Are we killing the self-employed?

The Hindu Business Line Thursday, Apr 20, 2006

R. VAIDYANATHAN

The explosive growth of outsourcing and the so-called unorganised sector has seen a phenomenal expansion of the self-employed group. But faulty policies may end up leaving a huge mass of this section unemployable. There has been no attempt to re-train this set to face the challenges of a changed situation, says R. VAIDYANATHAN.

A major debate regarding decline in employment, particularly in the organised government sector, post-liberalisation, has concluded that unemployment has increased after the 1990s. This debate does not take in to account the fact that India is a country of the self-employed, and not of employees. Our economy is not that of wage earners and shareholders. A significant portion of the economy consists of the self-employed who are both wage-earners and shareowners. The share of the proprietorship and partnership forms of organisations in the national income is 35 per cent, that of corporates around 15 per cent, of government around 25 per cent, and agriculture around 25 per cent. Combine agriculture and the self-employed in industry and service sectors, nearly 60 per cent of the national income is generated by the self-employed and does not fall in the paradigm of either capitalism or socialism.

Table 1 provides data on the employment in the private sector in various activities and it indicates that 3,60,000 persons were employed in wholesale and retail trade in 2003, which, but for being tragic from the point of meaningful policy formulation, is funny. Notice that in construction the employment has declined from 73,000 in 1991 to 44,000 in 2003. This is highly improbable; in a city like Bangalore, alone, it would run into lakhs.

The 2001 OASIS report suggests that only a 15 per cent are regular salary and wage earners in India and more than 50 per cent self-employed and around 30 per cent casual and contract workers. The situation in the US, for instance, is the reverse with more than 90 per cent salary and wage earners and only around 6 per cent self-employed, according to the US Bureau of Census (2001). FASTEST GROWING SECTOR

Table 2 shows the growth in some of the sectors dominated bythe self-employed. Activities such as construction, non-railway transport, trade, hotels and restaurants and other services have grown phenomenally in the last decade with real average annual growth rate reaching more than 10 per cent in many sectors. All these activities are dominated by partnership and proprietorship firms where the owner is also an employer or what the economist calls as `mixed income' category. It is expected that the employment generated in these `unorganised' sectors would have been of the order of magnitude of their real growth even after adjusting for money wage increases to the work force. Hence, the argument of decline in employment is spurious and is perhaps applicable to only government employment. Not only that. The large corporates are increasingly resorting to `outsourcing' their regular manufacturing activities to small and medium enterprises. Earlier companies in soap powder and biscuit and shampoo categories did it, but now firms in the consumer durables sector as also in technology and heavy engineering `outsource'. Hence employment is growing. Not in corporates but in the self-employed segment. Selfemployment is the answer to the Western choice of capitalism and socialism.

The credit requirements of the self-employed is not met by the organised credit market nor, as rightly pointed out by OASIS expert group, is social security available to them. It is interesting that the largest contributors to the national income and employment and capital providers are not talked about or considered in policy formulations. They are often dismissed as `unorganised' or `residual' sectors. India is one of the fascinating countries where more than 60 per cent of the activities are called `residual' sector. The Communists postulate that it is `inevitable' that the petite bourgeoisie becomes workers in the process of growth of capitalism. The corporate globaliser who belongs to the metropolitan elite also argues about `scale efficiency' and `modernisation' and feels that the `rational route' is for all these small traders/businessmen to disappear and become blue/white collar workers for the cause of `global efficiency.' Both the theories are based on 19th century experiences. AN IGNORED CLASS There has not been any attempt to re-train or impart newer skills to persons in these activities to face the challenges of the current global scene. With the arrival of newer and interesting technologies like cell phones and the Internet it is possible to think of a third alternative of developing and nurturing the self-employed sector and enhancing its effectiveness and efficiency. But the approach seems to be to imitate the disastrous path of mid-20th century situation of the West that it regrets now. The alternative, in the form all workers under government ownership, failed in the in the erstwhile Soviet Union. This is the challenge before us. The opposing groupings, of the globalisers and the Left intellectuals, interestingly support the slow death of the self-employed group. Not only that, we seem to be bent on creating a huge mass of unemployable persons with the education having no links to trade and craft. The globaliser would like the entire country to be a giant corporation, FDI funded and owned, where every one is a wage earner. For the Left thinkers it is a historical, and an inevitable, process wherein the small entrepreneurs are destroyed to become workers. And jobs in public sector units are more important than the livelihood of millions of street-corner vendors. Due to faulty policies, supported by the metropolitan elite and the Marxist intellectual, we may end up having a huge mass of unemployable persons who are currently self-employed. The policies to be adopted in the service sector in retail trade, restaurants, construction, road transport, etc., are going to require massive employment guarantee schemes (EGS) even in the urban areas, which will make the state wither away. (The author is Professor of Finance and Control, Indian Institute of Management-Bangalore, and can be contacted at vaidya@iimb.ernet.in. The views are personal and do not reflect those of the organisation.)