Statsguru: Formal manufacturing share falls, wage growth lags productivity

ASI and Annual Survey of Unincorporated Enterprises show that the combined share of manufacturing GVA in GDP stands at less than 10 per cent

The share of the formal sector manufacturing gross value added (GVA) in India's economy dropped from 8.68 per cent in 2021-22 to 8.15 per cent in 2022-23, while that of the informal sector increased from 1.18 per cent to 1.4 per cent. This raises concerns about formalisation in the manufacturing sector, according to an analysis of two separate sets of annual surveys of industries and unincorporated enterprises (ASI and ASUSE) (chart 1).

The Annual Survey of Industries (ASI) and the Annual Survey of Unincorporated Enterprises (ASUSE) show that the combined share of manufacturing GVA in the gross domestic product (GDP) stands at less than 10 per cent, which is lower than around 13 per cent shown by annual accounts.

Former chief statistician Pronab Sen attributes this to underestimation by both ASI and ASUSE since they look at accounting prices and not market prices. ASUSE took the October-September period for 2022-23, while the remaining are financial years (April-March) in this survey as well as ASI.) For online only

 GVA per person in the formal manufacturing sector also saw a slight decline from Rs 11.90 lakh to Rs 11.88 lakh, reflecting a dip in productivity following a significant recovery post-pandemic. However, GVA per person in the sector remained higher in 2022-23 than Rs 8.94 lakh in the pre-Covid year of 2019-20. That year, it had declined from Rs 9.45 lakh in 2018-19. GVA per person also rose over nine years– 2014-15 to 2022-23.

 Although emoluments have consistently increased, they did not match the rise in GVA per person over these nine years, suggesting a disconnect between earnings and productivity (chart 2).

 Surajit Mazumdar, a professor of economics at the Jawaharlal Nehru University (JNU), cautions that the recent uptick in productivity may stem more from rising manufacturing prices than from actual productivity gains, following prolonged price stabilisation due to pandemic-related supply chain disruptions. For online only

Gross capital formation (GCF) in the formal manufacturing sector as a percentage of GDP rose only slightly between 2014-15 and 2022-23. Gross fixed capital formation (GFCF) declined during the same period but increased year-on-year in 2022-23 (chart 3). 

Excluding Uttar Pradesh and Tamil Nadu, leading industrial states also experienced a decline in  GFCF in formal manufacturing as a share of GDP over nine years, signalling a slowdown in investment activities (chart 4).

 The share of interest and rent in GVA for formal manufacturing declined from 2014-15 to 2022-23 but there was a slight increase in 2022-23 on a yearly basis. Meanwhile, the share of wages in GVA rose over the nine years (chart 5).

While the number of persons engaged in formal manufacturing has increased over the nine years, the growth rate of this employment saw a decline in 2022-23 from 2021-22 (chart 6).