The Indian Economy Blog

April 21, 2006

A Nation of Self Employed

Filed under: Business,Human Capital — Neelakantan @ 6:44 am

…is what we are argues R.Vaidyanathan in The Hindu Businessline. His pieces are always thought provoking and he looks at something that is not very widely discussed/known and with hard data.

A major debate regarding decline in employment, particularly in the organised government sector, post-liberalisation, has concluded that unemployment has increased after the 1990s.

And we have seen this manifest in various forms in the Indian blogosphere in debates on the effectiveness of globalization in removing poverty and suchlike.

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.

From the data he has put together in the piece, his conclusion is..

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.Self-employment is the answer to the Western choice of capitalism and socialism.

Perfect. But do our policy makers know this caught as they are between providing quota at various private companies or regulating courier companies ( there is a lot of casual labour/contractors/self employed at both these places).

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.

He concludes it with this, but do read the entire piece for the full picture.

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 self employed really are the backbone of the nation, starting from the small tea shop at construction sites to scrap dealers to vegetable vendors and going all the way up to hotshot entrepreneurs. This is something we need to encourage, since it has been shown time and again that private entrepreneurship and initiative is, really, one of the big things about India.


  1. This article shows one of the keys to indian survival
    India is surviving b/c of services provided by these small
    If you wanted to go from Bhilai to Rajnandgaon and you did not
    own a car mostlikely you would have taken a matador/tempo/jeepni ride
    for the longest seeming 15 km of your life.
    You could alternatively take the train but that means adjusting
    travel plan to trains schedule, whereas this thing ran every
    30 minutes or so.
    And all those services were provided by private entreprenuer
    who saw a market and jumped on it.
    I doubt it any of the income generated by these folks is computed in
    indian economy.
    Most of them under report earnings if they ever report it all.
    We need lower taxation to attract the unreported income to reported.
    It does offer the businessman protection as he does not have
    to carry cash.

    Comment by Guru Gulab Khatri — April 21, 2006 @ 7:30 am

  2. Self employment as an option to capitalism and socialism??!!!

    Hello capitalsim starts with SMEs, self employment is a critical and improtant part of capitalism.

    Some thinker Mr Vaidyanathan is !

    Comment by ankur — April 21, 2006 @ 8:19 am

  3. This guy is saying that in place of big corporations we have lots of self-employed workers. More importantly his argument implies that this is just as good for the economy. I’m assuming that he probably is against opening up sectors of our economy such as retail.

    Why fret about letting MNC’s in if these self-employed people can provide products which are comparable in cost and quality.

    This strength of entrepruenership that this guy talks about in India is real, which is why we should encourage competition.

    Using, this strength as a defense against opening up the economy as this guy does makes no sense whatsoever.

    Comment by Patel — April 21, 2006 @ 9:04 am

  4. And the present govt wants to change it. Eg present attack on private courier companies (it wont be the last–coming up –bottled water to homes, intercity buses, ), rural employment scheme, SC attack on shops and businesses in Delhi, private sector reservation, increased taxes on everything etc
    Seems we are facing the most malevolent govt in our post-independence history.
    AT this rate how many years of economic growth in India?. particularly when the
    the class that is driving the economic growth (frankly upper castes) are under attack as well. You kill the hopes, and where do these young people who see
    there lives thwarted by Govt go to?. There arent going to found Wipro now.

    Plus this infernal meddling and plotting with Maoists to overturn Nepali king.
    Seems that the Congress has learned nothing from its previous meddling in Punjab, Kashmir, Assam, Sri Lanka.

    Comment by Vishal — April 21, 2006 @ 9:08 am

  5. In a lecture by S. Gurumurthy recently, he mentioned a figure of 108 mn entreprenuers in India as opposed to 92 mn or thereabouts in China. In any case, his contention was similar- that India is a nation of the self-employed,more than any other society. If so, this is a startling fact and makes one re-think our assumptions on the need for massive chunky investments to generate emplyment opportunities. Mind you, I am not saying we do not need massive investments; it is only that the objetive of direct employment is not what needs to be foremost. Investments in large capacity facitlites generate demand for anciliaries and other support services, outsourced non-core activities that boost private entreprenuership. These mini/ micro-enterprises empower their owners significantly and eliminate the need for complex welfare measures and subsidies from the State. One issue that has engaged policy makers all along is that many of these businesses are difficult to regulate and operate without proper legal identities. Therefore, while we would say all power to them, we must overcome 2 significant challenges-

    1. We must put in place a regulatory mechanism that-

    a. Guarantees that all of these enterprises pay a due
    share of taxes
    b. Adhere to appropriate work conditions for their staff
    c. Follow enviromently responsible practices.

    2. We ensure a legal infrastructure that establishes rule of
    law and quick redressal of commercial disputes.

    If this is done, we would have truly found a sustainable economic model for India.

    Comment by little Ram — April 21, 2006 @ 9:50 am

  6. Let us not overly romanticize the Indian entrepreneur. Most Indians are entrepreneurs by force of circumstances, not choice. If there were sufficient wage and salary jobs available, people would take them. Self-employment has declined in the US over at least the last 50 years (although over the last 30 years it has been trendless, fluctuating with the business cycle). That hardly means the US has become less entrepreneurial. It is just that the local pharmacist has sold his shop to CVS or Rite Aid (chains here in the US for those who may not be aware) and works there as a pharmacist. Essentially, small mom and pop shops have closed as chains have taken over.

    While this may sound cruel to some romantics, it also creates a whole new set of jobs with different skill requirements. A mom and pop could not justify a billion dollar investment in supply-chain management, but Walmart can. Thus, you have new developments in supply-chain management, a whole army of inventory managers, software developers, what not. What you have done is replace an economy of generalists, a jack of all trades, with an economy of specialists. BTW, Mao wanted to create a whole economy of generalists, the yeoman farmer and backyard steelmaker rolled into one and that was the vision behind his Great Leap Forward “social experiment.”

    Let us also keep in mind that the “self-employed” in India counts the street hawker, the flower girl, and also the local provision store owner. The flower girl would probably be quite happy to be shop girl in Walmart with regular pay and benefits and not having to deal with day-to-day uncertainty. The provision store owner is doing it by choice and if Walmart wipes him out, he would probably be distinctly unhappy being the store manager for one of Walmart’s outlets. Of course, a truly enterprising would find a new avenue. Indians are quite good at finding out a way. Let us not be overly worried about the big corporations of the world.

    My bet is that India will still have a multitude of small businessses. Labor laws make it unviable to run large corporations with large workforce for most activities. As the good professor himself notes, many large already corporations “outsource” a substantial portion of their activities.

    Comment by srinivas — April 22, 2006 @ 2:06 am

  7. I agree with Vaidyanathan when he points out that

    a) self-employed form a very large chunk of the workforce in India, and
    b) they don’t come on the radar, most of the time.

    However, when he says

    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 (sic) or socialism.

    The good professor goes off on a, ahem, wild goose chase. Capitalism is all about entrepreneurship and self-employed. After all, it’s division of labor and trade, two of the building blocks of capitalism, that make possible self-employment.

    And why should globalization lead to the “slow death of the self-employed?”

    Many proponents of globalization (for instance, contributors of IEB) like it not because of the benefits it will bring members of FICCI/ Assocham/ CII. But because it will be a huge positive for the poor, oppressed Indian consumer — at last count, 1.1 billion of them.

    Suspect that the good professor is conflating true globalization with corporatism…

    Comment by Prashant Kothari — April 22, 2006 @ 9:53 am

  8. Ditto on what Prashant has commented. Small businesses mean capitalism is thriving and well! Also hard to see why globalization should militate against the self-employed entrepreneur. It is corporatization that can lead to collapse of small businesses- especially where economies of scale are relevant.

    Srinivas has useful points when he talks of a lack of choice as also the essential efficiency of large-scale business.

    What we need is small and large businesses co-existing each relevant in their own way. Where scale confers no benefits, staying small is probably good.

    Comment by little Ram — April 22, 2006 @ 10:27 pm

  9. The importance of self-employment is another example of how India is a bellwether for the 21st Century.

    In the ‘developed’ countries, the traditional concepts of large-scale industrial employment are breaking down under the impacts of globalization and domestic economic efficiency. The possibility of a lifetime, well-paying job with a giant compay is becoming slimmer and slimmer. This is especially evident in the United States.

    What is happening, increasingly, is that people in a modern economy are in the ‘me’ business where everyone has to shape their own economic destiny rather than having it handed to them. By our educational and vocational choices we decide our futures rather than looking for some big company to latch onto for a lifetime.

    In places like the United States this takes two forms. One is employment in a series of companies as workers seek opportunities and businesses changes. This tends to be semi-independent because workers change jobs so often. The other is pure self-employment where the worker goes out on his or her own.

    One of the other commentators pointed out that the trend of self-employment in the United States has been essentially flat for the last few decades. This is true, but what is happening is that the nature of self-employment in the United States (and I suspect to a lesser extent in India) is changing. Fewer and fewer of the self employed are proprietors of small shops or working at low-level jobs and more and more of them are skilled workers, especially knowledge workers such as writers and computer types.

    While it is true that many of the low-level self-employed would be at least as happy working for a large corporation, most of us in higher-level jobs wouldn’t be. For one thing, skilled self-employment can be much more renumerative than working the same job for a large company. (In the United States the cost of health insurance is a major burden on the self-employed but it is balanced at least in part by the tax advantages to be gained from self-employment.) In fact many of us routinely turn down offers of full-time employment.

    In some ways the ‘American System’ of giant industrial enterprises with multiple divisions and elaborate management heirarchies was an abberation, unlike what went before it and what seems to be coming after it. I suspect that India will in large part either skip this step entirely or it will play a much smaller role in the Indian economy than it did in the US.

    –Rick Cook

    Comment by Rick Cook — June 13, 2006 @ 9:13 pm

  10. I am not sure that capitalism and entrepreneurship always go hand in hand. Take Germany’s case (or for that matter any of the welfare states in Europe) for example. They have had a capitalist structure albeit a socialist one till now, or at least till the mid-1990s and had it not been for the high-tech boom in USA, it would have served them rather well. Germany’s entrepreunership % was around 2.2% some time back, an extremely pathetic figure by any standard.

    Countries like the USA can absorb something like Walmart much more easily than India can. Somebody who has been displaced thanks to one of these giants, still can find a decent job thanks to the much higher average education level (Note: even the US ppl crib about the biggies). Unfortunately, India doesn’t have its micro-level (read education, land-reforms etc.) right, and is relying upon the FDI to percolate to the bottom (which probably will happen partially) and miraculously uplift the masses. Result: We neither have a production based industry that provides a lot of employment nor the means of providing education that could have helped them get absorbed into the knowledge-based economy. Rest assured, the transition is not going to be as smooth as it seems.
    The funny thing is, inspite of all this, I would bet that the current market economy would serve us far better than anything that the government can do if it takes it into its own hands.

    Comment by Mike Psmith — November 12, 2006 @ 8:26 am

  11. [...] Will Still Rule – The Better, Faster Road To Development – The Wrong Behind – A Nation Of Self-Employed – More Bang For the Government Buck – FDI In Single Brand Retail – Rice, Roads [...]

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