Introductory note

Author highlights the role of non-corporate India as well as the non-banking finance sector of our Economy.
He estimates their share in National Income-more than 40%- in savings/capital formation and employment.
India incorporated, all those organizations and institutions subject to some discipline and jurisdication under specific laws and which are larget in size and having representative bodies supporting their cause and interests.
Those organizations which are not subject to the above prescription, fail to be considered as incorporated.

because of the organization structure and the clout that they have in the upper reaches of administration, the incorporated sector has projected itself as the sole champion of economic growth.
This book puts to test that assertion and proves conclusively that it is the Unincorporated sector which has a significant role to play not only in the development of society, but in the deliverance of objectives which has recieved step-motherly attention so far.
The direct effects of globalization have been felt by the incorporated sector because of the reasons of structure reach, funding pattern they follow by adopting global practices; but the same cannot be said of Unincorporated bodies. However, it cannot be denied that these institutions have also been somewhat influenced by globalization. -> Incorporated bodies have resorted to having their supply chains supplemented by unincorporated bodies, in the process enhancing the wealth of both.
Phenomenon worth noting in this regard is the feature of out-sourcing where the basic and fundamental work gets attended to by the bodies belonging to the unincorporated sector.
Another issue referred by author is the pronounced lack of any walfare benefits which those employed in the unincorporated sector derive. while workers and employees of the incorporated sector derives benefit like provident fund, pension, gratuity, medical attention etc.
The comparision becomes all the more pointed, if we take note of the fact that people who constitute the organized sector are only 11% of the working population, with the balance of 89% coming from the unincorporated sector.

terminology

NAS-National accounts statistics
according to NAS, unorganised is defined as 'all unincorporated enterprises and household industries other than the organised ones which are not regulated by any of the acts and which do not maintain annual accounts and balance sheets'.
coverage of organized sector,
- agriculture
- forestry
- fishing
- manufacturing
- electricity, gas and water supply
- construction
- trade hostels and restaurants
- railways
- transport by other means: public sector, private shipping companies, private airlines and road transport covered under private corporate sector
- storage
- communication
- banking and insurance
- real eatate, ownership of dwellings and business services
- public administration and defence
- other services: public and private corporate sector medical and sanitary services, television and radio broadcasting and other services and public and recorgnised educational institutions in the private sector.
the organised sector is same as the registered factories under the FActories Act in case of manufacturing and the public and private corporate sector [i.e companies governed by companies Act 1956] in case of all other activities.
but there are partnership/proprietorship firms having regular accounts in trade type service. They are part of organized services but unincorporated. Hence, unincorporated sector is much larger than the unorganised sector.
It would be useful for purposes of consistency and clarity if the Central statistical Organization (CSO) publishes a comprehensive list of all activities and indicates the form of organization and classificatino. Without simple and relieble numbers pertaining to national income, savings, labour and so on, it would be a herculean task to plan for a large country like India. many of the assumptions pertaining to the 1950s and the 1960s may not be appropriate now.
with such a weak database, policy makers try to formulate 5-year plans, annual budgets and socio economical legislations. The situation at state level needs substantial improvement as they constitute the building blocks for the national statistical system.
The department of planning and statistics is dysfunctional in many states and the person appointed in such a department feels he has been given un unimportant portfolio. Data collection by many of these departments requires significant improvement with the inrtoduction of modern sampling techniques and improved training

Largest contributor for the National Income

The unincorporated sector in India contributes about 45% of the national income, which by far surpasses the corporate sector's 15% and yet its contributino remains unacknowledged. Also it is important to note that the estimate of this sector in manufacturing and services need to be made accurate
One needs to remember that the unorganised sector is only a large subset of the non-corporate sector.
the corporate sector dominates the US economy to the extent of having around 70% of the share of GDP. This is in contrast to our country where the corporate sector has around 18% of the share in the national income.
Whenever we become ecstatic about India Inc. we need to exercise caution since India Inc. is a very small aspect of the economy. but ironically in our context, gallons of ink and reams of papers are spent on the inconsequential or trivia. Therein lies the clue to our distorted priorities, leading to debilitating policies.

Significant role in the service sector

the service sector can be broadly classified into three segments, the public sector, private corporate and the household sector. The first two are considered as organized and the rest cnosist of unincorporated enterprises including all kinds of P & P.
The role of non-corporate sector in service activities is very significant, namely, 1) construction
2) trade
3) hotels and restaurants
4) non-railway transport
5) storage
6) real estate ownership of dwellings and business services
7) other services
governments attempt to control and regulate an economic activity if it does not understand it and tax it if it is growing fast. This only brings out the ever-increasing needs of the government, which are mostly to meet the salary and pensions of its employees.
keywords: credit delivery, labour markets, social secutiry, savings and investments, globalisation

Low Profile, Big Savers

terminology: investment in gold is considered consumption by government economists.
Households consist of more than 70% of national savings.
In spite of the noise made about the importance of foreign investment in our economy, we find that their role is less than 10%.
The logic for the importance of foreign inflows in our economic growth can be summarized as follows. If India plans to grow at 10%, then it requires nearly 40% as the savings rate, since Incremental capital output ratio [ICOR] is nearly 4. Our savings rate is around 32% and hence we need to strive to get foreign inflows to bridge the gap.
i.e our savings plus foreign inflows will be the investments in the economy sustaining 10% growth.
These type of arguments have several assumptions. First, and formost is the assumption regarding the capital output ratio of 4. Is this mandated by God? Can we not take steps to redue it since we are capital starved nation? Second, the implied ICOR is mainly based on manufacturing activities. And that also on what are known as old economy industries. In new economy industries like the software sector, incremental output is more a function of adding more brain power rather than capital.
Creating extra capacity output; many taxis in Bihar, UP and Bengal carry a couple of passengers to the right side of driver. A barber in a saloon needs two more hands to shave an extra person rather than four more chairs. In other words, the concept of capacity is cosmic and is unlimited in our situaltion inlike western notions of limited capacity and possibility of increasing output only by increasing capital.
These has been thousands of conferences where the role of foreign inflows [less than 10%] has been extolled, and our growth attributed to it, but the role of the household sector has rarely been talked about.

Predatory State, Pauper Households

90% our population is not covered by any social secutiry system for their old age. compare it to developed economies like UA, Germany, Japan etc. where old age pension is provided by the state to all its citizens and in fact is currently being reformed through a moisy social and political debate.
household sevings consist of physical savings and financial savings.
In our country, individual have to depend on their own savings and or joint family support in old age. Hence, there is a dire necessity to save money.
In the absence of any social security cover, the government should not be taxing the non-government non-corporate employees at all. It should also have given full tax credit for education and health expenses plus other ceremonies like birth/marriage and death since these are part of our cultural roots and civilizational ethos.
Other than taxes by state, the ever-present corruption also takes away a substantial portion of earnings of households. The community is alienated from the state and looks upon it as a nuisance factor that collects taxes and bribes.

INDIA UNINC.

Prof. R. Vaidyanathan