01 %d& '-
s(uared
-.082!858 8.94e-06 -!85.5056 225679.8 172!06.1 0.!721
3he resu%t is simi%ar to previous resu%ts 2ith informa% sector. nsdpa$rRpop(-!85.5056!*** has
ne$ative impact in spite of nsdpa$r@s(8.94e-06!*** positive impact is perhaps due to the fact that
popu%ation is more si$nificant in e=p%ainin$ 2"inr%. 2"inun has no si$nificant impact. &t is to ,e
noted that 2"inr% is not found to ,e corre%ated si$nificant% 2ith nsdp and 2"for. Durthermore
there is no si$nificant shift of 2"inr% over time contro%%in$ for the specified varia,%es as is c%ear
from the insi$nificance of the dummies. 3he ne=t re$ression *) is a%so revea%in$. Gn%
popu%ation(.0175111!*** is found to ,e si$nificant.
21. wkinrl wkinun pop*** nsdpagr"pop <ear94"95 <ear00"01 %d& '-s(uared
.0999!28 .0175111 -140.6402 142!87.8 169629.1 0.!51!
#e run re$ression (not reported! 2ith 2"inr% on ear dummies and $et that on the avera$e 2"inr%
has increased over )//0-/+ to *11+-1M for thirteen states ,ut not si$nificant%. #e a%so find that
on the avera$e 2"inr%Rpop fa%%s consistent% throu$hout the period ,ut not si$nificant%. 3hese
$ive us some idea a,out the trend of 2"inr% over time in our se%ected states on the avera$e. 4e=t
2e have re$ression **.
22. logwkinun logwkfor*** logpop** lognsdpagr** <ear94"95 <ear00"01 %d& '-s(uared
.8012701 .!257402 .4!51119 -.114!446 .0655942 0.8472
3he resu%ts are stri"in$% simi%ar to that 2ith informa% sector (cross-section ana%sis of section
(.)!. Even after contro%%in$ for %o$nsdpa$r(.4!51119!** and %o$popu%ation(.!257402!** %o$2"inun
*0
is e=p%ained , %o$2"for(.8012701!***. <o2ever, the case is different 2ith 2"inr% as the
unreported corre%ation matri= sho2s. Un%i"e 2"inr% 2"inun is a%so re%ated to nsdp. Durthermore,
re$ression 2ith on% ear dummies sho2 that on the avera$e for thirteen states 2"inun and
2"inunRpop rise over this 2ho%e period ,ut not si$nificant%. 3his is a$ain important as
2"inr%Rpop fa%%s durin$ this time. 3hus these are indicatin$ at a pro,a,%e trade-off.
So far as 2"for is concerned, it is corre%ated si$nificant% on% 2ith nsdp and not 2ith popu%ation
or a$ricu%ture. 4e=t 2e find that 2"for fa%%s s%i$ht% from /0-/+ to *11+-1M 2ith a %ar$e dip in
*111-1). <o2ever, on the avera$e 2"forRpop fe%% over the period /0-/+ to *11+-1M.
#e a%so find that tota% emp%oment considerin$ 2"for, 2"inun and 2"inr% to$ether consistent%
rise over the 2ho%e period ,ut not si$nificant% (usin$ re$ression 2ith on% dumm!, ,ut this
tota% manufacturin$ emp%oment in re%ation to tota% popu%ation has fa%%en sstematica%%S 3hus
the rise in emp%oment share in ur,an unor$anised manufacturin$ sector cou%d not out2ei$h the
%oss in emp%oment shares of rura% unor$anised and or$anised manufacturin$. Services, most%
under-remunarative, ma ,e a,sor,in$ the e=c%uded>mi$ratin$ popu%ation.
3.3.!. /rganised and .norganised Manfactring $nter%rises:
4e=t 2e turn to the enterprise num,ers and proportions. Dirst 2e have re$ression *( as ,e%o2
(entinr% is not si$nificant% corre%ated 2ith entfor and nsdp!.
2!. eninrl eninun nsdpagr** nsdpagr"pop** <ear94"95 <ear00"01 %d& '-s(uared
.!009!!4 !.48e-06 -171.!616 2981!.57 40974.48 0.!82!
3he resu%t and hence the e=p%anation is simi%ar to that of re$ression *1. Durthermore, 2e find that
on the avera$e eninr% num,er rises consistent% over time thou$h insi$nificant%. <o2ever,
entinr%Rpop and eninr%Rnsdp fa%% durin$ this period. 4e=t 2e have re$ression *0.
24. eninun enfor*** pop nsdp nsdpagr* <ear94"95 <ear00"01 %d& '-s(uared
16.86077 .000947 6.!6e-08 9.09e-07 2!621.!9 !8596.67 0.7470
Even after contro%%in$ for nsdp, nsdpa$r(9.09e-07!* and pop entfor(16.86077!*** has si$nificant
inf%uence on eninun, 2hich is not so for entinr%. Durthermore, 2hi%e on the avera$e for thirteen
states entinun and entinunRpop have increased over the decade, entinunRnsdp has fa%%en
si$nificant%.
Gn the other hand, so far as entfor is concerned it is e=p%ained on% , nsdp and not , nsdpa$r.
Durthermore, it has consistent% increased over time, thou$h entforRpop and even entforRnsdp
fe%% considera,%. 4e=t 2e turn to the cate$or of va%ue added.
3.3.3. /rganised and .norganised Manfactring 'ale Added:
Dirst, 2e have re$ressions *+ dependin$ on the re%evant corre%ation matri= (not reported!.
*+
25. vainrl vainun"nsdp nsdpagr*** nsdp <ear94"95 <ear00"01 %d& '-s(uared
7.21e+09 .05264! .000221 -1.42e+09 -7.!6e+08 0.!804
vainrl vainun"nsdp** eninrl*** nsdpagr nsdp <ear94"95* <ear00"01 %d& '-s(uared
1.51e+11 9!10.59! .0067741 .0011424 -2.89e+09 -1.19e+09 0.8!84
5n interestin$ o,servation is that contro%%in$ for vainun, entinr% and nsdp, a$ricu%ture is una,%e to
e=p%ain si$nificant% vainr%. <o2ever, in a,sence of the varia,%e entinr% a$ricu%ture has
si$nificant impact. #e "no2 a$ricu%ture inf%uences si$nificant% the num,er of enterprises and
num,er of 2or"ers in rura% unor$anised sector, ,ut una,%e to inf%uence vainr% contro%%in$ for
other factors especia%% the num,er of enterprises, entinr%. 3his can happen 2hen a$ricu%ture is
main% actin$ as a supp%-side ,oost for rura% unor$anised manufacturin$ sector providin$
primari% food and ra2 materia%s and not a demand ,oost as such. &f a$ricu%ture acts as a demand
,oost, it shou%d raise the prices of rura% unor$anised sector products, 2hich enhances the va%ue
added (per enterprise va%ue added in particu%ar!. Perhaps that is not the case. Gn the other hand,
vainr% is found to ,e e=p%ained si$nificant% , vainun. Gur hpothesis is that this positive
association is main% due to e=pansion of nsdp. <ence to contro% for nsdp 2e underta"e
re$ression *M 2hich supports this hpothesis. Durthermore, 2e find that vainr% has increased over
time thou$h vainr%Rnsdp has fa%%en.
4e=t 2e $o for re$ression *'. #e incorporate micro-varia,%es a%on$ 2ith the macro ones
fo%%o2in$ the unreported corre%ation matri=.
27. logvainun logvafor*** logeninun*** logvapwinun*** lognsdpagr <ear94"95** <ear00"01 %d& '-
s(uared
.10!6612 1.007189 1.256521 -.0505101 .0846606 .0549991 0.9927
4on-si$nificant re%ation ,et2een %o$vainun and %o$nsdpa$r contro%%in$ for
%o$vafor(.10!6612!***, %o$entinun(1.007189!*** and %o$vap2inun(1.256521!*** cou%d ,e due to
the same reason as that 2e discussed for vainr%. Durthermore, it ma have happened that the
positive si$nificant association ,et2een vafor and vainun is caused , e=pandin$ nsdp 2hich 2e
cou%d not contro% et. <ence 2e do the fo%%o2in$ re$ression *I.
28. logvainun"nsdp logvafor"nsdp*** <ear94"95 <ear00"01 %d& '-s(uared
.64!8886 .1821644 .18669! 0.2127
Even after contro%%in$ for nsdp the e%asticit of response of vainunRnsdp 2ith chan$e in
vaforRnsdp(.64!8886!*** is positive. 3his resu%t is sharp% different from that concernin$ vainr%.
Durthermore, 2e find that thou$h vainun has increased over time vainunRnsdp has fa%%en
consistent%.
26. logvainrl logvainun"nsdp lognsdp*** <ear94"95 <ear00"01 %d& '-s(uared
-.2775087 .82!5294 .1549474 .0841271 0.!140
*M
4e=t 2e turn to va%ue added in or$anised manufacturin$ industr and have re$ression */.
29. logvafor logvapefor*** logpop** lognsdp*** lognsdpagr** <ear94"95*** <ear00"01 %d& '-
s(uared
.497!!72 -.41!9454 1.822876 -.4002291 .6108824 .1!4040! 0.8726
3he impacts of %o$nsdpa$r(-.4002291!** and %o$popu%ation(-.41!9454!** are curious% ne$ative.
#here nsdpa$r rises share of non-a$ricu%ture in nsdp ma fa%% 2hich imp%ies a fa%% in vafor as
2e%%, as vafor is a ma9or constituent of non-a$ricu%tura% nsdp. <ence, 2e can at the %east sa that
a$ricu%ture is not important for $ro2th in vafor. Gn the other hand, it is Cuite %i"e% that
or$anised manufacturin$ is dissociated from the popu%ation at %ar$e. Durthermore
%o$nsdp(1.822876!*** and %o$vapefor(.497!!72!*** are o,vious outcomes. :espective e%asticit
va%ues have fa%%en si$nificant% in recent ears compared to )//0-/+ contro%%in$ for the
re$ressors. <o2ever, 2e find , usin$ on% the dummies that vafor has increased si$nificant%
over the ears thou$h vaforRnsdp has dec%ined.
&t seems from the ,ehaviours of va%ue added of these or$anised and unor$anised sectors that the
contri,ution of overa%% manufacturin$ in nsdp has fa%%en over time thou$h ma not ,e
si$nificant%. Even if nsdp on the avera$e has ,een found to increase si$nificant% over time on%
vafor has increased si$nificant% 2ithout si$nificant increase in vainun and vainr%. 3his ma ,e
,ecause of the fact that nsdpa$r thou$h has increased consistent% its share in nsdp i.e.
nsdpa$rRnsdp has fa%%en 2ith hi$h ()N! %eve% of si$nificance. 5s unor$anised sectors are
si$nificant% associated 2ith a$ricu%ture (ma ,e throu$h supp% side support!, contraction of the
share of a$ricu%ture in nsdp ma have restricted the e=pansion of vainun and vainr%.
4e=t 2e turn to the sectora% micro-varia,%es. Dirst 2e arrive at re$ression (1.
!0. )apeinrl eninrl* vapeinun** vafor nsdpagr <ear94"95* <ear00"01 %d& '-s(uared
-.00!6044 .1584224 -8.7!e-09 -7.57e-10 -2875.148 -157!.948 0.4!!!
3he resu%ts are interestin$. Primari% 2e $et the ne$ative impact of con$estion; as
entinr%(-.00!6044!* rises per unit va%ue added fa%%s si$nificant%. Gn the other hand, it seems there
is a c%ose association ,et2een the productivit varia,%es of ur,an (vapeinun(.1584224!**! and
rura% (vapeinr%! unor$anised sector. &t ma ,e due to the fact that ,oth vapeinun and vapeinr% are
affected , common varia,%es such as popu%ation and nsdpa$r. #hen these rise, the num,ers of
enterprises in ,oth the sectors rise inf%uencin$ ne$ative% the micro va%ue added varia,%es.
5nother e=p%anation cou%d ,e that, this association is a resu%t of overa%% productivit $ain across
the sectors. 3his seems to ,e a more p%ausi,%e e=p%anation $iven the su,seCuent o,servations.
<o2ever, vafor and nsdpa$r are insi$nificant; the e=p%anations cou%d ,e as that discussed for
re$ression *+. Durthermore, 2e find that ceteris pari,us the impacts of the contro% varia,%es on
*'
vapeinr% rise si$nificant% in recent ears compared to )//0-/+. <o2ever, as such vapeinr% has
not increased si$nificant% over time as is revea%ed from re$ression 2ith on% ear dummies.
4e=t 2e $et re$ression (), first , usin$ corre%ation techniCue and then correctin$ for
mu%tico%%inearit.
!1. vapwinrl wkinrl** vapwinun** )afor nsdpagr @ear94"95** <ear00"01 %d& '-
s(uared
-.000917 .!242961 -4.84e-09 4.59e-10 -1649.954 -771.417 0.5608
3he resu%t is ver simi%ar to that of re$ression (1. 5nd there is si$nificant rise in the impacts of
contro% varia,%es over the decade. 4e=t 2e arrive at re$ressions (* and ((.
!2. vapeinun eninun* vafor*** nsdpagr @ear94"95 <ear00"01 %d& '-
s(uared
-.0!12811 1.9!e-07 !.46e-08 5440.152 !640.904 0.525!
!!. vapwinun wkinun vafor*** nsdpagr @ear94"95 <ear00"01 %d& '-
s(uared
-.002496 4.42e-08 5.91e-09 52!.472 187.2!94 0.2976
&nterestin$%, vafor is a si$nificant e=p%anator varia,%e in the present case ((* W ((! 2hich 2as
not true for the t2o correspondin$ productivit varia,%es of rura% sector. Li"e the ur,an informa%
sector a$ain in the present case it seems ur,an unor$anised manufacturin$ is more vi,rant and it
is inf%uenced , or$anised sector activit. Durthermore, 2e have seen separate%, vapeinun and
vap2inun have increased over decade thou$h insi$nificant%.
;omparison of the over time avera$e va%ues of vapeinr%, vap2inr%, vapeinun and vap2inun are
revea%in$ (ta,%e 0!.
)M
TABLE: 4.
*ean 1994-95: 2000-01: 2005-06:
)apeinrl 1!742.04 14195.8 16!78.!1
)apeinun !7792.78 !5067.4! 41978.!6
)apwinrl 6627.692 7255.954 852!.292
)apwinun 14!10.24 1!90!.!2 160!5.76
Dirst of a%% ur,an va%ues are throu$hout much hi$her than the rura% counterparts. Second%, the
va%ues have increased over the decade chosen for ana%sis ,ut there is a sna$ in ,et2een durin$
*111-1). 3he ur,an va%ues have fa%%en and rura% va%ues have retarded. 5n enCuir cou%d ,e
interestin$.
5n ana%sis of ta,%e + cou%d e=p%ain the variations in the va%ues in ta,%e 0. 5ccordin$ to ta,%e +
entinr%, eninun, 2"inr% and 2"inun a%% have increased considera,% durin$ )//0-/+ and *111-1),
,ut the rate of increase has retarded mar"ed% durin$ *111-1) and *11+-1M and in fact, 2"inr%
has fa%%en from the *111-1) %eve%. 3he primar reason cou%d ,e the sharp rise in nsdpa$r ,et2een
)//0-/+ and *111-1) and su,seCuent retardation. <o2ever, the ,ehaviour of vafor is 9ust the
)M
&f 2e def%ate vainr% 2ith ;P& of a$ricu%tura% %a,ourer and vainun 2ith ;P& of industria% 2or"er there is not much difference for our ana%sis. Let
us compare the t2o for a%% (/ o,servations 2ith poo%ed data. 8eans of vapeinr%Rcpia%R/(R0, vapeinunRcpii2R/(R0, vap2inr%Rcpia%R/(R0 and
vap2inunRcpii2R/(R0 areB
)aria0lesvapeinrl)apeinunvapwinrl)apwinunMEAN160!2!8279.52812!.226 14749.77
*I
reverse; ver s%o2 improvement in the first phase ,ut a sharp rise in the %atter. 5s nsdpa$r rises
sharp% in the first phase, vo%umes of a%% the enterprises and the 2or"ers in the unor$anised
manufacturin$ sector increase drastica%% either reducin$ or retardin$ the %eve%s of per enterprise
and per 2or"er va%ue added across the unor$anised sector as, even if the num,ers of enterprise
and 2or"er rise si$nificant%, the vainr% and vainun do not rise so much as found in the fore$oin$
re$ression resu%ts *+ and *'. &n the %atter phase the reverse occurs and per unit and per 2or"er
va%ue added rise sharp% in ,oth rura% and ur,an econom. &n the first phase per enterprise and
per 2or"er va%ue added in fact, dec%ined for ur,an unor$anised manufacturin$ sector, ,ecause of
another effect. #e "no2 vafor si$nificant% e=p%ains vainun. 4o2 durin$ the first phase vafor
increases ver %itt%e havin$ ver %itt%e impact on vainun, ,ut there is si$nificant increase in
2"inun and entinun due to sharp rise in nsdpa$r. 3his ma have caused per 2or"er and per
enterprise va%ue added in ur,an sector to fa%%. 3he situation is reversed in the second phase.
*/
TABLE: 5.
1994-95: Me! S"#e
-------------+----------------------
vafor | 6.82e+10
-------------+----------------------
eninrl"no | 756707.7 0.726062
-------------+----------------------
eninun"no | 285500 0.27!9!8
-------------+----------------------
wkinrl"no | 1604962 0.675106
------------------------------------
wkinun"no | 772!84.6 0.!24894
------------------------------------
nsdpagr | 1.44e+11
2000-01:
------------------------------------
vafor | 6.89e+10
-------------+----------------------
eninrl"no | 86!607.7 0.708975
-------------+----------------------
eninun"no | !54500 0.291025
------------------------------------
wkinrl"no | 17456!8 0.6627!5
------------------------------------
wkinun"no | 888!5!.8 0.!!7265
------------------------------------
nsdpagr | 1.75e+11
2005-06:
------------------------------------
vafor | 1.21e+11
-------------+----------------------
eninrl"no | 868722.! 0.710052
-------------+----------------------
eninun"no | !54740.7 0.289948
------------------------------------
wkinrl"no | 1688!48 0.647868
------------------------------------
wkinun"no | 917658.4 0.!521!2
------------------------------------
nsdpagr | 1.88e+11
TABLE: 6.
% supple$enar< a0le for organised
$anufa/uring se/or1 all-AndiaB
-u$0er of 8a/ories +Cnis,'ural2Cr0an
2=oal +%;A,1994-
9529.!270.6812!0101998-
99!6.066!.9!1!17062002-
0!!6.486!.52127957-u$0er of 9orkers
+An =#ousand,1994-
9528.6471.!669701998-
99!8.7061.!06!642002-
0!40.1959.8!6161Dross value added +'s
5r,1994-9529.6170.!91271921998-
99!8.6161.!917!7272002-
0!44.2555.75214!76@ear'uralCr0an=oal
+%;A,-u$0er of 8a/ories +Cnis,1994-
95!6071869!912!0101998-
9947498842061!17062002-
0!466818128!127957-u$0er of 9orkers
+An =#ousand,1994-951996497469701998-
99246!!9016!642002-0!2476!6866161Dross
value added +'s 5r,1994-
95!7662895!01271921998-
996706810665817!7272002-
0!94861119515214!76
Summarisin$ this 2ho%e discussion 2e cou%d sa that a$ricu%ture induces rura% and ur,an
unor$anised manufacturin$ sector emp%oment and it he%ps in the e=pansion of num,er of
enterprises as 2e%%, ,ut it does not enhance productivit and hence per enterprise and per 2or"er
va%ue added are not inf%uenced positive%. Productivit is primari% enhanced , micro-varia,%es
such as factor ratios as 2e have noted in case of informa% sector in the ear%ier section and ,
vafor, particu%ar% for ur,an unor$anised and informa% sectors and not for the rura% counterparts.
&n this conte=t the corre%ation matri= (.(.) is revea%in$.
CORRELATION MATRIX: 3.3.1.
| vapwinun vapeinun
-------------+------------------------
vapwinun | 1.0000
vapeinun | 0.9626*** 1.0000
eninrl"no | -0.4746*** -0.4271***
wkinrl"no | -0.4744*** -0.4155***
5$ricu%ture is not on% neutra% so far as productivit enhancement is concerned ,ut a%so the ,one
of contention, as ur,an and rura% unor$anised manufacturin$ sectors compete for a$ricu%tura%
resource poo% 2hich can inf%uence direct% and indirect% the avera$e costs of production and
hence the avera$e va%ue added. ;onseCuent%, the corre%ation matri= (.(.) cou%d ,e interpreted to
capture this contradiction ,et2een ur,an and rura% unor$anised sectors. Ur,an va%ue added on
the avera$e cou%d increase on% at the cost of contraction of resources to rura% counterpart
inducin$ a shrin"a$e there or vice versa. Ur,an avera$e (per enterprise or per 2or"er! va%ue
added cou%d increase under the stron$ inf%uence of or$anised sector varia,%es (2e can refer
re$ressions (* and ((! and sectora% micro-varia,%es on% if cheap resources are dra2n out of
a$ricu%ture and thus at the cost of rura% informa%>unor$anised sector.
4e=t 2e turn to 2a$e rate in or$anised manufacturin$. ;ertain partia% corre%ation coefficients are
derived for ,oth nomina% 2a$e (2a$eforRrs! and 2a$e def%ated 2ith ;P& of industria% 2or"ers
(2a$efor!.
CORRELATION MATRICES: 3.3.2. !$ 3.3.3.
nsdpagr enfor"no nsdp vafor vapefor wkfor"no pop"no
wagefor"rs 0.2!97 -0.1492 0.410!*** 0.!!07** 0.7277*** -0.18!7 0.!508**
wagefor 0.1182 -0.2!!8 0.1!55 0.1889 0.5614*** -0.1872 0.!215**
3he most important o,servation is that 2a$e is not si$nificant% associated 2ith nsdpa$r.
&nterestin$% price inde= def%ated 2a$e is not associated 2ith nsdp and vaforS &n fact it is found
usin$ re$ression 2ith on% ear dumm that 2a$efor has dec%ined over time.
Before 2e $o to the ne=t section %et us summarise the 2ho%e of our re$ression ana%ses on
informa% sector, unor$anised manufacturin$ sector, or$anised manufacturin$ and forma% services
throu$h the fo%%o2in$ ta,%e '. #e consider the re$ressands one , one and en%ist the si$nificant
(1
re$ressors. Surprisin$%, the cross-section ana%ses on re%ations ,et2een informa% sector,
a$ricu%ture, forma%>or$anised manufacturin$ and forma% services for thirteen states of &ndia and
for the ear )///-*111 have si$nificant simi%arit 2ith that on re%ations ,et2een unor$anised
manufacturin$, or$anised manufacturin$ and a$ricu%ture for the same states and over the periods
)//0-/+, *111-1) and *11+-1MS <ence 2e can formu%ate one sin$%e ta,%e for ,oth the ana%ses.
3he si$nificant cross-section re$ressors are mar"ed ,%ac", the pane% re$ressors are mar"ed ,%ue
and the common re$ressors 2hich are si$nificant are mar"ed red. <o2ever, here 2e have to
assume a2a the differences ,et2een the unor$anised sector and informa% sector for the sa"e of
succinct representation of our re$ression resu%ts.
TAB*$: -.
Re%#e&&!$ '#(&&-&e')*(! #e%#e&&(#& '(++(! #e%#e&&(#& ,!e- #e%#e&&(#&
9kinrl s#$r#old nsdpagr populaion
7ninrl s#$r#old nsdpagr populaion
)ainrl nsdpagr ;#$r#old eninrl vainun
)ainrl"nsdp +-,
vafor"nsdp
)ainrl"nsdp +-,
vainun"n
sdp
9kinun nsdpserv wkfor nsdpagr .opulai
on
9kinun"pop populaion -sdpagr"pop nsdpserv"pop wkfor"pop
7ninun +-, s#l#old enfor nsdpagr
eninun"nsd
p
nsdp -sdpagr"nsdp +-, s#l#old enfor"nsdp
)ainun nsdpagr -sdpserv )apeinun vafor vapwinun eninun
)ainun"nsdp vafor"nsdp
7nfor nsdp
9kfor enfor -sdp
)afor vapwfor 7nfor nsdp +-,
populai
on
+-,
nsdpagr
vapefor
-sdpserv vafor
)apeinrl asinrl"en +-,
eninrl
)apeinu
n
)apwinrl asinrl"wk +-,
wkinrl
)apwinu
n
)apeinun asinun"wk +-, eninrl vafor nsdpagr"
pop
)apwinun asinun"wk +-, wkinrl vafor nsdpagr"
pop
asinun"wk vafor
wagefor"rs asfor"en )apefor )apwfor wkfor"en
9agefor +-,
nsdpagr"
pop
vapefor popula
ion
*+.(#)!) #e-)*(!& /(#
/(--(0*!% )#%e)
1#*2-e&
'#(&&-&e')*(! $) '(++(! #e&3-)& ,!e- $)
9kinrl"pop +-, wkinun"pop 8alls over i$e
eninrl"pop +-, eninun"pop 8alls over i$e
)ainrl"nsdp +-, vainun"nsdp +-, vafor"nsdp 8alls over i$e
)ainun"nsdp vafor"nsdp 8alls over i$e
9kinun"pop 'ises over i$e
eninun"pop 'ises over i$e
()
)ainun"nsdp 8alls over i$e
wkfor"pop 8alls over i$e
9kfor %sfor 7nfor $uuall< and signifi/anl<
/orrelaed
)afor 'ises signifi/anl<
vapeinun1 vapwinun1
vapeinrl1 vapwinrl
'ise over i$e
-sdpagr 'ises over i$e
nsdpagr"nsdp 8alls signifi/anl<
-sdp in/reases signifi/anl<
s#s$#old1 s#s$e#old1
s#$e#old1 s#l#old
negaive and
signifi/anl<
/orrelaed wi#
s#$r#old
9agefor 8alls over i$e
oal unorg. + org.
$anufa/. 7$plo<$en
in/reases over i$e
Eoal unorg. + org.
$anu. e$plo<$enF"pop
8alls over i$e
III' A 3od!l of Formal-Informal-A2ric"lt"r! Int!raction):
Contradiction) of 45oin2 5!*!lo(m!nt6
3.1. The Strctre of or Model-$conomy:
3his 2ho%e empirica% ana%sis demands si$nificant revision of the theoretica% frame2or"s on
forma%-a$ricu%ture-informa% re%ations presented in severa% 2ritin$s on deve%opment economics in
$enera% and deve%opment macroeconomics in particu%ar (<mer and :esnic", )/M/; :a"shit,
)/I*; 3a%or, )/I(; 7a%dor, )/I0; Bhaduri, )/IM; Ba$chi, )/II; Bose, )/I/; :anis and Ste2art,
)//( and )//0; ;ha"ra,arti, *11), *11(, *11+, *11/, forthcomin$; Bhaduri and S"arstein, *11(;
8ar9it, *11(; Sana%, *11'; ;ha"ra,arti, et. a%. *11/; ;ha"ra,arti and 7undu, *11/,!. <o2ever,
at the ver outset 2e mention that our frame2or" is ,ui%t in 7a%ec"ian %ines (7a%ec"i, )/(0 and
)/+0! thou$h e=tendin$ the ana%ses si$nificant% , incorporatin$ the informa% sectors. #e tr
to present an a,stract econom consistin$ of forma%>or$anised sector (fs!, informa%>unor$anised
sector (ins!, a$ricu%ture (a$r! and the $overnment ($ov!. Gur mode% 2ou%d ,e a short-run one.
<o2ever, 2e 2i%% a%so tr to derive certain tentative coro%%aries pertainin$ to %on$-run ,ased on
this short-run frame2or". 3he $enera% e%ements 2e introduce are as fo%%o2s.
Dirst, $iven our 2ho%e empirica% ana%sis it shou%d ,e o,vious that 2e divide the informa% sector
into ur,an (inun! and rura% (inr%! se$ments 2ith distinctive properties.
)'
Gn the other hand, 2e
ta"e fs as one entit and remind the reader that there is increasin$ rura%isation at %east for the
)'
3here is not much difference ,et2een the ?unincorporated@ informa% sector and unor$anised sector especia%% unor$anised manufacturin$ as is
sho2n in &ndian dataB Percenta$e of enterprises re$istered under>2ith an 5ct > 5uthoritB +.+N for rura% &ndia, *1.)N for ur,an &ndia and /./N
for a%%-&ndia (4SSG :eport no. 0'IB Unor$anised 8anufacturin$ Sector in &ndia, *111-*11)B ;haracteristics of Enterprises!.
(*
or$anised manufacturin$ and thus rura% se$ment is no more ne$%i$i,%e.
)I
4e=t, 2e introduce at an
appropriate p%ace t2o specific ro%es of the $overnment. Gver and a,ove creatin$ the scope for
7a%ec"ian ?domestic e=ports@ (7a%ec"i, )/(0; $overnment purchasin$ fs products! the
$overnment a%so performs a ?deve%opmenta%@ ro%e; it purchases products, in particu%ar, services
from the informa% sectors, such as creatin$ informa% emp%oment in rura% and ur,an infrastructure
deve%opment pro$rammes or creatin$ ?mar"et@ for handicrafts to ,e so%d in the domestic as 2e%%
as forei$n economies.
)/
Gn the other hand, a ma9or departure from the standard %iterature is that, no2 2e dichotomise the
a$ricu%tura% sector into modern a$ricu%ture (ma$r! and traditiona% a$ricu%ture (ta$r!. &t is found in
our empirica% ana%sis that ins is c%ose% associated 2ith a$r ,ut fs is not. Does this mean that
forma% sectors are comp%ete% dissociated from a$ricu%tura% supp%iesQ Perhaps that is not possi,%e.
Perhaps, 2hat happens is that, fs interacts 2ith a portion of a$ricu%ture E the modern se$ment,
ma$r. 3he modern se$ment of a$ricu%ture produces ?hi$h va%ue crop@ (<V;! main% for ur,an
popu%ation and for e=ports
*1
. 5nd these e=port earnin$s are most% spent on fs output. Gn the
other hand, the 2ho%e chain of %ar$e-sca%e <V; cu%tivation-preservation-transportation-
processin$-pac"a$in$ and tradin$ is more capita% intensive and uses fs $oods and services
*)
. #e
have a%so done a simp%e empirica% e=ercise to test 2hether inde= of <V; cu%tivation (SD&!
**
ca%cu%ated for our thirteen states as a,ove around the ear *111 is associated 2ith inde= of non-
a$ricu%tura% production; 2hether diversification a2a from a$ricu%ture to2ards modern>forma%
industr and services can e=p%ain si$nificant% the crop-diversification to2ards <V;; i.e. to test
throu$h a simp%e GLS re$ression if the inde= XUnsdpind.nsdpservV>nsdpY for the ear *111
across states e=p%ains crop diversification inde= (cdi! around the same ear. #e find an
affirmative resu%t
*(
. Gn the other hand, 2e ar$ue that the a$ricu%tura% %and distri,ution is s"e2ed
)I
<o2ever, 2e have chec"ed for a%most a%% of our corre%ation resu%ts that rura%-ur,an division of the forma% manufacturin$ does not $enerate
si$nificant difference. <ence 2e have ta"en the t2o to$ether. 8oreover, for forma% sector %ocation shou%d not ,e an important determinant of
,ehaviours.
)/
Standard e=amp%es cou%d ,e the 4ationa% :ura% Emp%oment Fuarantee Scheme and the 7hadi and Vi%%a$e &ndustries ;ommission, ,oth of
&ndia. Fovernment of &ndia is a%so proposin$ a massive ur,an emp%oment $uarantee pro$ramme.
*1
&n this conte=t 2e can refer 6oshi et a% *110; Sin$h, *110; Sidhu, *11+; :ao et a% *11M; #or%d Ban", *11+, *11'.
*)
&n this conte=t 2e can refer Saith, )//); Sin$h, *110; :ao et. a%., *11M; Sen and :a9u, *11M; ;ha"ra,arti and 7undu, *11/a.
**
#e have used Simpson@s Diversification &nde= (SD&! to measure de$ree of crop diversificationB
SD& T ) - (pi > pi!
*
, 2here pi is the area under i
th
crop and i T ),*,(,K.n. is the num,er of crops.
*(

cdinsdpindservRnsdp***5d9 :-sCuared).')0('0 1.0'/'
Durthermore, 2e have the fo%%o2in$ partia% corre%ation resu%t 2ith )///-11 cross-section dataB
Z cdi
-------------.------------
cdi Z ).1111
((
(as ar$ued ear%ier 2ith corre%ation matri= ))! and the mar$ina%-farm ,ased main% coarse food-
crop producin$ ?traditiona%@ part of a$ricu%ture is more c%ose% associated 2ith informa% sectors
(2e have a%read deduced severa% re$ression resu%ts supportin$ this proposition!. 3hus 2e
assume that fs and ma$r constitute one composite se$ment of our mode% econom supported ,
$overnment e=penditure on fs output (creatin$ 7a%ec"ian domestic e=ports for fs!. Gn the other
hand, rura% and ur,an informa% sectors, inr% and inun are associated 2ith mar$ina%-farm ,ased
,asic food-crop producin$ ?traditiona%@ se$ment of a$ricu%ture, ta$r. &n the %iterature a$ricu%ture is
assumed to inf%uence informa% sector throu$h ,oth demand and supp% side channe%s (8e%%or,
)/'M; :anis and Ste2art )//( and )//0!. &n our mode% 2e 2i%% a%so tr to sho2 that a$ricu%tura%
supp%-constraint (a pro= for the $eneric resource constraint! p%as a fundamenta% ro%e over and
a,ove ,ein$ a demand $enerator for informa% sectors.
&t is understanda,%e that there cou%d ,e direct interactions ,et2een the rura% and ur,an se$ments
of informa% sectors. But it must ,e 2ea" and hence 2e have not found ,arrin$ a fe2 cases such
associations in our previous empirica% ana%ses. ;onseCuent%, 2e assume a2a such direct
interactions. <o2ever, interaction ,et2een inun and fs must ,e ac"no2%ed$ed thou$h fo%%o2in$
our empirica% o,servations interactions ,et2een fs and inr%, if an, are ru%ed out.
#e assume that there is a specific tpe of interaction ,et2een fs and inun. Dirst of a%%, 2e ,e%ieve
in a causa% re%ation, former ,ein$ the source of the effect on the %atter. <ence, instead of a t2o-
2a interaction 2e assume virtua%% a one-2a effect. Dorma% sector is proposed to purchase
inun commodities and not vice-versa. &t is true that inun uses man fs commodities, ,ut it ma
not ,e refuted that most of the commodities used , even the inun are indi$enous% produced or
procured (consider &LG definition of informa% sector in this conte=t, 2here it is c%ear%
mentioned that informa% sector uses most% indi$enous resources; see Ban$asser, *111!.
<o2ever, there is a finer point. &s it main% ?su,-contractin$@ throu$h 2hich fs acCuires inun
commodities E ,oth $oods and servicesQ Data te%%s a different stor at %east for &ndia. Percenta$e
of enterprises 2or"in$ on an tpe of contract (,e it 2ith trader or firm! are )*.) for rura% /.0 for
ur,an and )1./ for com,ined cate$or for the informa% sector consistin$ of ?unincorporated@
manufacturin$ and service sector units (4SSG report no. 0+/B &nforma% Sector in &ndia. )///-
*111, pp. &V!. 3he correspondin$ data for unor$aniAed manufacturin$ are (1.0N for rura% &ndia,
(0.'N for ur,an &ndia and ().'N for a%%-&ndia (4SSG :eport 4o +*0B Gperationa%
entinr%Rnsdp Z -1.00(1
entinunRnsdp Z -1.*+'I
(0
;haracteristics of Unor$anised 8anufacturin$ Enterprises in &ndia, *11+-1M!. 4everthe%ess,
contractin$ does not at a%% mean contractin$ 2ith on% fs. <ence, actua% contractin$ 2ith fs 2ou%d
,e even %esser. 3herefore 2e assume that the fs essentia%% purchases finished products and
various tpes of services from inun. Drom our empirica% resu%ts especia%% re$ression ** and *0
2e find that even over time there is a sta,%e re%ation ,et2een fs and inun. <ence 2e propose that
a constant fraction of fs income is spent on inun. 8oreover, there cou%d ,e ?deve%opmenta%@
e=penditures , the $overnment on informa% sectors@ $oods and services. #ith this ,asic
construction 2e $o for detai%s.
3.!. Informal Sector 1 Agricltre Interactions:
Dirst 2e ta"e up the issue of ,ehaviours of inr% and inun and the interactions ,et2een ta$r and
inr% on one hand and ,et2een ta$r and inun on the other. ;ontrar to fs 2ith capita%-%a,our
dichotom and accumu%ation-motive as the drivin$ force for production, non-capita%istic inr% and
inun are characterised , ?consumption-motive@
*0
, se%f-emp%oment and a,sence of fi=ed
capita%
*+
(4SSG, 0+/, pp. );
*M
Ban$asser, *111!. 8oreover, there is surp%us-%a,our in inr% and
inun. inr% and inun are se%f-sufficient in terms of ,oth imp%ements and non-food consumption.
<o2ever, the have to depend on ta$r for food. Durthermore 2e have ,a%anced trade ,et2een
ta$r and inr% on one hand and ,et2een ta$r and inun on the other.
*'
<ence, food is o,tained ,
inr% and inun 2ith the proceeds received throu$h sa%e of net-output (net of reCuirements for se%f-
consumption and reproduction! to ta$r itse%f. 5$$re$ate ta$r income is earned , se%%in$
mar"eta,%e surp%us in the (undifferentiated! food mar"et, 2hich is purchased , the a$ents of
,oth inr% and inun at the sin$%e open mar"et price. 3his income, in turn, is spent on the products
of ,oth inr% and inun. 3he distri,ution of a$ricu%tura% supp% ,et2een ur,an and rura% informa%
sectors depends on the terms of trade ,et2een ta$r and inr% on one hand, and ta$r and inun on the
other. 3hus demand pattern determines the division of supp%.
*0
Production ta"es p%ace 2ith the so%e o,9ective of consumption. 3his is the crucia% characteristic of informa% sectors (seeB Sana%, *11' pp. *))-(
in this re$ard!. Do%%o2in$ &ndian data cou%d ,e revea%in$B &t is found that 2hi%e the annua% emo%ument per hired 2or"er in rura% informa%
?esta,%ishments@ hirin$ %a,our on fair% re$u%ar ,asis is :s.)0)1I, annua% va%ue added per 2or"er in over2he%min$% %ar$e popu%ation of ?o2n
account enterprises@ not hirin$ an %a,ourer on fair% re$u%ar ,asis is :s.)(00(S 3he correspondin$ ur,an va%ues are :s.*)MI) and :s.*+1+0
respective% (4SSG, 0+/, pp.&&&!; a%% these ,ein$ %ess than the $overnment stipu%ated minimum 2a$eS 3hus it cou%d ,e assumed that even the
informa% entrepreneurs ,ehave %i"e 2a$e-earners. <o2ever, the ur,an units are ,etter off, 2hich 2i%% have imp%ications for our su,seCuent
ana%sis. (&n this conte=t 2e can refer Bhattachara, *1)1 for the ,asic idea and a ri$orous empirica% ana%sis on &ndian data!.
*+
Simp%e too%s produced in informa% sector itse%f are used.
*M
J&nforma% sector ma ,e ,road% characteriAed as consistin$ of units en$a$ed in the production of $oods or services 2ith the primar o,9ective
of $eneratin$ emp%oment and incomes to the persons concerned. 3hese units tpica%% operate at %o2 %eve% of or$anisation, 2ith %itt%e or no
division ,et2een %a,our and capita% as factors of production and on a sma%% sca%e. La,our re%ations, 2here the e=ist, are ,ased most% on casua%
emp%oment, "inship, or persona% or socia% re%ations rather than contractua% arran$ements 2ith forma% $uarantees.P (4SSG, 0+/, pp. )!.
*'
Un,a%anced trade is financia%% unsustaina,%e. Durthermore, it is on% a simp%ifin$ assumption.
(+
#e assume fe2 differences ,et2een the structura% features of ur,an and rura% informa% sectors
and hence the price formu%ation in inun 2i%% ,e s%i$ht% different. <o2ever, 2e hasten to add that
the fundamenta% features of the t2o sectors are the same. inr% is essentia%% consisted of ?pett
commodit producers@. &t is a su,sistence sector 2here there is no net surp%us over and a,ove the
reCuirements for food and non-food consumption at su,sistence %eve%s and for ?simp%e
commodit reproduction@ 2ithout e=pansion of sca%e. But in inun price is determined in presence
of a ?mar"-up@ over the avera$e cost of production un%i"e inr% 2here there is no ?surp%us@ (this
difference is a%so consistent 2ith our a,ove data comparin$ vapeinun, vap2inun, vapeinr% and
vap2inr%, the main constituent of 2hich ,ein$ ?net surp%us@ accordin$ to 4SSG data; refer ta,%e 0
and footnote *0 a,ove!. But this mar"-up is distinct% different from that ?imposed@ , a
monopo%ist of fs. 8onopo%ist or an o%i$opo%ist sets mar"-up 2hich is the source of ?profit@
intended for reinvestment and there, for accumu%ation. ;ontrari%, inun tries to set this mar"-up
to arran$e for future consumption on% and not for accumu%ation driven , monopo%istic
competition. Even if this ?surp%us@ is reinvested in production it is done 2ith the ,asic ?motive@ of
surviva%
*I
9ust %i"e inr%. 3he on% difference is that the inun en9os more ,reathin$ space in terms
surviva,i%it and it is consistent 2ith our data. ;onseCuent%, the price formu%ations in inr% and
inun are done as ,e%o2. Dirst 2e ta"e up the issue of inr%.
Dirst, from the condition of %a,our-surp%us inr% 2e can specif constanc of per capita food-
demand at the minimum su,sistence %eve%. <ence, afuTafu
1
(sa!. 8oreover, the a,sence of
(%imitin$! capita% imp%ies constanc of %a,our-output ratio i.e. %uT%u
1
(sa!. #e a%so assume
2ithout %oss of $enera%it constanc of fraction of inun output, u used for (non-food! se%f-
consumption and reproduction. <ence, uTu
1
(sa!.
5%% these com,ined to$ether indicate that the rea% avera$e cost of production in inr% due to food
and non-food consumption and due to use of imp%ements and ra2 materia%s is structura%%
determined and is constant.
Durthermore, as there is no surp%us (i.e. no surp%us va%ue for accumu%ation! in inr%, the food and
non-food consumption-cost and imp%ements and ra2 materia%s cost so%e% determine the inr%
product-price. <ence, price formu%ation in inr% can ,e e=pressed as,
puTpf*.afu
1
.%u
1
.pu.u
1
*I
&n this conte=t see Sana%, *11', pp. *)( and Sana% and Bhattachara, *11/, pp.(I-/.
(M
2here pu is the price of inr% output and pf* is the price of ta$r output D* (pf) ,ein$ the price of
<V; or ma$r output D)!.
:earran$in$,
()-u
1
!.puTpf*.afu
1
.%u
1
3hus, the va%ue of net-output in inr% is determined on% , the su,sistence cost or food-cost.
4o2 assumin$, %u
1
T) for simp%icit,
pu>pf*Tafu
1
>()-u
1
! KKK(&!
3herefore, 2e have a $iven a$ricu%ture-inr% t-o-t. 8oreover, at this $iven t-o-t the supp% of net
output, Su 2i%% ,e perfect% e%astic as there is no %imitin$ factor 2ithin inr%. 3he Su curve 2i%% ,e
horiAonta% on the ?SuEpu>pf*@ p%ane. Durthermore, the $iven t-o-t imp%ies that a particu%ar amount
of food-supp% to inr% a%2as induces a definite vo%ume of inter-sectora% trade. <ence, the %eve%
of production in inr% is set so%e% , the vo%ume of food supp%ied to this sector. 5s the perfect%
e%astic Su and hence output [u and emp%oment Lu are demand-determined, the eCui%i,rium
va%ues of these varia,%es are so%e% set , the portion of mar"eta,%e surp%us of food transacted
2ith inr%. Stated other2ise, demand for food from inr% is perfect% e%astic. ta$r is not facin$ an
demand pro,%em so far as inr% is concerned.
4e=t 2e $o to the inun. Dirst, 2e can specif constanc of per capita food-demand, afn. <ence,
afnTafn
1
8oreover, the a,sence of (%imitin$! capita% imp%ies constanc of %a,our-output ratio. 3hus
%nT%n
1
, a constant.
#e a%so assume 2ithout %oss of $enera%it constanc of fraction of inun output, n used for (non-
food! se%f-consumption and reproduction. <ence,
nTn
1
, a constant.
5%% these com,ined to$ether indicate that the rea% avera$e cost of production in inun due to food
and non-food consumption and due to use of imp%ements and ra2 materia%s is structura%%
determined and is constant.
Durthermore, as there is scope of earnin$ ?surp%us@ (for future consumption, sa! in inun, a
?mar"-up@ per unit of output (\! needs to ,e added 2ith avera$e food and non-food consumption-
cost and imp%ements and ra2 materia%s cost to arrive at the inun product-price pn. <ence, price
formu%ation in inun can ,e e=pressed as,
pnT \U(pf*.afn
1
.%n
1
. pn.n
1
!>pnV . pf*.afn
1
.%n
1
. pn.n
1
('
2here \@]1, 2hich imp%ies that the producers in inun cannot e=o$enous% fi=>set the ?mar"-up@
%i"e a monopo%ist it is rather $enerated endo$enous% from the 2or"in$ of the econom. Huestion
is ho2 is it determinedQ #e start from a %on$-run sta,%e eCui%i,rium situation 2ith a set of
productivit parameter va%ues (%n
1
and n
1
!, 2ith ,asic necessit afn
1
and a set of prices determined
throu$h the interaction of mar"et forces $iven the ?socia%% necessar@ standard of %ivin$ not
e=c%udin$ the Cuestion of future consumption. 3hus %on$-run is a situation 2here there is no
entr into and e=it from inun. <ence, the terms of trade (pn>pf*! is $iven in the %on$-run, $iven the
parameters, the individua% prices and the socia%% determined reCuirements of inter-tempora%
%ivin$. ;onseCuent%, the ?mar"-up@ is a%so $iven. 4o2 2e move to a short-run. Let us assume a
short-run food supp%-shoc" raisin$ pf*. pn cannot respond immediate% and hence the shoc" is
a,sor,ed throu$h a fa%% in \ E at the cost of provisions for the future to survive in the present ,
arran$in$ for increased food e=penses. 3his must comp%icate the Cuestion of inter-tempora%
surviva,i%it over a %on$er period and hence tri$$ers off an e=odus (of 2ea"er firms! from inun
in the %on$-run. 3his reduces inun output and hence raises the price pn so much so that initia%
%on$-run (pn>pf*! is restored, reesta,%ishin$ the ?socia%% necessar@ %on$-run \. 3hou$h in the
%on$-run the terms of trade are $iven, it can var in the short-run and more important% this short-
run is not too short and not at a%% pain%ess as 2e see ,e%o2. 5t this 9uncture 2e a%so mention that
\ can var a%so in the %on$-run even 2ithout varin$ prices if productivit chan$es and>or current
consumption of food and non-food chan$es and hence, if %n, afn and n var.
:earran$in$ the price eCuation 2e $et,
pn T \Upn, pf*, afn, %n, nV . pf*.afn
1
.%n
1
. pn.n
1
K K K(a!
2ith \)^1, \*]1, \(]1, \0]1, \+]1.
<ence, ()-n
1
!.pn T pf*.afn
1
.%n
1
. \(pn>pf*, 5!
#here ?5@ captures food (afn! and non-food (n! consumption parameters and productivit factors
%n and n (n captures ,oth non-food consumption and productivit situations as defined a,ove!
and U_ \ > _ (pn>pf*!V^1; U_ \ > _ 5V]1.
4o2 assumin$, 5 T ) for the time ,ein$, ta$r-inun terms of trade ,ecomesB
pn>pf* T U(afn
1
.%n
1
!>()-n
1
!V . U\(pn>pf*!>Xpf*.()-n
1
!YV K K K(a!@
2ith U_ (pn>pf*! > _ pf*V ] 1 in short-run,
,ut T 1 in %on$-run. <o2ever, in the %on$ run 5 ma chan$e.
(I
&n the short-run if pf* shoots up, inun-ta$r terms of trade fa%%. But in the %on$-run the initia% terms
of trade are restored throu$h appropriate rise in pn.
4o2 2e come to the intersectora% interactions. 5$ainst food-supp% to inun, ta$r simu%taneous%
demands inun output, as the farmers participate in production for satisfaction of need. Gn the
other hand, this food-supp% a%so induces production in inun as the inun producers@ so%e o,9ective
is a%so consumption, the most important item ,ein$ food. <ence, mar"eta,%e surp%us of food $ets
easi% a,sor,ed in inun %i"e inr% 2ith certain Cuantitative (not Cua%itative! differences. &t is the
supp%-side support of ta$r to inun that drives inun so far as ta$r-inun interaction is concerned
("eepin$ aside fs-inun %in"a$e!. <o2ever, the division of the food-supp% ,et2een inun and inr%
is demand-driven as 2e 2i%% see ,e%o2. Essentia%%, ta$r induces inun production throu$h supp%-
side stimu%us and there, creates its o2n mar"et in inun, 2hich is distinct% different so far as
ma$r-fs interaction is concerned 2here it is not even $uaranteed that the ma$r supp% 2i%% ,e
a,sor,ed in fs as fs is driven , accumu%ation motive under the threat of competition and not ,
surviva% needs and hence not , the need of ?food@ (see ;ha"ra,arti, *11), *11(, *11/,
forthcomin$; ;ha"ra,arti and 7undu, *11/,!. Gn the other hand, ta$r supp% a%so creates
demand for inun 9ust %i"e that created for inr%. 3his 2ho%e process o,vious% indicates at the
situation of ,a%anced trade ,et2een ta$r and inun 9ust %i"e that ,et2een ta$r and inr%. 4o sector
amon$ ta$r, inun and inr% can sustain import surp%us vis-`-vis the other for %ac" of a,i%it to
finance it. Loo"ed at different%, no sector e=pands at the cost of the other; apparent% a condition
of ?inc%usive@ e=pansion possi,i%itS
Drom our precedin$ construction of the mode% econom 2e "no2 that the e=terna% (e=c%udin$ the
intra-sectora% reCuirements! a$$re$ate demand for inun output, Dn is eCua% to the ()-u!
*/
part of
ta$r income spent on it or the va%ue of mar"eta,%e surp%us of food transacted 2ith inun p%us the
e=penditure of fs on inun output. <ence,
pn.Dn T ()-u!.pf*.D* . m
1
.pi
1
.[ K K K(,!
#here pi
1
is the constant price of fs output [. 3his short-run constanc 2i%% ,e discussed %ater.
(1
m
1
is the constant share of income of fs spent on inun output E fina% $oods and services. [ is the
a$$re$ate fs output, the derivation of this 2i%% ,e discussed %ater.
*/
5s D* is divided ,et2een inun and inr% under the conditions of ,a%anced trade and common food-price pf*, u represents ,oth the share of
mar"eta,%e surp%us of food D* and that of a$ricu%tura% income spent on inr%. <ence, the correspondin$ share for inun is ()-u!.
(1
See in this re$ard, 3a%or )/I( and Bose, )/I/.
(/
3he distri,ution of a$ricu%tura% supp% ,et2een inun and inr% depends on the terms of trade
,et2een ta$r and inr% on one hand and ta$r and inun on the other. <ence,
u T u(pf*>pu, pf*>pn! K K K(c!
u)^1, u*]1.
8oreover, usin$ eCuation (&! of ear%ier section 2e $etB
uTuUX()-u
1
!>afu
1
Y, (pf*>pn!V T u(pf*>pn! K K K(d!
:earran$in$ eCuation (,! and usin$ eCuation (d! 2e $et,
DnT(pf*>pn!.X)-u(pf*>pn!Y.D* . (m
1
.pi
1
.[!>pn K K K(e!
<ence, $enera%iAin$ 2e $et,
DnTDn(pf*>pn, pn, D*, [, m
1
, pi
1
! K K K(f!
5ssumin$ pn T pn
1
, D* T D*
1
and [ T [
1
for the time ,ein$ 2e have from eCuation (f!,
DnTDn
1
(pf*, pn
1
, D*
1
, [
1
, m
1
, pi
1
! T Dn
1
(pf*! K K K(f!@
#ith Dn
1
)^1, Dn
1
*]1, Dn
1
(^1, Dn
1
0^1, Dn
1
+^1 and Dn
1
M^1.
Simi%ar to the case of inr% a$$re$ate e=terna% demand Dn determines the sectora% net output of
inun i.e. Sn, if issues %i"e food supp% etc are assumed a2a for the time ,ein$.
Drom our characteriAation of Sn and eCuation (f!@ 2e can find out Sn , so%vin$ the fo%%o2in$
eCuationB
Sn
1
T Dn
1
(pf*!

K K K($!
Durthermore, assumin$ %n
1
T) for simp%icit, eCui%i,rium a$$re$ate output [n and a$$re$ate
emp%oment Ln in inun ,ecomeB
[n
1
TLn
1
TUSn
1
>()-n
1
!V T UDn
1
(pf*! >()-n
1
!V K K K(h!
4o2, 2e ta"e up ta$r-inr% and ta$r-inun interactions simu%taneous%. &n presence of inr% on% ()-
u! fraction of the ta$r supp% is directed to the inun. ;onverse%, in presence of inun there is
demand as 2e%% as supp%-side sCueeAe on inr% reducin$ output and emp%oment in this sector.
3hus presence of one sector imp%ies contraction for the other as ,oth inun and inr% compete for
the same set of resources represented , the $eneric ,asic food-constraint.
Proposition IB #e have a ,asic conf%ict ,et2een the inun and inr% in terms of emp%oment and
output in presence of traditiona% a$ricu%tura%-supp%-constraint.
4o2 from eCuation (h! and usin$ eCuation (f!@ 2e can derive a$$re$ate demand for ,asic food ,
inun i.e. Dfn asB
01
Dfn
1
T Ln
1
.afn
1
T afn
1
. UDn
1
(pf*, pn
1
, D*
1
, [
1
, m
1
, pi
1
! >()-n
1
!V
T Dfn
1
(n
1
,afn
1
,

pf*, pn
1
, D*
1
, [
1
, m
1
, pi
1
! K K K (i!
#ith Dfn
1
)^1, Dfn
1
*^1, Dfn
1
(^1, Dn
1
0]1, Dn
1
+^1, Dn
1
M^1, Dn
1
'^1 and Dn
1
I^1.
<ence 2e shou%d $et an up2ard risin$ food-demand curve for inun on ?Dfn - pf*@ p%ane (fi$ure )!.
Let us turn to food-supp% to inun and hence to inr% as 2e%%. #e sho2 food-supp% to inun asB
D*n T X)-u(pf*>pn!Y.D*, 2ith u)]1.
<ence, ceteris pari,us assumin$ D* T D*
1
and pn T pn
1
,
D*n
1
T D*n
1
(pf*, D*
1
, pn
1
!, 2ith D*n)^1, D*n*^1 and D*n(]1. K K K (9!
3hus 2e $et an up2ard risin$ food-supp% curve for inun on ?D*n - pf*@ p%ane (fi$ure )!.
Both Dfn and D*n are up2ard risin$ and hence for sta,i%it 2e assume former to ,e steeper than
the %atter. 3hrou$h the interactions of these t2o curves 2e $et, ceteris pari,us, the initia% %on$-run
food-mar"et eCui%i,rium for inun at E
)
in fi$ure ).
#e $et the initia% %on$-run eCui%i,rium , so%vin$ the eCuation ("! formed 2ith eCuations (e!, (h!,
(i! and (9!B
UX)-u(pf*>pn
1
!Y.D*
1
V T afn
1
.U(pf*>pn
1
!.X)-u(pf*>pn
1
!Y.D*
1
. X(m
1
.pi
1
.[
1
!>pn
1
YV >()-n
1
! K K K ("!
Let us turn to inr%. Dood supp% to inr% isB
D*u T u(pf*>pn!.D*, 2ith u)]1.
<ence ceteris pari,us assumin$ D* T D*
1
and pn T pn
1
,
D*u
1
T D*u
1
(pf*!, 2ith D*n)]1. K K K (%!
#hen 2ith some shoc" pf* rises in short-run, ceteris pari,us, food-supp% to inr% fa%%s, even if the
terms of trade are fi=ed ,et2een ta$r and inr% as 2e have derived a,ove. 3hus the presence of
inun ma"es t2o specific effects on inr%. Dirst there is a ,asic conf%ict ,et2een the t2o $iven the
?resource constraint@ (conf%ict in terms of ?spaces@!. Second%, due to an e=o$enous reason if pf*
rises in the short run, ceteris pari,us, food supp% to inr% fa%%s $iven D*
1
, as food supp% to inun
rises. <o2ever, 2e hasten to add, this ti%tin$ of food supp% is on% a short run phenomenon,
thou$h 2e repeat that this short run ma not ,e too short and it 2i%% not ,e pain%ess. 3urnin$ ,ac"
to inr%, as 2ith rise in pf*, D*u fa%%s, demand for inr% fa%%s as 2e%% reducin$ inr% output and
emp%oment even at the $iven terms of trade ,et2een ta$r and inr%.
0)
<o2ever, in the %on$-run, 2hen pn
1
rises commensurate% 2ith pf* and hence ta$r-inun terms of
trade are restored at the %on$-run %eve%, the initia% eCui%i,ria for ,oth inun and inr% are restored as
2e%%. But 2e cannot for$et the socia% cost of this ad9ustment process.
(pf*>pn
1
! Dfn
1
Dfn
)
(pf*
(
>pn
1
!* E
(
D*n
1

(pf*
)
>pn
1
!* E
)
D*n
)

(pf*
*
>pn
1
!* E
*

G D*n*
*
TDfn*
*
D*n*
1
TDfn*
1
D*n*
(
TDfn*
(
D*n, Dfn
Di$ure )B food-mar"et eCui%i,ria for ta$r-inun interaction in %on$ and short runs.
3.3. Formal Sector 1 Agricltre Interactions:
4o2 2e turn to our mode% of composite modern sector consistin$ of forma% non-a$ricu%ture, fs
and modern a$ricu%ture, ma$r. 3he capita%istic forma% sector runs 2ith capita%-%a,our re%ation,
?accumu%ation motive@ and suffers from ?effective demand pro,%em@ 2ith e=cess capacit and
unemp%oment. &t is characterised , mar"-up pricin$. Price is cost-determined and output is
demand-determined (7a%ec"i, )/')!. 5%% profits in fs are saved 2hereas a%% 2a$es are consumed.
5 part of 2a$e-income is spent on ?food@ so that there is the possi,i%it of fs facin$ an
a$ricu%tura% supp%-constraint. 5 fi=ed mar"eta,%e surp%us of ma$r represents the a$ricu%tura%
supp%-constraint for fs. ;onseCuent%, 2e have demand-determined price for ma$r output. 3he
first assumption re$ardin$ ?food@ sector is that no2 D) T D)
1
(sa! amount of ?hi$h va%ue crop@ E
<V; poses the supp%-constraint for fs. D) and D* E the ma$r and ta$r outputs respective% are
assumed to ,e dissociated cate$ories. But 2e 2i%% see that conversion of one into the other can ,e
counterproductive in the conte=t of the issue of ?inc%usive $ro2th@. Second%, <V; is more of a
cash-crop than food. &n fact a %ar$e part of <V; is meant for e=ports 2hich are assumed to
depend on price of <V; and 2or%d income. &t has t2o opposin$ imp%ications. Dirst of a%% e=port
of <V; imp%ies sCueeAin$ of the supp%-constraint on fs. But e=port earnin$s, if spent on fs
output, raise its demand. 3hus the open econom interactions have ,oth advanta$es and
0*
disadvanta$es for fs. 4e=t, 2e assume ,a%anced trade ,et2een ma$r and fs. 3his is a simp%ifin$
assumption.
Private investment is autonomous% $iven (:a"shit, )/I*! in rea% terms as 2e have a short-run
mode%. Durthermore, 2e assume rea% domestic e=ports to ,e e=o$enous in short-run. Fovernment
has specific commitment to2ards fs. 4o2 the Cuestion is ho2 is the mone 2a$e determinedQ
Gur empirica% ana%sis sho2s stri"in$% that 2a$e is no more associated 2ith a$ricu%ture. &t is
understanda,%e that on% a sma%% fraction of fs 2a$e 2ou%d ,e spent for ?food@. &n our empirica%
ana%sis 2a$e is found to depend more on micro-varia,%es, such as productivit inf%uencin$
factors. <ence from a short run macro perspective consideration of mone 2a$e to ,e fi=ed is
not a stron$ assumption (see 3a%or, )/I(; Bose, )/I/!. Even if <V; price varies mone 2a$e
remains the same. Price of fs output on the other hand, is set , ?imposin$@ a mar"-up over
avera$e varia,%e cost, sa, 2a$e cost for simp%icit (7a%ec"i, )/'); Bhaduri, )/IM!. <ence this
price is a%so fi=ed in short run (3a%or, )/I(; Bose, )/I/!. 3hus <V; price variations have t2o
impacts. <V; e=ports are inf%uenced and on the other hand, under the standard assumption of
fi=ed per capita <V; consumption , the 2or"ers if <V; price rises, e=penses for <V; rises
reducin$ e=penditure on fs output. <o2ever, under the assumption of fs-ma$r ,a%anced trade this
%ea"a$e of demand is 9ust counter,a%anced , increased income and hence increased e=penditure
on fs output , the <V; producers. 3hus rea% 2a$e (food-2a$e! ad9ustment has no demand-side
impact on fs.
5nother crucia% departure from standard fs-ma$r interaction mode%s (;ha"ra,arti, *11); Bhaduri
and S"arstein, *11(; ;ha"ra,arti and 7undu, *11/,! is that, no2 fs ?imports@ inun fina% $oods
and services and hence there is ?net import@ for fs thou$h fs is assumed to ,e a,%e to finance it on
its o2n, 2hich is not possi,%e for an other sector.
5s mone 2a$e 2m is assumed to ,e fi=ed in short-run, sa at 2m
1
, fs price pi is fi=ed (mar"-up
pricin$!, sa at pi
1
. <ence, ?food-2a$e-rate@ is a varia,%e and e=pressed as 2m
1
>pf), 2here pf) is the
price of <V; output D).
Product-2a$e in terms of fs output is fi=ed. <ence, (2m
1
>pi
1
!T)>().!T
1
KKK()!
2here is the mar"-up. 3erms of trade ,et2een ma$r and fs is (pf)>pi
1
!T KKK(*!
3hou$h is e=o$enous% $iven, is a varia,%e. 3he ,asic income-e=penditure eCuation for fs
can ,e 2ritten asB
3ota% fs output ([! T
0(
(3ota% fs 2a$e-,i%% in terms of fs output (#!!
()

.(3ota% fs investment in terms of fs output (&!!
.(3ota% $overnment e=penditure on fs in terms of fs output ($!!
.(3ota% e=port earnin$s throu$h <V; e=port in terms of fs output!
(*
E (3ota% e=penditure on inun in terms of fs output!KKK((!
#e ta"e (autonomous! rea% investment and rea% $overnment e=penditure on fs output as
e=o$enous% $iven, i.e. & T &
1
and $ T $
1
.
4o2, $iven the a,ove notations and L, af) and [2 ,ein$ tota% fs emp%oment, e=port Cuantit of
<V; and rest of the 2or%d@s income respective% and $iven that m
1
is the constant share of
income of fs ([! spent on inun output 2e o,tainB
[ T # . &
1
. $
1
T (2m
1
>pi
1
!.L . &
1
. $
1
. (pf)>pi
1
!.af)(pf), [2! E m
1
.[KKK(0!
#ith af))]1, af)*^1 and U_ X(pf)>pi
1
!.af)Y> _ pf)V ]1 imp%in$ price e%astic e=port demand for ?hi$h
va%ue@ item <V;. Essentia%% this %ast condition is reCuired for <V; mar"et sta,i%it.
Usin$ eCuations ()! and (*!, and the simp%ifin$ conditions [2 T [2
1
and fs %a,our-output ratio l
T ), eCuation (0! can ,e re2ritten asB
LT
1
.L.&
1
.$
1
..af)(pf), [2
1
!Em
1
.[KKK(0.)!
So%ution of (0.)! $ives,
L*TU&
1
.$
1
..af)(pf), [2
1
!V>()-
1
.m
1
!KKK(+!
4o2, <V;-demand per 2or"er emp%oed in fs is assumed as af)
1
, a positive constant.
<ence, a$$re$ate <V;-demand from fs can ,e 2ritten asB
Df)Taf)
1
.LKKK(M!
Su,stitutin$ from eCuation (+!B
Df)Taf)
1
. U&
1
.$
1
..af)(pf), [2
1
!V>()-
1
.m
1
! T Df)(pf)!, 2ith Df))]1KKK('!
3here is an inverse re%ation ,et2een <V;-price and a$$re$ate <V;-demand from fs, 2hich
$ives us the ne$ative% s%oped Df) curve in fi$ure *.
Gn the other hand, the <V; supp% to fs can ,e 2ritten as the domestic <V; supp%B
D)d T UD)
1
E af)(pf), [2
1
!V T D)d(pf), D)
1
, [2
1
!, 2ith D)d)^1, D)d*^1 and D)d(]1KKK(I!
3his imp%ies a positive% s%opped D)d curve as in fi$ure *. 3he positive s%ope appears due to the
,uffer of e=port of <V;. #hen price of <V; rises, e=port fa%%s ceteris pari,us and hence
()
5 part of 2a$e-,i%% thou$h spent on food, it fu%% comes ,ac" to fs as ma$r-fs trade is ,a%anced.
(*
Under the simp%ifin$ assumption of 8PST1 for <V; producers, earnin$s from <V; e=ports are fu%% spent on fs output.
00
domestic <V; supp% rises. <o2ever, there is %on$-run %imit to the process as e=ported <V; is a
%imited amount and hence the ,uffer has an upper %imit. <ence, the domestic <V; supp% curve
,ecomes vertica% for ver hi$h price. Simi%ar% in presence of e=port option domestic <V;
supp% ma even ,ecome Aero if a%% the <V; is e=ported. <ence at ver %o2 price domestic <V;
supp% ,ecomes Aero, even if output of <V; is positive and siAea,%e.
Usin$ eCuations ('! and (I!, <V;-mar"et eCui%i,rium condition isB
D)d(pf), D)
1
, [2
1
! T Df) T af)
1
. U&
1
.$
1
..af)(pf), [2
1
!V>()-
1
.m
1
!KKK(/!
ECuation (/! determines the initia% %on$-run eCui%i,rium E
)
. &t can ,e represented in a <V;-
mar"et demand-supp% dia$ram (fi$ure *!.
D)d
1
pf)
D)d
)

E*

E)
af)
1
.U&
1
.$
)
..af)(pf), [2
1
!V>()-
1
.m
1
!
E( af)
1
.U&
1
.$
1
..af)(pf), [2
1
!V>()-
1
.m
1
!

G Df), D)d
Di$ure *B Short-run effects of ,umper harvest and increase in rea% $overnment e=penditure on fs
represented throu$h <V;-mar"et eCui%i,ria.
3he eCui%i,rium <V;-price, pf)*

determines the eCui%i,rium Df)* and D)d*. 5nd , puttin$ the
va%ue of pf)* in eCuation (+! a%on$ 2ith the condition l T ) 2e $et *, af)* and hence L* and [*.
Fiven this ,asic structure, %et us no2 ta"e up certain comparative static e=ercises pertainin$ to
fs-ma$r interactions. Dirst 2e consider increase in rea% investment and>or rea% $overnment
e=penditure on fs. 3he econom moves from E
)
to E
*
as in fi$ure * and hence output and
emp%oment rise in fs. 3he impact is simi%ar if 2or%d income rises raisin$ <V; e=port. Gn the
other hand rise in and fa%% in m raise the va%ues of [* and L*. :ise in <V; output moves the
econom from E
)
to E
(
in fi$ure * raisin$ [* and L* va%ues. #e must "eep in mind these effects
are va%id for non-vertica% and non-horiAonta% se$ments of the domestic <V; supp% curve on%.
0+
3.&. Com%arati2e Static $3ercises:
4e=t 2e ta"e up certain comparative static e=ercises pertainin$ to fs-inun, ta$r-inun and ta$r-inr%
interactions. Dirst 2e concentrate on short-run chan$es and then see the pro,a,%e %on$-run
outcomes. #e have 9ust discussed the different sources of fs e=pansion in rea% terms. #e start
from the initia% %on$-run eCui%i,rium position E
)
of fi$ure ). #hen fs e=pands, [* and L* e=pand
raisin$ the va%ue of m
1
.[. 3hen fo%%o2in$ fi$ure ) and eCuations (i!, (9! and ("!, in the short-run,
ceteris pari,us, eCui%i,rium position moves from E
)
to E
(
. 3he resu%t is ver important. #hen
demand for inun e=pands from fs, inun demands more food from ta$r 2hich raises food price.
But $iven some ?surp%us@ in inun over and a,ove se%f-consumption and reproduction
reCuirements inun can 2ithstand this rise in price of ,asic food at %east in the short-run 2ithout
raisin$ inun product price. 3he other ar$ument is that, it ma not ,e possi,%e for inun firms to
immediate% raise their price for fear of %oosin$ demand and hence the ,runt of food price rise is
,orne , reducin$ the ?mar"-up@ intended for future consumption. <o2ever, this moves the
terms of trade ,et2een ta$r and inun in favour of the former. Gn the other hand, 2ith food price
rise inr% commodit price must rise as in inr% peop%e %ive 9ust at the ,arest su,sistence %eve% 2ho
cannot have an ,uffer to a,sor, the food price shoc" ,ut to raise their product price. <ence
ta$r-inr% terms of trade remain the same. Stated other 2ise and crucia%%, for ta$r, inun products
,ecome cheaper compared to inr% products. <ence demand shifts to2ards former and a2a from
the %atter reorientin$ the $iven food-supp% under ,a%anced trades. 3hus, inun mana$es to siphon
off food from inr% and thus e=pands, 2hi%e inr% contractsS 3he supp%-constraint p%as its active
ro%e in the active presence of fs. 3he supp%-side>resource conf%ict or conf%ict of economic
?spaces@ ,et2een inun and inr% ,ecomes na"ed in active presence of the so ca%%ed dnamic fs. 5s
fs e=pands apparent% there are $%impses of ?inc%usive $ro2th@ throu$h the ,oost to popu%ous
inun. But it is on% apparent. 3he contraction of inr% ma"es the 2ho%e idea Cuestiona,%e. [es, the
counter ar$ument 2ou%d ,e, its on% a short-run phenomenonS But can 2e for$et the socia% cost
of dis%ocationQ
#hat happens in the %on$-runQ 3he ta$r-inun terms of trade come ,ac" to the initia% %on$-run
%eve% throu$h e=it of (2ea"er! firms in the face of fa%%in$ provisions for ?future@. 3hus the terms
of trades ,et2een ta$r-inun and ta$r-inr% are restored fu%% throu$h appropriate rise in inun price.
3his ma"es the L<S of eCuation ("! fi=ed at initia% %on$-run %eve%. Dood supp% to inun comes
,ac" to initia% %on$-run %eve% $iven the a$$re$ate food production. <ence :<S or a$$re$ate food
0M
demand must ad9ust throu$h ad9ustments of ta$r and inun and hence inr% prices to match e=act%
2ith initia% food supp% to inun. 5s per capita food reCuirement is fi=ed and food supp% to inun
comes ,ac" to the initia% %eve%, emp%oment and output of inun comes ,ac" to the initia% %eve%s,
2hich is true for inr% as 2e%%. &n terms of fi$ure ), the ne2 eCui%i,rium 2i%% ,e vertica%% a,ove
E
)
. Gn% the prices rise compared to initia% %on$-run situations E no rea% effect in the ne2 %on$-
run. &t is ver interestin$ to note that fs matters in the short run ,ut not in the %on$-run so far as
the pro9ect of inc%usive $ro2th is concerned. 3he pro9ect of inc%usive $ro2th is a$ain CuestionedS
&n the %on$-run there is on% sta$f%ation in the non-modern econom for 2ant of resources in
particu%ar the $eneric food.
&f fs cannot ta"e care of the pro$ramme of inc%usive $ro2th, can the $overnment ensure an
inc%usive deve%opment throu$h direct% promotin$ the informa% activities or reha,i%itatin$ the
?surp%us popu%ation@ in informa% sectors throu$h providin$ finance, socia% securit ,enefits,
mar"et for products or temporar emp%oment $uarantee 2ithout arran$in$ for the ?e=tra@
resourcesQ 8ost pro,a,% not; the effects 2i%% ,e 9ust simi%ar to that of e=pansion of fs 2ith on%
sta$f%ation in %on$-run and intensifin$ the inun-inr% conf%ict in the short-run. 5ccumu%ation
proceeds on its o2n commandin$ resources perhaps 2ith the support of the $overnment throu$h
domestic e=ports, ,ut at the same time the $overnment tries to promote informa% sectors thou$h
,ein$ apparent% o,%ivious a,out the e=pansion of its resource ,ase; this is a contradiction. 5t
,est, this does not have an rea% effect $iven the resource constraint. &f the $overnment 2ants to
promote inr%, the effects are even more counter-intuitive. Fovernment@s efforts to ,oost inr% are
countered throu$h inun-inr% re%ative price ad9ustments as mentioned a,ove and the ,enefits are
appropriated , inun in short-runS But in the %on$-run there is on% sta$f%ation across informa%
sectors and ceteris pari,us the fs can o,tain on% a %o2er amount of inun outputS 3hus in the
%on$-run inr% e=pands ,ut at the cost of inun.
Proposition IIB ;apita%istic accumu%ation and $ro2th in fs is a,%e to ,oost inun on% in short-run
and that too at the cost of contraction of inr%, $iven the $eneric ta$r supp%-constraint. <o2ever,
in the %on$-run there is on% sta$f%ation across the rura% and ur,an informa% sectors, $iven the siAe
of ta$r. 3he effects are identica%, 2hen $overnment tries to promote inun as a part of its po%ic of
?deve%opment mana$ement@. #hen $overnment tries to tar$et inr%, the short-run effect is counter-
productive, as inun appropriates the ,enefits. &n the %on$-run inr% e=pands, ,ut at the cost of inun.
3he pro9ect of ?a%%@ inc%usive deve%opment fai%s in each step. 3he resource constraint in particu%ar
0'
and ?conf%icts of spaces@ in $enera% are perhaps the source of these contradictions of ?doin$
deve%opment@ (;ha"ra,arti, *11/!.
4e=t 2e turn to the short-run and %on$-run effects of increase in production in ta$r. &n the short-
run, food-mar"et eCui%i,rium for inun moves from E
)
to E
*
in fi$ure ). 5s food supp% rises, food
price fa%%s ,ut inun product price does not fa%% commensurate% and the ?mar"-up@ rises. But this
raises the re%ative price of inun product compared to that of inr% as 2ith food price fa%% inr%
product price fa%%s commensurate%. 3his dichotom of price response in short-run ,et2een inun
and inr% cou%d ,e 9ustified 2ith the condition that inun is a%so inf%uenced , fs over and a,ove
ta$r. Pu%% from fs ma ma"e the inun price do2n2ard% stic" in the face of fa%%in$ food price.
But no such pu%% e=ists for inr%. 4o2 2ith inun product ,ecomin$ re%ative% dearer its demand
from ta$r fa%%s reorientin$ food supp% a2a from inun inducin$ its contraction as effect of
increase in a$$re$ate food production is out2ei$hed , the effect of ti%tin$ of ta$r-inun terms of
trade in favour of the %atter. Gn the other hand, more than proportionate increase in food supp%
to inr% induces its unam,i$uous e=pansion. 3he contraction of inun in short-run is a%so c%ear from
eCuation ("!. 5s D* rises pf* fa%%s more than proportionate% as food demand is price ine%astic.
8oreover, u rises reducin$ ()-u!. <ence, :<S of eCuation ("! fa%%s undou,ted%. 3o have
eCui%i,rium L<S a%so has to fa%% 2hich imp%ies that rise in D* is out2ei$hed , fa%% in ()-u!.
3he %on$-run effect cou%d a%so ,e understood , usin$ eCuation ("!. &n the %on$-run pn fa%%s,
ma"in$ (pf*>pn! constant. <ence the :<S rises unam,i$uous% as D* has increased and pn has
fa%%en. L<S rises as (pf*>pn! is constant and D* has increased at the ver ,e$innin$. <ence, in the
%on$-run inun e=pands. 5s the terms of trades are constant in %on$-run inr% a%so e=pands 2ith rise
in D*.
But an interestin$ o,servation is that there is no effect of rise in D* on fs in the short-run. &n the
%on$-run as pn fa%%s, rea% demand for inun output from fs rises, ,ut that is not ,ecause of fs
e=pansion rather ,ecause of cheapenin$ of informa% sector products. 3his cou%d ,e a ?positive
e=terna%it@ for ta$r e=pansion appropriated , fs. But there is an inherent contradiction. ta$r
e=pansion imp%ies this ?e=terna%it@, ,ut at the same time this e=pansion ma cause rea% resource
pu%% from fs. 3he contradiction ,ecomes $%arin$ if 2e %oo" at %on$er period po%ic chan$es over a
?ver %on$-run@ phase as ,e%o2.
Proposition IIIB 3he fs 2ou%d not ,e interested for the e=pansion of ta$r, as in the short-run it
cannot appropriate the ,enefits out of it. Durthermore, in the %on$-run thou$h fs cou%d ,enefit out
0I
of ta$r e=pansion throu$h cheapenin$ of inun product, this ver e=pansionar process cou%d ,e at
the cost of resources avai%a,%e to fs.
&.(. In *ie of Conclsion: Fe4 Tentati2e *onger-Rn Isses:
#e hi$h%i$ht t2o effects for our ?ver %on$-run@ (v%r! phase. Dirst of a%% the nationa% and
internationa% a$encies (#or%d Ban", *11+, *11'! are ta%"in$ a,out ?inc%usion@ of %ar$e part of
traditiona% a$ricu%ture into the $%o,a% mar"et throu$h crop-diversification to2ards <V; i.e.
throu$h ?ever$reen revo%ution@ and there, to address the severe pro,%em of rura% povert.
((
<o2ever, our proposition is that this crop-diversification 2ou%d %ead to $reat ,enefits for fs
throu$h demand and supp% side channe%s as 2e have seen a,ove, thou$h it 2ou%d reduce the
re%ative and even a,so%ute importance of traditiona% a$ricu%ture
(0
endan$erin$ the ver e=istence
of informa% sector due to resource draina$e. 3hus a supp% side conf%ict resurfaces ,et2een the
?modern@ and ?non-modern@ sectors. 8odern sector cou%d $ro2 at the cost of the informa%
sectors. 3he 2ho%e pro9ect of inc%usion of a$ricu%tura% poor into the $%o,a% mar"et dispossesses a
%ar$e part of popu%ation en$a$ed in informa% sectors.
(+
5nd Cuite interestin$%, this ma occur 9ust
2ith diversification of croppin$ pattern and not an resource rea%%ocation out of a$ricu%ture as a
2ho%e.
<o2ever, 2ithin informa% sector there cou%d ,e 2inners and %osers as 2e%%. &f over v%r phase
there are productivit $ains for some, sa for the inun (productivit %eve%s are a%read hi$h here,
as is c%ear from avera$e va%ue added data!, the re%ative price of inun product fa%%s (thou$h
a,so%ute prices are risin$ due to resource diversification a2a from ta$r! compared to the price
of inr% output. 3his is c%ear from eCuation (a! a,ove. &f productivit rises, %n and n fa%% reducin$
pn ceteris pari,us especia%% "eepin$ the ?mar"-up@ intact. 3his $ives inun a sta,%e advanta$e over
inr%. 3he outcome cou%d ,e one simi%ar to movement of eCui%i,rium from E
)
to E
(
in fi$ure ), ,ut
of a permanent nature (if 2e assume that D* is unchan$ed for the time ,ein$!. 3hus 2hen crop-
diversification reduces the resource ,ase for informa% sectors, inun cou%d survive 2ith re%ative
productivit $ains ,ut inr% must contract. Loo"ed at different%, 2e ma a%so ar$ue that as fs
((
&n most of the cases it is corporate driven E contract farmin$ %ed E crop-diversification, 2here most% %ar$e farmers can participate (Sen and
:a9u, *11M; Sin$h, *110; Dev and :ao, *11+; 7umar, *11M; Dan and Fu%ati, *11I dra$on and e%ephant, ep2 pp.)0*!.
(0
;orre%ation matri=
Z cdi
-------------.------------
nsdpa$rRnsdp Z -1.'*(****
nsdpa$r Z -1.(M0/
(+
3he ana%ses are simi%ar in the conte=t of a$ricu%tura% %and conversion to2ards modern industria% use. 3he construction of $i$antic specia%
economic Aones initiates a simi%ar drain of resources and hence a%most simi%ar outcomes (;ha"ra,arti and 7undu, *11/a!.
0/
e=pands over v%r phase a%on$ 2ith crop-diversification, it e=erts a pu%% on inun, 2hich ma
out2ei$h the resource draina$e dra$ ,ut on% at the e=pense of inr%. 3he fo%%o2in$ resu%ts are
instructive (:e$ression (.), (.*!.
!.1 eninrl eninun*** enfor*** nsdp nsdpagr"nsdp <ear94"95 <ear00"01 %d& '-
s(uared
!.1!7726 -7!.57722 -1.27e-07 217444.5 -!5545.!5 -81291.78 0.5560
#e find that entfor(-'(.+''**!*** is ne$ative and si$nificant contro%%in$ for entinun, nsdp and
nsdpa$r. But a contrastin$ resu%t appears in (.*. #e find that entfor(19.01167!*** is positive and
si$nificant (contro%%in$ for entinr%, nsdp and nsdpa$r!.
!.2 eninun eninrl*** enfor*** nsdpagr"nsdp nsdp*** <ear94"95 <ear00"01 %d& '-
s(uared
.1645758 19.01167 1940!8.1 1.96e-07 21800.48 !9029.1! 0.8198
3here are e=pansions in ma$r, fs and even in inun, ,ut on% at the cost of inr% contraction.
&t is ar$ued , the orthodo= schoo% that it is not a pro,%em at a%% as the contraction 2i%% ,e ta"en
care of , the e=pandin$ sectors. Durthermore, there cou%d ,e net ?2e%fare $ain@ if inr% popu%ation
moves at %east to inun, as inun is more income $eneratin$. But this simp%e stor of rura%-ur,an
mi$ration and 2e%fare $ain ma not ,e tena,%e $iven the primar o,servations that inun is
undou,ted% more asset intensive (see ta,%e ) a,ove!. 3he simp%e stor of transfer of resource
from inr% to inun over%oo"s this structura% fact and hence ne$%ects the impossi,i%it of a,sorption
of %a,our in inun ?transferred@ (or evictedQ! from inr%. #e cou%d a%so find in the empirica% part of
our paper that the rise in emp%oment share in ur,an unor$anised manufacturin$ sector cou%d not
out2ei$h the %oss in emp%oment shares of rura% unor$anised and or$anised manufacturin$. 3his
perhaps indicates at a "ind of con$estion into the under-remunerative most% informa% services.
5nother interestin$ o,servation is presented ,e%o2.
Pa$eB
+1
3he rura%-rura% mi$ration in &ndia is over2he%min$% %ar$eS &t is seen from the ta,%e that amon$
the four tpes of mi$ration streams , rura%-ur,an residence shifts, the rura%-to-rura% mi$ration
2as the most dominant one and it accounted for a,out M* per cent of the tota% interna% (intra-
countr! mi$rants
(M
. 3he ?transferred@>?evicted@ popu%ation ma not find economic space even in
ur,an informa% sector and thus this over2he%min$% %ar$e popu%ation "eep on ,an"in$ on rura%
informa% activities a%on$ 2ith pett a$ricu%ture; the are tru% the ?surp%us popu%ation@. 3he
forma% sector ?pro$ress@ at the ,est cou%d drive up the ur,an informa% sector ,ut it happens on%
at the cost of the rura% ?surp%us popu%ation@S
Gur stor of forma%-informa% conf%ict hoverin$ around a$ricu%tura% supp%-constraint is on% one
narrative of the pro,%amatic of ?inc%usive $ro2th@. 3he fundamenta% point 2e 2ish to harp on is
thisB if 2e 2ant to $enerate an ?inc%usive $ro2th@ process centrin$ around and>or in con9unction
2ith capita% accumu%ation , inte$ratin$ parts of the erst2hi%e ?e=c%uded@ econom 2ith the
?$ro2th po%es@ throu$h the intermediation of the ?$%o,a% free-mar"et@, it shou%d $enerate
?e=c%usion@ at other parts, $iven the resources and>or drain of resources , the capita%-centric
e=pansion path. 5ttempts of inte$ration of the ?traditiona%@ econom 2ith the modern one E ,e it
throu$h promotion of informa% sectors, direct emp%oment $enerations via ?food>cash-for-2or"@
tpe pro$rammes or throu$h an other "ind of ?entit%ement@ creations E shou%d start
simu%taneous% a process of differentiation en$enderin$ ?e=c%usion@, ineCua%it and even povert.
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