Is India’s Prosperity Trickling Down?

The National Commission for Enterprises in the Unorganized Sector reported just this month on the present state of India’s unorganized and informal sectors of the economy. You can read the complete paper at This is probably the most honest report of its kind published in recent years by a government commission in India. The report revealed that over 77% of the country’s population lives on less than $0.50 a day. I have written about this shocking statistic in some detail in my last entry earlier this week (see I want to add a few more important conclusions from this report.

As of 2005, India had a total employment of 457 million, or nearly 42% of the population. Of this, 423 million people were employed in the unorganized sector (like agriculture) and the informal sector (laborers and other non-salaried workers employed in the organized sector) combined. That leaves only 34 million people employed in the organized sector which comprises the country’s bureaucracy, military, and those formally employed in the private and non-profit sectors (with registered organizations). Despite this small proportion of employment in the organized sector, much of India’s economic growth is directly attributed to their contribution (such as those in IT, heavy industry, textile, etc.).

The prevailing expectation is that the small organized sector in India will increase its wealth and income and employ many more people. But the reality is that this has not yet happened. It is true that those employed in the organized private sector have significantly improved their standard of living, and their purchasing power is reflected in increased consumption. The trickle down effect of this wealth creation among a few has not led to any significant employment creation.

The Commission report points out that employment increased by 60 million in all sectors combined during the 5 year period 1999-2000 to 2004-2005. That is an average increase of 12 million jobs a year or approximately 1.1% of the population per annum. However, the annual rate of increase in population during the same period has been around 1.6% per annum – nearly 50% over employment creation. Moreover, a large number of new jobs have been urban, leaving behind the great majority of people living in rural areas. Even gains in the urban, organized sector are misleading; most jobs created have been in the area of informal workers who lack job security and social security benefits.

Further, incomes have also not risen much, especially for rural workers. According to the Labor Ministry, the norm should be around Rs. 66 per day. However, the report finds that 88% of the rural workers were earning less than this benchmark, and 75% below Rs. 45. It is fairly obvious that urban prosperity has not led to any significant increase in wealth and income for rural employers and employees.

These statistics are very revealing of the state of India’s economy. 1-2% of the country’s population in the private organized sector is reaping much of the fruits of the recent rapid economic growth. Increased wealth and income remain mostly within this small minority; the gap between them and the rest of the nation is widening by the day. Those who have accumulated immense wealth are in a position of power and influence to further enhance it, often without sharing much with anyone else. The economic and social system seems to be inequitably structured and in the end, most Indians are unable to partake in the benefits of the aggregate growth in the economy.

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Anand said…
One of the striking comments in the report (there are many) is that during 1999-2000, the entire increase in employment in the organized sector was in the number of informal workers.

This raises issues with the promotion of organized retail in India, for those who claim that it would lead to better social benefits and security for the workers.

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