non - corporate sector largest contributor to national income

7/30/2019 Non - Corporate Sector Largest Contributor to National Income

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http://www.thehindubusinessline.com/2004/06/17/stories/2004061700031000.htm

Non-corporate sector: Largest contributor to national incomeThursday, Jun 17, 2004

R. Vaidyanathan

The share of the non-corporate sector in the national income is a high 35 per cent

compared to the private corporate sector's 14 per cent, clearly under-scoring the

importance of unincorporated units. If India Uninc has not got due recognition it is to

some extent also because of the problem of its non-inclusion in the various income

estimations such as the Annual Survey of Industries, says R. Vaidyanathan.

WE ARGUED earlier (June 3, 2004) that the share of the non-corporate sectorconsisting of partnership/proprietorship firms and trusts, cooperatives, etc., constitutes

a very large portion of India's economy. We shall look at the share of Uninc in theNational income and the manufacturing sector. Traditionally economists discuss nationalincome share as pertaining to primary (Agriculture and Mining) and secondary(Manufacturing) and Tertiary or Service (trade/transport, etc) sector. We will look at itfrom the point of view of ownership, government, private corporate and Uninc.

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

The share of the government (Central, State and all public undertakings) in the NDP in1999-2000 was around 24 per cent and that of unorganised agriculture around 27 percent. Of the remaining 49 per cent the estimated share of the unorganised sector was32 per cent. This is clearly an underestimation, for understanding the non-corporatesector, since the non-corporate sector is present in the organised sector of themanufacturing activity.


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

The share of "non-corporate sector" in registered (organised) manufacturing is around

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

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

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

Share in manufacturing

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


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

Table 4 gives the share of the non-corporate sector within the registered manufacturingsector. It is to be noted that the net value added figures for registered manufacturing of

Annual Survey of Industries (ASI) is smaller than that of National Accounts Statistics(NAS), since ASI does not take into account Defence production which is collectedindependently by NAS. Also the estimates of value added obtained from ASI includebanking charges paid by the manufacturing establishments and value of such servicesaccording to NAS forms part of the income originating in the banking sector.

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

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

At this juncture, it is pertinent to point out that the estimates of "unorganised" sector inmany of these activities, including manufacturing, need improvements to reflect theactual national situation. For instance, it has been pointed out by the NationalStatistical Commission (NSC 2001pp149-150) that the issue of "non-inclusion" is aserious problem. The National Sample Survey (NSS 51st round) 1994-1995,

considered only those units that were not included in the ASI. That is, units outside theASI frame.

The findings are:

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


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

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

(The author is professor of Finance, Indian Institute of Management-Bangalore, and canbe contacted at [email protected]. The views are personal and do not reflect that ofhis organisation.)

non - corporate sector largest contributor to national income

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