The employmen T p roblem in india and The phenomenon of The 'missing middle'

dipak mazumdar and sandip sarkar* An important aspect of the recent growth pattern of the Indian economy has been the apparent sluggishness in the output and employment growth in the manufacturing sector, in spite of a period of relatively high growth rate of GDP. The contrast with the experience of China, not to mention the historical experience of the developed countries, including those of East Asia, has been widely noted. This article attempts to bring into focus an aspect of the manufacturing sector of India, which might indeed be the heart of the problem. This is the development and persistence of the peculiar size structure with its ‘missing middle’—even when we concentrate our attention on the non-household sector of manufacturing employing more than five workers. Economic growth in India, which has accelerated in recent years, has shown some disturbing characteristics, which seem to set the pattern out of line with the international experience of sustained economic development. These include three critical characteristics. Firstly, the growth process seems to have been led by the tertiary sector—both in terms of value added and employment, rather than manufacturing. Secondly, while the expectation in a labourabundant economy might be that the tertiar y sector would have disproportionately absorbed labour displaced from agriculture at low levels of earnings, the data seems to suggest that this has not been so. The earnings level in the tertiary sector has been significantly above that in manufacturing, suggesting that growth in the tertiary sector has been productivity-led rather than employment-led. Thirdly, the manufacturing sector in India has been characterised by a persistent ‘dualism’. There has been a strong bi-modal distribution in employment—even when we confine our attention to the non-household sub-sector in manufacturing—with a strong concentration of employment in the small and large size groups of establishments, with a conspicuous ‘missing middle’. A related point is that the productivity (and wage) gap between the two extreme size groups is much larger in India than even in other Asian economies. It is our contention that these three phenomena are inter-related. It is the ‘dualism’ in the manufacturing sector which has slowed down the expected dynamic role of this sector in the growth of the economy. The bias towards the tertiary sector in the growth pattern and the productivity gap in its favour can also be traced to the persistence of dualism in manufacturing.