Prosperous India-15

Non-Corporate Sector Dominates Indian Economy

Traditionally the economy of a country is classified into agricultural, industrial and service sectors for purposes of study, analysis and decision making. The rise of the western economic systems, particularly the US model, with all its modern theories during the recent decades, nurtured the corporate system with mega size and multinational companies stretching their activities beyond national boundaries.
As a result the corporate segment has come to occupy a significant place in countries such as the US. Even in the highly dispersed agricultural and service sectors, the corporate organizations have a much larger role in their system. Based on this approach, the economy is viewed as comprising of the organized part consisting of the corporate and the government sectors and the unorganized segment covering the rest of the entities. The unorganized part of the economy is also referred to as the informal sector.
The use of the expressions such as the ‘unorganized’ and the ‘informal’ for the non-corporate segment is based on the assumption that activities outside the government and corporate sectors are not organized. This view is based on the assumptions from the narrow western experiences. So it will not be appropriate for the family based and community oriented economies, especially the one such as India.
Non-corporate sector includes partnership and sole proprietorship forms of organizations, self-employed persons and cooperative organizations. It excludes the company forms of organizations in the private and public sectors and the government set-up.
India is a unique nation with strong foundations in the family, community and their net work of relationships. The origin and survival of almost all the organizations or arrangements in India could be connected to one or more of these institutions. It is the impact of these institutions that runs through the nerves of the society and the economy. As a result we have an impressive presence of the non-corporate sector in the Indian economy. Earlier Vaidyanathan noted that this sector has the largest share in our national income, manufacturing activities, services, savings, investments, direct and indirect taxes, credit market, employment and foreign exchange earnings.
The following table presents the percentage shares of the non-corporate segment in net domestic product through different economic activities during 2002-03.
Share of Non- corporate Segment in Net Domestic Product by Economic Activity
Share of non-corporate segment
Agriculture, forestry and fishing
Trade, hotels and restaurants
Transport, storage and communication
Financing, insurance , real estate and business services
Net domestic product at factor cost
Source: Central Statistical Organisation, Government of India
The above table reveals that the non-corporate sector has a share of about 57 per cent of the Indian economy. It is important to note that the shares of the non-corporate sector are high in the fastest growing activities of our economy such as construction, trade and transport.
Vaidyanthan notes that the non-corporate sector consisting of the partnership and proprietorship firms has the largest share in our national income with nearly 38 per cent of contribution, followed by the government and the agricultural sectors. The Indian corporate sector is estimated to contribute only 14 per cent of the national income, though it is generally believed that the corporate sector dominates the economy. In fact the share of the non-corporate sector in the Indian economy would be more, if there is a proper valuation of the family based activities. The non-corporate sector remains undervalued due to different reasons.
It is relevant to mention here that the share of the corporate sector is high in many of the activities in western economies such as the US, as the small and medium sized firms owned by families have been wiped out by the “corporate culture”. In retail sector, for example, more than 90 per cent of the business in India is carried out by the traditional family run small stores spread across the nook and corner of the country. But in the west it is a major industry dominated by big companies. Walmart, the US retail chain running departmental stores, is the largest corporation in the world terms of revenue. Its revenues are about $421.85 billion. The company is able to generate so much because it dominates the retail business after throwing out thousands of small stores.
The attitude to do something meaningful for the future and hard working nature of the Indian families compel them to take up economic activities resulting in the continuous growth of the small and medium enterprises. With limited amounts as investments and support from their people around, the entrepreneurs from these categories come up fast through dedication and involvement. Promoted mainly by local people, they use local resources and provide employment to the locals.
Many of us do not know that the non-corporate sector plays a major role in both the industrial and service sector activities in India. Vaidyanthan points out that the non-corporate sector constitutes a large portion of eight activities namely, unregistered manufacturing, construction, wholesale and retail trade, hotels and restaurants, transport other than railways, storage, real estate ownership of dwellings and business services, and other services. National Sample Survey Organisation (NSSO) data reveals that during 2000-01, there were 170.2 lakh units in the unorganized manufacturing sector employing 370.8 lakh workers.
Services sector is the largest in the Indian economy accounting for 65 per cent of the GDP. This sector has been contributing significantly to the fast growth of the Indian economy during the past few years. The growth in the services sector in the last decade has been much higher than that of the industrial and agricultural sectors. The role of the non-corporate sector is very significant in service sector activities such as construction, trade, hotels and restaurants, non-railway transport etc. The contribution of these activities in the Net Domestic Product of the country has been consistently high during the previous four decades.
Vaidyanathan notes that eight major activities in the non-corporate sector have grown by more than 14 per cent CAGR between 1993-94 and 2001-02. This growth is much more than the growth of the GDP and the services sector during the above period. This shows that the contribution of the non-corporate sector is a major reason for the growth in the economy since the 1990s. It is interesting to see that the non-corporate sector entities are not listed in stock exchanges; they are not even companies. They are mostly proprietorship and partnership businesses. But it is they who dominate the fastest growing activities of the economy.
Many of us are under the impression that the corporate sector dominates our economy. This is not true. Government of India notes that the non-corporate sector provides 92.38 per cent of employment in the country, while the rest constituting 7.46 per cent alone is provided by the organized sector. The share of the non-corporate sector in total savings and capital formation in the country is very significant. The share of the non-corporate sector in domestic savings is nearly 24 per cent, while the corporate sector contribution is about 8 per cent.
The non-corporate sector does not get the importance that it deserves, as it is run by the ordinary families and its role in the economy is not highlighted. But it is this sector that dominates our economy, making a silent but solid contribution to its functioning and growth.
1. Statement of NAS 2005, Central Statistical Organsiation, Government of India
2. Vaidyanthan, R , ‘Understanding the Unorganised Sector’, The Hindu-Business Line, June 3, 2004
3. Vaidynathan R, “ Success of Unorganised Services, The Hindu-Business Line, July 1, 2004
4. Eleventh Five Year Plan 2007-12, Planning Commission, Government of India, New Delhi, 2008
( Yuva Bharati, Vol.39 No.1, Vivekananda Kendra, Chennai, August 2011)