Small Scale Agro-Industry in India: Low Productivity Is Its Achilles' Heel

Ind. in. ofAgri. Econ. Vol. 5, Vo. 3, July-Sept. 2003 SUBJECT III EMERGING TRENDS IN AGRO-PROCESSING SECTOR Small Scale Agro-Industry in India: Low Productivity is Its Achilles' Heel

G. K. Chadha and P. P. Sahu*

AGRO-INDUSTRY IN A DEVELOPING ECONOMY

Agro-based industry refers to the subset of manufacturing that processes raw materials obtained from agriculture and its associated sectors such as animal husbandry, forestry and logging and intermediate products derived from other industries such as semi-processed hides and skins for manufacturing leather and leather products, and edible oils for manufacturing hydrogenated oil. For a typical economy, some part of agricultural production does not directly go to final consumption; before reaching the final consumption basket, it undergoes the 'value- adding' process the form and content of which understandably varies from commodity to commodity. The value-adding processes range from simple preservation such as drying, grading and storage to production of high-value products such as manufacture of textiles, paper, rubber, etc., through modern capital-intensive methods. Looked at from the other side, for its input requirement, agro-industry draws partially, and directly, upon agriculture and partially upon other agro-based industries which, in turn are engaged in primary processing of raw materials received from agriculture. Developing countries have long promoted value-added processing of primary products as a path to industrialisation. This trend has been sustained by a number of factors. First, in general, increasing human population continues to give a boost to the demand for processed agricultural products. As incomes increase and the pace of urbanisation picks up, they further induce disproportionately rapid growth of the demand for higher-quality processed and packaged foods, since an increasing proportion of population becomes more health-conscious and opt for a greater variety in diet. The process of value adding to agricultural production and fostering of farm: non-farm linkages starts gathering momentum; this, in • turn, generates higher employment and incomes for the farm families, besides making agriculture a more effective contributor to industrial growth (Sarkar, 1997, pp. 166-167). Second, growing volumes of commercialised agricultural production leads to scale economies in processing and distribution which, in turn, induces increasing profitability and

* Professor of Economics and Ph.D. Scholar, Centre for the Study of Regional Development/SSS, respectively, Jawaharlal Nehru University, New Delhi - 110 067. SMALL SCALE AGRO-INDUSTRY IN INDIA: LOW PRODUCTIVITY IS ITS ACHILLES' HEEL 519

entry of new enterprises into the industry. Third, the changing character of agriculture itself, say, a gradual shift from field crop production to allied activities such as animal husbandry, fishing, forestry and logging, etc., primarily because of demand restructuring occurring continuously under rising incomes and urbanisation, induces a steadily diversifying base of agro-industrialisation; agro-industry starts heading towards non-food processing activities such as cotton, wool and silk textiles, jute- mesta-coir and other vegetable fibres, wooden, bamboo and cane furniture and fixtures, paper and paper products, leather and leather products, and so on. Fourth thanks to the unbroken chain of strides in science and technology, the real international transport and communication costs have been falling, lending its own dynamism to an expanding flow of goods, including processed foods and other ago- related industrial products. Finally, in recent decades, the widespread relaxation of trade and foreign direct investment restrictions have stimulated capital formation in exPort-oriented industries, both upstream and downstream, from farm-level agricultural production in low- and middle-income countries. The effect of these changes on the form that agro-industrialisation takes and on its ultimate environ- mental, employment, earning and distributional effects depend on several simul- taneous and countervailing factors. Thanks to the structural transformation that the Indian economy has been witnessing during the past five decades, most noticeably during the 1 990s following a series of policy reforms encompassing practically each sector of the economy, the forward and backward linkages between agriculture and industry have also grown apace, most markedly in regions where agriculture has been growing at a fast pace (I3halla et al., 1990, pp. 57-70; Chadha, 1986, p. 168). On the one hand, the changing composition of agricultural inputs, including a varying degree of switchover from traditional to modern inputs, has fostered a variety of backward linkages between agriculture and industry, with a considerable spin-off to agriculture itself (Chadha, 1989, pp. 146-153). On the other hand, the expanding level of output in agriculture, comprising field and plantation crops, dairying and animal farming, fishing, forestry and logging, etc., has promoted a rich variety of forward linkages. Ago-industrial development, a direct offshoot of such forward linkages, has seen its own vyjcissitudes, most recently because of a series of economic reforms first introduced in JulY 1991 and then, since January 1995, under the WTO-impelled open trade regime. substantial segment of the industry is currently facing a varying mix of institutional, technological and marketing constraints, firstly because its feeder-sector agriculture) itself is undergoing many technological, institutional and structural changes and secondly because, under the open trade regime, the Indian industrial sector in general and ago-industry in particular, are waiting to harness their overseas Potential in the midst of outside threats and challenges. It is high time that the ground raealities in India's agro-industrial sector are grasped, the institutional, technological Y, nd marketing constraints, especially from the view point of the multitude of tiny and 520 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

small enterprises, are thrown bare, and effective policy remedies are garnered for its smooth expansion. The paper is organised as follows. The next section briefly presents the data sources and few adjustments effected to ensure inter-temporal comparability of data. Section III looks through the size and performance of agro industries in India during the last two decades. In Section IV we analyse the level and growth of productivity in unorganised and organised manufacturing sectors in India. For unorganised manufacturing sector, however, the analysis is carried out both at the two and three digit level of industrial classification to identify the 'rising' and the 'declining' segmenis of the industry, to gain a purposeful policy perspective for the future. It also examines the locational and scale advantages/disadvantages among the tiny and small enterprises. Finally, a few concluding remarks are given in the final section.

DATA SOURCES AND ADJUSTMENTS

The paper is exclusively based on secondary data, such as the quinquennial survey data on unorganised manufacturing and annual survey data for the organised segment. For the unorganised segment, we draw upon the National Sample Survey (NSS) data at three points of time, i.e., 40th Round (July 1984-June 1985), 51st Round (July 1994-June 1995) and the latest 56th Round (July 2000-June 2001; data for 2000-01 are extracted from the household level data on CD-ROM). To gain a comprehensive view of the manufacturing sector as a whole, the Annual Survey of Industries (ASI) data for the organised segment are also picked up for these very select years and tagged on to those for the unorganised segment. However, it is worth mentioning that the latest available data for the organised segment is for the year 1999-2000. A few crucial adjustments had to be effected to ensure inter-temporal comparability of data for the unorganised manufacturing segment, for the three chosen years. In their original outfit, the data for 1984-85 were based on 1970 national industrial classification (NIC), those for 1994-95 were based on 1987 NIC while those for 2000-01 were based on the latest 1998 classification. While at the two and three-digit level of industrial classification, the data for 1984-85 are comparable with those for 1994-95; it is not so for the 2000-01 data vis-à-vis those for 1994- 95/1984-85. Some clubbing of industrial groups under the 1998 classification has to be resorted to, to make the individual activity groups comparable with their counterparts under the 1987 NIC classification (Government of India, 1998 b, pp. 73- 82). In the Indian system of classification of business enterprises, an enterprise owned and operated without the help of any hired worker, employed on a fairly regular basis, is described as an own-account manufacturing enterprise (OAME). An enterprise run with the assistance of at least one hired worker, employed on a fairly SMALL SCALE AGRO-INDUSTRY IN INDIA: LOW PRODUCTIVITY IS ITS ACHILLES' HEEL 521

regular basis, is called an establishment. An establishment that employs a total of not more than five workers is known as a non-directory manufacturing establishment (NDME), while the one employing a total of six or more workers is categorised as a directory manufacturing establishment (DME). Directory manufacturing establishments that employ ten or more workers and use power and those that employ 20 or more workers without using power are categorised as organised manufacturing enterprises (Government of India, 2002, p. 4). Since tiny and small-scale agro-based industrial enterprises are highly heterogeneous, in terms of size of capital investment, technology-in-use, scale of operation, Product range, quality and quantum of output, composition and level of employment, market coverage, price competitiveness, it is advisable, at least for some specified items, to look into each of the three layers (namely, OAMEs, NDMEs and DMEs) that are provided for in the NSS survey reports on unorganised manufacturing. Secondly, to see through the pre- and the post-reform contrasts we have divided the whole period into two sub-periods; the period 1984-85/1994-95 purports to cover the pre -reform decade, the period 1994-95/2000-01 is taken to be a surrogate for the post-reform developments. al Although, the period 1994-95/2000-01 is not long enough to reflect any decisive impact of economic reforms, the changes witnessed during this are most likely to ey indicate the directions in which India's agro-industry may sail in the next decade st or so. Thirdly, to gauge through the special locational handicaps and constraints of rural ita enterprises, per worker productivity has been estimated separately for rural and urban a units. Finally, to derive a more firm picture about the specific agro-industrial of activities that were rising or declining, especially in the wake of economic ry reforms, we extend our analysis to a three-digit level of industrial classification th for three variables, namely the number of enterprises, the number of workers and per ;at- worker productivity. The exercise proved highly rewarding. III -al ee AN INTRODUCTORY VIEW OF AGRO-INDUSTRY IN INDIA 70 Before we start our analysis, we familiarise ourselves IC must with the size, nature and composition of ago-industry vo in India. Given the structure of the Indian economy, especially the heavy weight attached agriculture, )1e to that is to its ago-industry continues be a dominant constituent of its industrial sector. For example, as Table 1 shows, in rural India, in the mid-nineties, agro-industrial enterprises accounted for 71.3 per to cent of the number of industrial units, 70.6 per cent of industrial employment, and ir 43L .4 per cent of industrial output in India; we are portraying the picture for 1994-95 ° ecause the rural-urban break-up for 2000-01 is not yet available for the organised segment of manufacturing. At the All-India level, the three figures ed its corresponding to share in the number of units, employment and output Ear were 65.0 per cent, 63.0 per ent, and 35.0 per cent, respectively. kn i The significance of agro-industry in India's ndustrial sector is thus a feature that needs rly to be underlined at the very outset. 522 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

TABLE I. SIZE AND STRUCTURE OF AGRO-INDUSTRY IN INDIA: 1994-95 (per cent)

Number of workers Number of units Value added

Rural Urban Total Rural Urban Total Rural Urban Total (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Share of agro-based industry within: Organised manufacturing 61.1 48.2 54.1 56.1 48.0 50.4 33.9 26.3 28.8 Unorganised manufacturing 71.5 51.2 64.7 71.4 48.3 65.0 69.5 46.9 55.9 Total manufacturing 70.6 50.4 63.1 71.3 48.3 64.9 43.4 30.5 34.9 Share of unorganised agro-industry to total agro-industry 93.0 73.2 86.8 99.7 98.0 99.4 42.6 31.8 36.4 Source: Government of India (1998 a); Annual Survey ofIndustries: 1994-95.

The dominance of agro-industry stands out more unambiguously when we look at the unorganised segment of the Indian industry, most markedly in the rural areas. For example, in rural India, as many as 71.4 per cent of the unorganised manufacturing units, 71.5 per cent of workers employed by them, and as high as 69.5 of value added in this segment, was contributed by agro-based manufacturing around mid-1990s; in urban areas too, the relative strength of agro-based industry can be gauged through their 48.3 per cent share in the number of unorganised manufacturing units, 51.2 per cent share in employment and 46.9 per cent share in value added. In sum, agro- industry has a strong presence in the industrial sector of the Indian economy; in rural India, agro-industry simply dominates. It is equally important to underline that agro-industry is largely a house of small-scale enterprises. For example, as Table 1 shows again, in 1994-95, the unorganised segment of the agro-industrial sector (largely characterised by small and tiny enterprises) had as many as 99.4 per cent of enterprises, 86.8 per cent of employment and close to 36.4 per cent of output. Again, the rural component of the agro-industrial sector is still more dominated by the unorganised segment, the three figures corresponding to its share in the number of units, employment and output being 99.7 per cent, 93.0 per cent and 42.6 per cent, respectively. The situation is not markedly different in urban areas either; the three figures are 98.0 per cent, 73.2 per cent and 31.8 per cent, respectively. For all practical purposes, therefore, our analysis of the unorganised segment is an analysis of small and tiny agro-based enterprises. Table 2 depicts growth profile of the number .of agro-industrial enterprises and employment in India. First, during the post-reform years, while the number of agro- based enterprises registered a fairly high, and varying annual rate of growth, e.g., 5.0 per cent in the case of food processing, 7.8 per cent for the non-food processing component and 6.7 per cent for the total.of agro-based industry, their non-agro based counterparts witnessed a steep decline of 7.9 per cent per annum. Again, this was in sharp contrast to what was going on during the pre-reform decade. From this perspective, as also in line with the perception of the pro-reform protagonists, the SMALL SCALE AGRO-INDUSTRY IN INDIA: LOW PRODUCTIVITY IS ITS ACHILLES' HEEL 523

TABLE 2. GROWTH OF AGRO-BASED MANUFACTURING ENTERPRISES AND EMPLOYMENT: 1984-85/2000-01

Enterprises Employment NIC 1984-85/ 1994-95/ 1984-85/ 1994-95/ Code Description 1994-95 2000-01 1994-95 2000-01 ____ip (2) (3) (4) ()_ .____C61____ A. Unorganised manufacturing .0-21 Food products -3.1 2.5 -1.5 2.0 22 Beverages, etc. 0.4 8.5 0.9 6.3 Food processing -1.9 5.0 -0.8 3.5 23 to 25 Cotton-Wool-Jute Textile -7.7 -0.1 -6.7 -0.7 26 Textile products -11.4 24.0 -5.9 15.5 ' 27 Wood and its products -0.7 1.7 0.9 1.6 • 28 Paper and its products 2.5 4.9 3.4 4.7 29 Leather and its products -8.8 -2.4 -4.0 -3.1 Non-food processing -5.8 7.8 -3.6 5.2 Total agro-based -4.4 6.7 -2.6 4.6 30-39 Total non-agro-based 0.4 -7.9 2.6 -4.3 All industries -3.0 2.7 -1.1 1.9 B. Organised manufacturing* 20-21 Food products 1.9 1.6 2.0 0.9 22 Beverages, etc. 1.6 -14.6 5.5 -1.3 Food processing 1.8 -2.0 3.1 0.1 23 to 25 Cotton-Wool-Jute Textile 2.3 -3.6 -1.8 -2.7 26 Textile products 6.6 2.8 11.5 6.3 27 Wood and its products -0.04 2.7 -0.8 0.5 28 Paper and its products 1.6 3.3 0.7 -2.0 29 Leather and its products 7.3 3.4 6.5 -1.8 Non-food processing 2.8 0.4 0.1 -0.9 Total agro-based 2.3 -0.8 1.4 -0.4 30-39 Total non-agro-based 2.6 2.7 1.1 0.8 All industries 2.5 1.0 1.3 0.1 C. All manufacturing 20-21 Food products -3.0 2.5 -1.1 1.9 22 Beverages, etc. 0.4 8.4 1.5 5.2 Food processing -1.9 4.9 -0.3 3.0 23 to 25 Cotton-Wool-Jute Textile -7.6 -0.1 -5.7 -1.1 26 Textile products -11.4 23.9 -5.2 14.8 27 Wood and its products -0.7 1.7 0.8 1.6 28 Paper and its products 2.5 4.8 2.5 3.0 29 Leather and its products -8.7 -2.4 -2.8 -2.8 Non-food processing -5.8 7.8 -3.2 4.6 Total agro-based -4.4 6.7 -2.2 4.0 30-39 Total non-agro-based 0.5 -7.8 2.3 -3.3 All industries -3.0 2.7 -0.8 1.6 Source: 1. Government of India, 1989; 1998 a and Unit level data (for 2000-01) on CD-ROM, supplied by National Sample Survey Organisation, New Delhi. 2. Government of India, Annual Survey ofIndustries, various issues. * Latest available data is for the year 1999-2000.

Post-reform years offered to agro-industry in India opportunities t- expand which they seem to have done. This view gets added support from the fact that, during the pre-1994 decade, the number of enterprises had witnessed a varying degree of 524 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

negative growth among all agro-industrial groups (except paper and paper products). For the negative post-1994 growth of non-agro based enterprises, the standard argument could be that, in the face of'external threat', such enterprises may not have succeeded in showing their commercial mettle, partly because of more exacting technology requirements and more intense price-quality competitions. In contrast, given the nature and locale of demand, most part of agro-based industry did not have to face as much stringent quality standards and price competition. Second, there are wide variations in the expansion/contraction trends, between the unorganised and the organised segments of agro-based manufacturing enterprises. For example, during the post-, compared with the pre-reform years, vthile the share of food-processing, non-food processing and the total of agro-based manufacturing enterprises under the unorganised sector witnessed a varying degree of increase, their counterparts under the organised sector witnessed a varying degree of decline. The post-reform adjustments and reshuffling between the unorganised and the organised segments of Indian industry are thus throwing up a significant process of structural transformation. The unorganised sector, preponderantly a house of small and tiny industrial enterprises, is now tending to concentrate more and more on agro-based manufacturing activities, with less than one-fifth of its manufacturing units being engaged in non-agro-based activities. On the other hand, the organised sector, housing relatively larger-sized enterprises, is fairly evenly divided between agro- based and non-agro-based industrial activities. Given the sheer dominance of the unorganised sector in India's industrial economy, it follows that the post-reform trend has been to push agro-based industrial activities into the lap of tiny and small, household-based enterprises; that such enterprises are usually characterised by outdated production technologies, numerous commercial and pecuniary infirmities, limited market outreach and severe diseconomies of scale, etc., clearly point towards the more daunting challenges awaiting India's agro-industry, especially when international competition become more intense in the coming years. That rural- located ago-based industrial enterprises may face more difficult times needs hardly to be emphasised. Third, the post-reform adjustments and reshuffling between the unorganised and the organised sectors are more firmly corroborated by the pre- and post-reform growth rates of the number of enterprises under each semi-aggregate industrial category. For example, in the unorganised segment, an increase in the rate of growth of the number of food-processing units from —1.9 per cent during 1984-85/1994-95 to 5.0 per cent during 1994-95/2000-01, of non-food processing enterprises from —5.8 per cent to 7.8 per cent and, of the total of agro-based enterprises from —4.4 per cent to 6.7 per cent, against the big decline from 0.4 per cent to —7.9 per cent, in the case of non-agro-based enterprises, clearly signals the internal restructuring in favour of the agro-based industrial activities. On the other hand, within the organised segment, the changes in the rate of growth of the number of enterprises, e.g., from 1.8 per cent during 1984-85/1994-95 to —2.0 per cent during 1994-95/2000-01 for the food- SMALL SCALE AGRO-INDUSTRY IN INDIA: LOW PRODUCTIVITY IS ITS ACHILLES' HEEL 525

processing. enterprises, from 2.8 per cent to 0.4 per cent for non-food processing units, and from 2.3 per cent to -0.8 per cent for the total of agro-based enterprises, against no change in the case of non-agro-based enterprises, once again confirms that the organised manufacturing segment, with all their technological, pecuniary and market advantages over their unorganised counterparts, is tending to shift its priority to non-agro based activities, and, perhaps to a select group of agro-based activities, where economies of scale are probably the most avowed considerations for gaining a competitive edge (Chadha and Gulati, 2003, pp. 10-12). Finally, within the group of agro-based enterprises, the differences in the rate of growth of enterprises between the food processing segment and the non-food Processing segment, need to be underlined. For example, under the unorganised manufacturing, the post-reform annual rate of growth of the number of enterprises engaged in the manufacture of beverages-tobacco was as high as 8.5 per cent against only 2.5 per cent for those engaged in the manufacture of food products. Clearly, in recent years, beverages-tobacco have been surging ahead, in a big way, under the unorganised food-processing manufacturing component. Among the non-food processing unorganised agro-based enterprises, the number of units manufacturing textile products increased phenomenally during the post-1994 years. Although all other segments of the non-food processing unorganised agro-industrial units also recorded a varying degree of improvement during the post-reform years, yet, a combination of the two extraordinarily distinct features of textile products (a remarkably impressive recovery from a negative growth rate during the pre-reform decade to a positive growth rate during the post-1994 years, and an annual growth rate as high as 24.0 per cent in the number of enterprises during 1994-95/2000-01) prompts us to accord the 'sun-rise status' to this branch of agro-industry. The position is markedly opposite in the case of the organised segment of manufacturing. Here, unlike the unorganised segment, the growth rate of the number of units engaged in the manufacture of beverages-tobacco declined phenomenally from 1.6 per cent during the pre-reform decade to -14.6 per cent during the post- reform years; for those manufacturing textile products, it declined from 6.6 per cent to 2.8 per cent, for those manufacturing leather and leather products, the decline was from 7.3 per cent to 3.4 per cent, and so on. The only 'consoling' pockets are paper and paper products, and wood and wood products. The total effect of all these changing post-reform trends is that under the unorganised segment, agro-based industrial units increased at a much faster pace during the post-, compared with the pre-reform years, while non-agro based industrial units decreased substantially in their numerical strength. It was the opposite, albeit on a substantially subdued scale, in the case of the organised segment. The picture on employment, as sketched out in Table 2, is very similar to that on the number of enterprises discussed above. A number of points need to be underlined. First, the rate of growth of employment further authenticates the post-reform tilt in favour of ago-based compared with the non-agro based enterprises; it is not a trivial 526 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

development that the varying levels of negative growth rate of employment during the pre-reform decade in both segments of agro-based manufacturing, changed over to varying levels of positive growth rates during the post-reform years, while in the non-agro based segment, it changed over from positive to negative levels, or declined fairly substantially. The flip-over from negative to positive growth rates is most visible among the unorganised segment of manufacturing, which together constitute an overwhelming majority of the manufacturing enterprises in the Indian economy. The process of scaling down among the agro-based manufacturing enterprises, during the post-reform years, is confirmed yet again through accelerated levels of their employment growth rates in contrast to highly decelerated levels in respect of their non-agro based counterparts (Chadha and Gulati, 2003, pp. 13-15).

LABOUR PRODUCTIVITY

In the ultimate analysis, the combined effect of technological, institutional and marketing handicaps on the production performance of an industrial enterprise may best be captured through the level of productivity/worker. Inasmuch as the scale of production, technology-in-use and market coverage vary considerably between the organised and the unorganised segments of agro-industry, it is advisable to look at productivity figures separately for the two segments. Again, inasmuch as the tiny and small rural enterprises suffer from special productivity handicaps, largely because of their locale, compared with their urban counterparts, we may as well like to compare the productivity levels of rural enterprises with those of their urban counterparts. All these productivity comparisons are done in this section. 4.1 Organised Vs. Unorganised Sectors Table 3 looks at changes in per worker productivity during the post-, compared with the pre-reform period. Per worker productivity is computed in real terms (at 1981-82 prices); a separate Weighted Index of Wholesale Prices in India was used for each manufacturing sub-sector (Government of India, 2002, pp. 316-318). For reasons already explained, it is advisable to look at the productivity levels separately for the organised and the unorganised segments of manufacturing. First, in the unorganised segment, productivity levels among either of the two components of the agro-based industry (food processing and others) are much lower than that among the non-agro based industry. For example, in 1994-95, productivity in agro-based industry was only 53.0 per cent of that in non-agro-based industry; in 2000-01, it was 55.0 per cent. Productivity in food processing component was 50.0 per cent of that in the non-agro-based industry in 1994-95; in 2000-01, it fell to 47.0 per cent. Likewise, productivity in non-food processing component of the agro-based industry was 55.0 per cent of that in the non-agro based industry; in 2000-01, it improved marginally to 60.0 per cent. Looking across the data for 1984-85, 1994-95 and 2000-01, it is clear that labour productivity in agro-based industry as a whole or in either of its two SMALL SCALE AGRO-INDUSTRY IN INDIA: LOW PRODUCTIVITY IS ITS ACHILLES' HEEL 527

TABLE 3. LEVEL AND GROWTH OF PER WORKER PRODUCTIVITY: 1984-85/2000-01 (Rs. at constant 1981-82 prices)

Growth rate (per cent) NIC Per worker productivity (Rs.) 1984-85/ 1994-95/ Code Description 1984-85 1994-95 2000-01 1994-95 2000-01 (2) (3) (4) 5 6 7 A. Unorganised manufacturing 20-21 Food products 2,973.3 3,146.4 4,372.7 0.6 5.6 22 Beverages, etc. 1,701.3 1,486.1 1,399.7 -1.3 -1.0 Food processing 2,627.9 2,610.8 3,248.1 -0.1 3.7 23-25 Cotton-Wool-Jute Textile 1,916.8 3,974.2 5,114.9 7.6 4.3 26 Textile products 2,479.2 2,838.3 5,478.3 1.4 11.6 27 Wood and its products 2,411.3 1,797.8 1,783.3 -2.9 -0.1 28 Paper and its products 5,681.8 4,917.9 5,412.0 -1.4 1.6 29 Leather and its products 4,858.7 5,098.1 7,014.6 0.5 5.5 Non-food processing 2,408.4 2,901.5 4,207.9 1.9 6.4 Total agro-based 2,479.3 2,788.7 3,857.5 1.2 5.6 30-39 Total non-agro-based 4,455.3 5,257.2 6,979.0 1.7 4.8 • All industries 2,960.6 3,659.7 4,615.1 2.1 3.9 B. Organised manufacturing* 20-21 Food products 21,559.8 39,621.1 46,492.9 6.3 3.3 22 Beverages, etc. 14,158.7 15,635.3 31,348.4 1.0 14.9 Food processing 19,423.1 30,905.0 41,378.7 4.8 6.0 23 to 25 Cotton-Wool-Jute Textile 17,852.8 46,000.1 49,640.2 9.9 1.5 26 Textile products 26,068.3 41,950.8 56,839.5 4.9 6.3 27 Wood and its products 15,275.7 14,439.1 25,345.4 -0.6 11.9 28 Paper and its products 31,418.4 50,205.7 50,077.9 4.8 -0.1 29 Leather and its products 23,098.7 32,902.5 42,643.6 3.6 5.3 Non-food processing 20,057.7 44,130.9 50,000.9 8.2 2.5 Total agro-based 19,814.9 38,132.4 45,980.1 6.8 3.8 30-39 Total non-agro-based 50,367.6 1,05,145.1 1,42,136.1 7.6 6.2 All industries 33,996.2 68,864.5 91,530.2 7.3 5.9 C. All manufacturing 20-21 Food products 4,931.7 8,366.8 10,023.8 5.4 3.1 22 Beverages, etc. 3,117.5 3,846.3 4,841.8 2.1 3.9 Food processing 4,435.8 6,880.7 8,090.3 4.5 2.7 23-25 Cotton-Wool-Jute Textile 4,381.9 13,794.5 14,782.9 12.2 1.2 26 Textile products 2,857.7 6,024.1 7,951.5 7.7 4.7 27 Wood and its products 2,569.3 1,929.5 2,011.3 -2.8 0.7 28 Paper and its products 14,863.6 18,380.6 15,476.4 2.1 -2.8 29 Leather and its products 6,166.4 10,072.0 13,940.2 5.0 5.6 Non-food processing 3,908.0 7,829.0 8,207.3 7.2 0.8 Total agro-based 4,081.3 7,452.9 8,163.4 6.2 1.5 30-39 Total non-agro-based 14,327.0 24,343.8 39,728.0 5.4 8.5 All industries 6,861.0 13,687.2 16,850.6 7.2 3.5 Source: I. Government of India, 1989, 1998 a and Unit level data (for 2000-01) on CD-ROM,supplied by National Sample Survey Organisation, New Delhi. 2. Government of India, Annual Survey of Industries, Central Statistical Organisation, New Delhi, (various issues). * Latest available data is for the year 1999-2000. 528 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

components (food- and non-food processing) was way behind that in the non-agro- based industry. Be that as it may, the productivity gaps have not widened in recent years. That the productivity gaps between the ago- and non-agro- based industries have not tended to widen during the post-reform years is explained by a fairly high rate of growth of real productivity, 3.7 per cent during 1994-95/2000-01 against —0.1 per cent during 1984-85/1994-95 among food processing enterprises, 6.4 per cent against 1.9 per cent among non-food processing enterprises, 5.6 per cent against 1.2 per cent among the total of agro-based enterprises, contrasted to 4.8 per cent against 1.7 per cent among non-agro based enterprises. Clearly, by any objective reckoning, the post- reform improvement in the rate of growth of productivity in each segment of the unorganised manufacturing, including agro-based enterprises, has been more impressive compared with that in its organised counterpart; in fact, each major segment of the organised sector faced a . varying degree of diminution in its productivity growth rate, during the post-, compared with the pre-reform period. The post-reform success on the productivity front did not accrue to individual industrial categories, both within the food-processing and non-food processing groups. For example, within the former group, beverages-tobacco fared highly unsatisfactorily, both in terms of improvement in the level and the growth rate of productivity, in 2000-01 compared with 1994-95; productivity here has been declining consistently, first, during the eighties and then during the nineties. And this is the segment of the unorganised manufacturing where, during the post-1994 years, the number of enterprises grew by as high as 8.5 per cent, and employment grew by 6.3 per cent. A post-1994 decline in the level of productivity, from Rs. 1,486.10 in 1994-95 to Rs. 1399.70 in 2000-01, is thus a natural fallout. Perhaps, the post-reform 'distress expansion' hypothesis is clearly established in this segment. These are the 'distress absorbing' activities where productivity levels and market viability are not strong considerations. On the other hand, it is perhaps the fall-out of the new economic policies, including the competition let loose by imports, that may have caused employment to grow by —28.0 per cent in distilling, rectifying and blending of spirits, -24.5 per cent in manufacture of malt liquors and malt, and so on. It may be the workers dislodged from these high productivity activities that may have sought refugee under, and proliferated into, similar but low productivity activities. Second, as is to be expected, productivity levels for all sectors of ago-based manufacturing are much higher in the organised, compared with the unorganised segments. For example, for the total of agro-based enterprises, the ratio of the productivity in the two segments was 13.67:1.00 in 1994-95; in 2000-01, it was 11.92:1.00. Among the total of food-processing enterprises, this ratio was 11.84:1.00 in 1994-95; in 2000-01, it was 12.74:1.00. Among the total of non-food processing agro-industry, the ratio was 15.21:1.00 in 1994-95; in 2000-01, it was 11.88:1.00. There are thus enormous productivity gaps that the small and tiny unorganised units have to bridge, in each major segment of agro-based manufacturing. Distressingly SMALL SCALE AGRO-INDUSTRY IN INDIA: LOW PRODUCTIVITY IS ITS ACHILLES' HEEL 529

low levels of productivity among tiny and small enterprises (unorganised sector) that constitute an overwhelming majority of agro-based enterprises, is thus the apparent Achilles' heel of the agro-based industry in India. But then, the organised segment of agro-based manufacturing too had many of the disturbing features outlined above for its unorganised counterpart, most ostensibly the inter-group productivity gaps. For example, in 1994-95, productivity among the total of agro-based enterprises was only 36.0 per cent of that among their non-agro based counterparts; in 2000-01, it came down to 32.0 per cent. Within agro-based manufacturing, productivity for food-processing was 70.0 per cent of that for non- food processing in 1994-95; in 2000-01, it improved to 83.0 per cent. Finally, within food-processing, productivity for beverages-tobacco manufacturing units was 39.0 per cent of that for food-products; in 2000-01, it improved substantially to 67.0 per cent. Thus, unlike the unorganised sector, inter-group productivity gaps are relatively smaller in the organised sector, and these have tended to narrow down during the post-reform years. Most markedly, our attention goes to productivity levels for the beverages-tobacco manufacturing enterprises in the organised segment that witnessed a substantial improvement in their productivity level during the post-1994 years against its decline in the unorganised segment; in the organised segment, the rate of growth of productivity was as high as 14.9 per cent during 1994-95/2000-01 while in the unorganised segment, it was a —1.0 per cent. That the phenomenon of 'distress expansion' was confined to the tiny and small (unorganised) enterprises comes up clearly from the fast post-1994 expansion of the number of enterprises and employment in the unorganised sector and the negative expansion of both in the case of organised sector (Table 2). Finally, the productivity gaps between the organised and the unorganised sectors, as also the intra-group gaps within each of the two, are revealed more robustly by differentials in productivity growth - rates. In general, productivity growth rates improved, by varying degree, during the post- compared with the pre-reform period, in most branches of the unorganised manufacturing while it was a mixture of improved and lower growth rates in the case of the organised manufacturing. In particular, for the total of agro-based industry, it was a substantial improvement from 1.2 per cent during 1984-85/1994-95 to 5.6 per cent during 1994-95/2000-01 in the unorganised sector, against a big decline from 6.8 per cent to 3.8 per cent in the organised sector. In food-processing, the growth rate improved from —0.1 per cent to 3.7 per cent in the unorganised sector while it went up from 4.8 per cent to 6.0 per cent in the organised sector; likewise, among the non-food processing enterprises, the unorganised sector could improve its productivity growth rate from 1.9 per cent to 6.4 per cent while the organised sector witnessed a steep decline from 8.2 per cent to 2.5 per cent. Within food processing, the unorganised and the organised sectors put up a sharply contrasting performance; for the former, productivity growth rate improved from 0.6 per cent to 5.6 per cent for food products and changed negligibly from —1.3 per cent to —1.0 per cent for beverages-tobacco while for the latter, it declined sizably 530 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

from 6.3 per cent to 3.3 per cent for food products, and, improved tremendously from 1.0 per cent to 14.9 per cent for beverages-tobacco. In overall terms, the post-reform growth performance of agro-based enterprises (unorganised + organised) fares rather poorly in comparison to their non-agro based counterparts. The growth rate of productivity fell from 6.2 per cent during 1984- 85/1994-95 to 1.5 per cent during 1994-95/2000-01 for the total of agro-based enterprises, from 4.5 per cent to 2.7 per cent for food-processing and from 7.2 per cent to 0.8 per cent for non-food processing, in sharp contrast to a fairly impressive improvement from 5.4 per cent to 8.5 per cent in respect of the total of non-agro based industry. The relatively poorer performance of the agro-based segment, during the post-1994 years, is to be understood in terms of the composite effect of a much higher post-reform growth rate of the number of enterprises as well as the number of workers employed in agro-based industry, on the one hand, and a slightly lower post- reform rate of growth of manufacturing-gross domestic product(GDP) originating in the agro-based industry, on the other (Chadha and Gulati, 2003, pp. 25-29). We have thus one more reason to subscribe to the distress expansion hypothesis in respect of agro-industry. 4.2 More on Productivity in the Unorganised Segment The preceding analysis, based on a two-digit level of industrial classification, apprises us of the post-reform level and growth of per worker productivity among the broad groups of the agro-based industry. We now extend our analysis to a three-digit level of industrial classification, to locate productivity differences/gaps within each (two-digit) industry group. The analysis is confined to the unorganised segment largely because of our primary interest in the tiny and small enterprises that are almost synonymous with this segment. Table 4 identifies the exact manufacturing activities, under each of the ten agro-based industrial sectors, where the post-reform years witnessed a substantial expansion or substantial contraction in terms of the level and growth of per worker productivity. First, under each major agro-industrial branch, we have a mix of positive and negative growth rates of per worker productivity during post-reform periods. For instance, under food and food products, growth rates of productivity declined in varying degree in six of the twenty(3 -digit) activity categories; this was so for four of the ten under beverages-tobacco, one of the seven under cotton textiles, five of the nine under wool-silk-man-made fibres, one of the ten under textile products, five of the nine under wood and wood products, three of the seven under paper and paper products, and interestingly for none under leather and leather products. Post-reform growth rates of per worker productivity varied markedly among individual activity categories. For instance, the positive growth rates varied from as low as 0.8 per cent for manufacture of vegetable oils and fats to as high as 40.1 per cent for processing, canning and preserving of fish, etc., under food and food products; from 1.6 per cent for manufacture of wine, to 16.6 per cent for manufacture SMALL SCALE AGRO-INDUSTRY IN INDIA: LOW PRODUCTIVITY IS ITS ACHILLES' HEEL 531

TABLE 4. GROWTH OF UNORGANISED AGRO-BASED MANUFACTURING ENTERPRISES, EMPLOYMENT AND PRODUCTIVITY IN INDIA(AT THREE-DIGIT INDUSTRIAL CLASSIFICATION): 1994-95/2000-01 Level of productivity Growth rate of NIC (Rs.) code Description 1994-95 2000-01 Productivity Enterprises Workers __in (2) 3 4 5 6 7 200 Slaughtering, preparation and preservation of meat 8,668.2 7,978.2 -1.4 8.7 8.3 201 Manufacture of dairy products 3,838.0 4,322.1 2.0 4.8 5.2 202 Canning and preservation of fruits and vegetables 3,786.7 2,731.9 -5.3 9.1 16.6 203 Processing, canning and preserving of fish, crustacea and similar foods 2,595.3 19,664.1 40.1 21.0 -21.6 204 Grain milling 3,082.6 3,989.1 4.4 5.9 4.8 205 Manufacture of bakery products 5,567.0 8,945.8 8.2 9.3 7.4 206 Manufacture and refining of sugar 7,533.5 9,155.8 3.3 10.1 1.8 207 Production of indigenous sugar, boora, khandsari, gur, etc. 2,168.7 2,419.0 1.8 -4.9 2.0 208 Production of common salt 6,383.7 3,275.5 -10.5 -6.1 -5.1 209 Manufacture of cocoa products and sugar confectionery 5,476.9 6,993.4 4.2 - 1.1 1.9 20 Food andfood products (I) 3,571.7 4,594.7 4.3 5.3 4.1 210 Manufacture of hydrogenated oils and vanaspati ghee etc. 13,331.7 4,890.5 -15.4 2.1 -14.1 211 Manufacture of vegetable oils and fats (other than 4,811.7 5,055.4 0.8 -4.5 -3.8 hydrogenated) 212 Manufacture of animal oils and fats and fish oils 1,153.4 3,659.4 21.2 31.8 -5.2 213 Processing and blending of tea including manufacture of instant tea 9,363.5 8,359.1 -1.9 52.0 52.1 214 Coffee curing, roasting, grinding and blending, etc. 4,274.8 8,203.0 11.5 7.0 9.0 215 Processing of edible nuts 1,452.9 5,665.0 25.5 -3.9 -12.3 216 Manufacture of ice 9,606.6 11,255.0 2.7 11.2 12.9 217 Manufacture of prepared animal and bird feeds 8,285.9 10,553.9 4.1 13.7 13.5 218 Manufacture of starch 9,119.8 3,498.0 -14.8 89.2 84.3 219 Manufacture of food products(NEC) 1,964.8 3,777.9 11.5 -11.4 -12.1 21 Food andfood products (II) 2,335.1 4,590.8 11.9 -8.8 -9.8 220 Distilling, rectifying and blending of spirits; ethyl alcohol production from fermented materials 762.9 3,968.3 31.6 -27.3 -28.0 221 Manufacture of wines 1,022.3 1,122.6 1.6 27.3 32.0 222 Manufacture of malt liquors and malt 1,396.3 2,401.9 9.5 -21.3 -24.5 223 Production of country liquor 1,455.5 1,608.3 1.7 3.0 5.7 224 Manufacture of soft drinks and syrups 2,180.5 2,891.9 4.8 8.1 9.4 225 Tobacco stemming; redrying and all other operation connected with preparing raw leaf tobacco 4,573.1 2,111.6 -12.1 -18.6 10.2 226 Manufacture of bidi 1,282.6 1,196.1 -1.2 11.0 6.7 227 Manufacture of cigars, cigarettes, cheroots, and 2,462.9 2,281.2 -1.3 8.9 1.9 cigarette tobacco 228 Manufacture of snuff, zarda, chewing tobacco 1,465.6 3,684.8 16.6 -9.0 -5.8 and other tobacco 229 Manufacture of pan-masala, catechu 2,399.8 1,939.8 -3.5 -6.7 -7.9 22 Manufacture Beverages and Tobacco and other Related products _ 1,486.1 1,399.7 -1.0 8.5 6.3 230 Cotton ginning, cleaning and baling 2,054.1 4,870.7 15.5 -11.0 -11.2 231 Cotton spinning other than in mills 774.6 2,821.5 24.0 -13.2 -12.2 (Contd.) 532 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

TABLE 4.(Contd.) Level of productivity Growth rate of NIC (Rs.) Code Description 1994-95 2000-01 Productivity Enterprises Workers (1) (2) (3) (4) (5) (6) (7) 232 Weaving and finishing of cotton khadi (232 to 235) 2,998.5 5,128.7 9.4 -0.6 -0.2 233 Weaving and finishing of cotton textiles on handlooms 234 Weaving and finishing of cotton textiles on power looms 235 Cotton spinning, weaving and processing in mills 14.5 236 Bleaching, dyeing and printing of cotton textiles 9,190.3 7,351.2 -3.7 25.6 -1.0 23 Manufacture ofCotton Textiles 2,843.2 5,108.7 10.3 -2.1 240 Preparation of raw wool, silk and artificial/ synthetic textiles fibres for spinning 7,165.4 4,518.2 -7.4 35.8 20.5 241 Wool spinning, weaving and finishing other than in mills (241+242) 2,724.6 3,297.9 3.2 -9.1 -10.9 242 Wool spinning, weaving and finishing in mills 41.2 243 Bleaching and dyeing of woollen textiles 5,977.1 3,845.8 -7.1 37.4 244 Spinning, weaving and finishing of silk textiles -2.8 other than in mills (244+245) 5,371.9 4,867.6 -1.6 0.7 245 Spinning, weaving and finishing of silk textiles in mills 34.9 246 Bleaching, dyeing and printing of silk textiles 7,661.4 9,278.4 3.2 26.4 247 Spinning, weaving and processing of man-made textiles fibres 10,802.3 1,0117.8 -1.1 -0.1 -1.6 248 Bleaching, dyeing and printing of artificial/synthetic textiles fibres 13,205.7 4,811.5 -15.5 45.0 51.0 -0.6 24 Manufacture of wool, silk and man-madefibres 6,557.8 6,023.4 -1.4 2.5 250 Jute and mesta pressing and baling 251 Preparatory operations on jute and mesta fibres 252 Preparatory operations on coir fibres 1.7 253 Preparatory operations on sann hemp other 1,372.1 1,228.2 -1.8 6.1 vegetable fibres(250 to 256) 254 Spinning, weaving and finishing ofjute and mesta textiles 255 Spinning, weaving and finishing of coir textiles 256 Spinning, weaving and finishing of sann hemp and other vegetables fibre textiles 257 Bleaching, dyeing and printing ofjute and mesta textiles 14.4 258 Bleaching, dyeing and printing of coir textiles 6,392.7 6,872.6 1.2 18.4 (257 to 259) 259 Bleaching, dyeing and printing of other vegetable fibre textiles 1.8 25 Manufacture ofJute and Other Vegetable Fibre 1,406.4 1,304.7 -1.2 6.1 Textiles 16.9 6.6 260 Manufacture of knitted or crocheted textile 8,420.4 8,932.4 1.0 products -5.0 -7.6 261 Manufacture of all type of threads, cordage, 1,009.6 1,904.3 11.2 ropes, twines and nets etc. 14.4 7.6 7.7 262 Embroidery work, zari work and making of 2,444.9 5,467.5 ornamental trimmings (Contd.) SMALL SCALE AGRO-INDUSTRY IN INDIA: LOW PRODUCTIVITY IS ITS ACHILLES' HEEL 533

TABLE 4.(Contd.)

Level of productivity Growth rate of NIC (Rs.) Code Description 1994-95 2000-01 Productivity Enterprises Workers ___11) (2) (3 4 6 7 263 Manufacture of blankets, shawls, carpets, rugs 2,973.3 5,447.0 10.6 -0.3 -3.0 and other similar textile products 264 Manufacture of floor coverings ofjute, mesta, 1,563.3 5,745.7 24.2 4.5 7.4 sann-hemp and other kindred fibres and of coir 265 Manufacture of all types of textile garments 6,549.4 9,360.1 6.1 19.5 8.5 266 Manufacture of rain coats, hats, caps and school 3,648.5 12,873.9 23.4 -15.1 -13.0 bags etc. 267 Manufacture of made-up textile articles; except 3,405.4 5,999.3 9.9 22.1 15.1 apparel 268 Manufacture of waterproof textile fabrics 23,902.4 5,642.6 -21.4 NE 108.6 269 Manufacture of textile/textile products(NEC) 4,204.6 7,202.5 9.4 33.3 30.5 26 Manufacture of Textile Products (Including rVearing Apparel) 2838.3 5,478.3 11.6 24.0 15.5 270 Sawing and planning of wood (other than plywoods) 6,952.3 5,283.2 -4.5 -4.0 -3.3 271 Manufacture of vaneer sheets, plywood and their products 5,237.8 4,054.7 -4.2 14.1 5.2 272 Manufacture of structural wooden goods 2,776.6 2,844.2 0.4 10.6 9.2 273 Manufacture of wooden and cane boxes, crates, drums, barrels and other container 824.2 771.9 -1.1 -2.3 -0.4 274 Manufacture of wooden industrial goods(NEC) 2,745.7 3,599.0 4.6 -16.9 -17.1 275 Manufacture of cork and cork products 2,725.4 1,072.5 -14.4 10.3 15.4 276 Manufacture of wooden furniture and fixtures 3,057.1 3,082.7 0.1 -0.3 1.9 277 Manufacture of bamboo and cane furniture and 883.2 1,050.7 2.9 19.6 18.8 fixtures 279 Manufacture of products of wood, bamboo, cane, 1,244.5 1,088.8 -2.2 -2.3 -3.1 reed and grass(NEC) 27 Manufacture of Wood and Wood Products 1,797.8 1,783.3 -0.1 2.7 1.6 280 Manufacture of pulp, paper and paper board etc. 5,013.3 3,931.5 -4.0 46.5 49.8 281 Manufacture of containers and boxes of paper and paper board 2,598.7 3,590.9 5.5 3.7 3.3 282 Manufacture of paper and paper board articles 4,265.4 4,505.6 0.9 8.9 10.7 and pulp products(NEC) (282+283) 283 Manufacture of special purpose paper whether or not printed (NEC) 284 Printing and publishing of newspaper 11,109.7 10,101.8 -1.6 3.4 -0.1 285 Printing and publishing of periodicals, books, journals etc. 5,377.9 10,537.1 11.9 -27.4 -24.9 286 Printing of bank notes, currency notes, postage stamps, stamp papers etc.(286+289) 5,738.3 6,221.6 1.4 11.4 10.9 287 Engraving, etching and block-making etc. (287+288) 6,044.1 4,574.9 -4.5 4.2 5.9 288 Book binding on account of others 289 Printing and allied activities(NEC) 28 Manufacture ofPaper and Paper Products 4,917.9 5,412.9 1.6 3.3 4.7 290 Tanning, curing, finishing, embossing and japanning of leathers 4,904.4 5,163.0 0.9 -4.1 -0.9 291 Manufacture of footwears (excluding repairs) 5,209.5 6,265.5 3.1 -5.6 -7.1 (Contd.) 534 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

TABLE 4.(Cone1d) Level of productivity NIC (Rs.) Growth rate of Code Description 1994-95 2000-01 Productivity Enterprises Workers (1) (2) (3) (4) (5) (6) (7) 292 Manufacture of wearing apparel of leather and 5,632.4 29,955.6 32.1 -17.2 -23.8 substitutes of leather 293 Manufacture of consumer goods of leather and 4,373.3 7,732.9 10.0 4.9 2.3 substitutes of leather (other than wearing. apparels)(293+299) 294 Scrapping, currying, tanning, bleaching and 5,667.2 10,313.5 10.5 -5.7 -13.6 dyeing of furs and other pelts for the trade 295 Manufacture of wearing apparel of fur and pelts 14,154.6 97,437.6 37.9 95.2 81.0 296 Manufacture of fur and skin rugs and other similar articles 299 Manufacture of fur and leather(NEC) 29 Manufacture ofLeather and Leather Products 5,098.1 7,014.6 5.5 -2.4 -3.1 Total Agro-based Industries 2,788.7 3,857.5 1.2 6.7 4.6 Source: Government of India, 1989, 1998 a, and Unit level data (for 2000-01) on CD-ROM,supplied by NSSO, New Delhi. Note: Growth rates for 2-digit level of industry groups are borrowed from Table 2 and 3 as controlled figures. NEC: Not elsewhere classified.

of snuff, zarda, chewing and other tobacco under beverages-tobacco; from 1.0 per cent for manufacture of knitted or crocheted textile products to 24.2 per cent for the manufacture of floor coverings of jute, mesta, etc., under textile products; from 0.1 per cent for the manufacture of wooden fumitures and fixtures to 4.6 per cent for manufacture of wooden industrial goods, under wood and wood products; from 0.9 per cent for manufacture of paper and paper board articles to 11.9 per cent for printing and publishing of periodicals, books, journals, under paper and paper products, and, from 0.9 per cent for tanning, curing, finishing, embossing and japanning of leather to 37.9 per cent for wearing apparel of fur and pelts, under leather and leather products. Similarly, the post-1994 negative growth rate of productivity varied from as high as -1.4 per cent for slaughtering, preparation and preservation of meat to as low as -15.4 per cent for manufacture of hydrogenated oils and vanaspati ghee, etc., under food and food products; from -1.2 per cent for manufacture of bidi to -12.1 per cent for tobacco stemming and redrying under beverages-tobacco; from -1.1 per cent for spinning, weaving and processing of manmade textile fibres to -15.5 per cent for bleaching, dyeing and printing of artificial/synthetic textile fibres; from -2.2 per cent for manufacture of products of wood, bamboo, cane, etc., to -14.4 per cent for manufacture of cork, and cork products under wood and wood products and so on. Thus, going by the magnitudes of the post-reform growth rates of productivity, it is apparent that some agro-industrial activities have been expanding fast while others have witnessed a steep decline. A mild to moderate level of productivity expansion or contraction is discernible in the case of many other categories. The highly heterogeneous post-reform profile of productivity growth rates needs to be analysed SMALL SCALE AGRO-INDUSTRY IN INDIA: LOW PRODUCTIVITY IS ITS ACHILLES' HEEL 535

in terms of opportunities and challenges that the new economic regime has let loose for the vast array of tiny and small agro-based industrial enterprises that are located in the unorganised sector. Third, most of the industrial branches that witnessed positive growth rates of employment are the ones that experienced substantial decline in the growth rate of per worker productivity and vice-versa. In other words, the improvements in the level and growth of productivity are mainly due to declining growth rates of employment. To lend statistical firmness to our conjectures, coefficient of correlation is estimated for each major agro-industrial group, as also for the whole lot of(the three- digit level) agro-industrial branches. The correlation coefficient is -0.50 for food and food products, -0.63 for beverages-tobacco, -0.96 for cotton textiles, -0.67 for wool- silk and man-made fibres, -0.85 for textile products, -0.39 for wood and wood products, -0.72 for paper and paper products and -0.39 for the whole lot of agro- industrial activities. Most of these coefficients are significant at 0.05 level. That gives us more confidence to conclude that in most of the agro-industrial sectors, the post-reform changes in per worker productivity and the number of workers employed, reflect distress-driven enterprise proliferations. and (self-) employment expansions, mixed with market-driven activity close-downs and job displacements; in many cases, the latter may have been the cause of the former.

4.2.1 Scale Disadvantages

We have seen above the tremendous productivity gaps between the organised and the unorganised sectors, in each major branch of manufacturing; the gaps for agro- industry in general and its food-processing component in particular, clearly reflect the formidable diseconomies of scale that household-based tiny and small enterprises suffer. The technological, institutional and marketing handicaps of the tiny and small agro-manufacturing units, compositely surrogated by low levels of their productivity, would become all the more apparent if we look at each of the three sub-groups within the unorganised sector, namely OAMEs,NDMEs and DMEs. Table 5 clearly testifies to the existence of considerable productivity differentials among the three sub- groups; to lend due weight to our argument, we compare productivity levels of the lowest (0AMEs) with those of the highest (DMEs) strata within the unorganised sector. These comparisons reflect the range of differentials in productivity which, in our view, is the right statistical measure to illustrate the diseconomies of scale suffered by the tiniest of the agro-based enterprises. A few points need to be underlined. 536 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

TABLE 5. LEVEL AND GROWTH OF PER WORKER PRODUCTIVITY IN UNORGANISED MANUFACTURING SECTOR BY TYPE OF ENTERPRISES: 1984-85/2000-01 (Rs. at constant 1981-82 prices) Growth rate Per worker productivity (Rs.) (per cent) NIC 1984-85/ 1994-95/ Code Description 1984-85 1994-95 2000-01 1994-95 2000-01 (1) (2) (3) (4) (5) (6) (7) (i) Own account manufacturing enterprises(0AMEs) 20-21 Food products 1,897.3 2,311.9 3,507.1 2.0 7.2 22 Beverages, etc. 1,478.1 1,274.5 1,246.3 -1.5 -0.4 Food processing 1,769.1 1,914.7 2,510.6 0.8 4.6 23-25 Cotton-Wool-Jute Textile 1,220.8 1,997.8 2,688.0 5.0 5.1 26 Textile products 1,840.8 1,359.8 3,805.5 -3.0 18.7 27 Wood and its products 1,887.2 1,229.7 1,322.1 -4.2 1.2 28 Paper and its products 1,636.4 2,338.5 2,461.0 3.6 0.9 29 Leather and its products 4,011.1 3,891.9 4,583.5 -0.3 2.8 Non-food processing 1,691.5 1,546.5 2,611.5 -0.9 9.1 Total agro-based 1,715.6 1,696.7 2,572.6 -0.1 7.2 30-39 Total non-agro-based 2,538.7 3,262.9 3,532.6 2.5 1.3 All industries 1,863.3 2,262.5 2,946.5 2.0 4.5 (ii) Non-directory manufacturing establishments(NDMEs) 20-21 Food products 5,613.1 5,589.9 6,391.2 0.0 2.7 22 Beverages, etc. 2,717.3 4,129.4 3,754.1 4.3 -1.9 Food processing 5,221.5 5,421.2 6,179.1 0.4 2.7 23-25 Cotton-Wool-Jute Textile 4,916.9 6,203.1 8,552.8 2.4 6.6 26 Textile products 3,947.6 3,720.4 8,194.2 -0.6 17.1 27 Wood and its products 5,067.0 4,897.6 4,020.0 -0.3 -3.9 28 Paper and its products 7,087.3 5,549.3 6,016.1 -2.4 1.6 29 Leather and its products 5,147.7 5,610.2 7,999.7 0.9 7.4 Non-food processing 4,600.1 5,147.2 7,084.9 1.1 6.6 Total agro-based 4,842.0 5,250.5 6,821.9 0.8 5.4 30-39 Total non-agro-based 7,579.9 6,524.8 9,981.2 -1.5 8.9 All industries 5,531.6 5,831.7 7,857.3 0.5 6.1 (iii) Directory manufacturing establishments(DMEs) 20-21 Food products 5,350.9 4,401.2 6,395.2 -1.9 6.4 22 Beverages, etc. 2,867.6 2,863.8 2,611.8 0.0 -1.5 Food processing 4,775.7 4,172.7 5,509.8 -1.3 4.7 23-25 Cotton-Wool-Jute Textile 4,859.2 7,202.2 9,934.2 4.0 5.5 26 Textile products 4,202.0 6,389.8 10,418.9 4.3 8.5 27 Wood and its products 6,227.5 5,154.7 5,142.4 -1.9 0.0 28 Paper and its products 7,568.7 7,537.1 7,844.1 0.0 0.7 29 Leather and its products 11,228.2 7,617.1 11,236.5 -3.8 6.7 Non-food processing 5,328.4 6,733.1 9,426.6 2.4 5.8 Total agro-based 5,146.3 5,964.6 8,147.8 1.5 5.3 30-39 Total non-agro-based 8,090.1 9,980.5 10,374.3 2.1 0.6 All industries 6,257.6 7,127.6 8,843.4 1.3 3.7 Source: Same as in Table 4.

First, in 2000-01, productivity among OAMEs (the tiniest among the household- based unorganised manufacturing units) was less than one-third of that among DMEs (the top group among the unorganised industrial units), in respect of agro-industry as a whole, was no higher than 45.0 per cent in respect of food-processing, and was just about 28.0 per cent in respect of non-food processing. Even in respect of non-ago- SMALL SCALE AGRO-INDUSTRY IN INDIA: LOW PRODUCTIVITY IS ITS ACHILLES' HEEL 537

based enterprises, it was as low as 34.0 per cent. That, in 2000-01, within the unorganised sector, 88.5 per cent of all ago-based manufacturing units, 90.4 per cent of food-processing units, and 87.4 per cent of non-food processing units were of the OAME type, immediately throws bare the enormity of the low productivity problem for the ago-industry(Chadha and Gulati, 2003, pp. 13-16). Second, the unevenness in productivity levels is discernible, in varying degree, among individual industrial activities as well. For example, in 2000-01, productivity among OAMEs was no higher than 54.8 per cent, and 47.7 per cent of that among DMEs, in respect of food products and beverages-tobacco manufacturing, respectively, under the food-processing segment, and 27.0 per cent, 36.5 per cent, 25.7 per cent, 31.3 per cent, 40.7 per cent, in respect of cotton-wool-jute-mesta hemp, textile products, wood and wood products, paper and paper products, and leather and leather products, respectively, under the non-food processing ago-industrial segment. These abysmally low levels of productivity in respect of the numerically preponderant group(OAMEs) leaves no doubt about the real Achilles' heel of India's agro-industry. Third, except for beverages-tobacco, growth rate of productivity registered a varying degree of improvement, during 1994-95/2000-01, compared with a highly disparate and unsatisfactory record of productivity growth during 1984-85/1994-95, in all segments of the agro-industry, for each of the three layers (OAMEs, NDMEs and DMEs). More pointedly, the post-1994 rate of growth of productivity among OAMEs compares well vis-à-vis DMEs, practically in all agro-based production sectors. Nonetheless, in spite of the impressive post-1994 improvement in productivity growth rates, the absolute levels among OAME units could not improve much, and their productivity gaps vis-à-vis DME units remained colossal even in 2000-01. We are thus convinced that the unorganised agro-based industry in general, and OAMEs amongst them in particular, must be operating under very severe technological, institutional and market constraints which combine to impose severe production and productivity handicaps upon them. Thanks to the enormous employment, earning and poverty stakes, directly in the industry and indirectly through agriculture-industry linkages, strong policy interventions to improve productivity levels are called for. 4.2.2 Locational Handicaps Our analysis so far has not looked into rural-urban differences. That tiny and small rural enterprises suffer from technological, institutional and marketing handicaps more acutely than their urban counterparts, and that such locational infirmities of the rural enterprises are encapsulated and surrogated by per worker productivity, needs hardly to be emphasised. Table 6 brings out rural-urban productivity differentials, once again for the more domineering unorganised sector. A few points need to be underlined. 538 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

TABLE 6. PER WORKER PRODUCTIVITY IN UNORGANISED MANUFACTURING SECTOR BY RURAUURBAN LOCATION AND TYPE OF ENTERPRISES: 1994-95/2000-01 (Rs. at constant 1981-82 prices) 1994-95 2000-01 Rural Urban Rural: Rural Urban Rural: NIC urban urban Growth rate Code ratio ratio (per cent) Rural Urban (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (i) Own account manufacturing enterprises(0AMEs) 20-21 Food products 1,994.4 4,149.3 0.5 3,132.8 5,279.6 0.6 7.8 4.1 22 Beverages, etc. 1,096.4 1,969.2 0.6 1,210.8 1,385.3 0.9 1.7 -5.7 Food processing 1,665.1 3,141.7 0.5 2,302.7 3,412.9 0.7 5.6 1.4 23-25 Cotton-Wool-Jute Textile 1,729.7 2,897.0 0.6 2,336.1 3,579.7 0.7 5.1 3.6 26 Textile products 1,162.5 2,411.8 0.5 3,342.9 4,832.8 0.7 19.2 12.3 27 Wood and its products 1,106.5 2,179.2 0:5 1,184.5 2,531.7 0.5 1.1 2.5 28 Paper and its products 1,038.8 3,138.1 0.3 2,547.4 2,419.2 1.1 16.1 -4.2 29 Leather and its products 2,947.0 5,308.0 0.6 3,955.1 5,310.2 0.7 5.0 0.0 Non-food processing 1,296.3 2,758.3 0.5 2,176.3 4,048.3 0.5 9.0 6.6 Total agro-based 1,447.0 2„913.6 0.5 2,226.8 3,835.0 0.6 7.4 4.7 30-39 Total non-agro-based 1,995.5 6,155.4 0.3 2,612.1 5,359.3 0.5 4.6 -2.3 All industries 1,761.2 4,119.4 0.4 2,548.5 4,235.4 0.6 6.4 0.5 (ii) Non-directory manufacturing establishments(NDMEs) 20-21 Food products 4,229.2 7,432.2 0.6 4,951.1 8,083.4 0.6 2.7 1.4 22 Beverages, etc. 4,334.2 3,544.1 1.2 3,066.5 5,135.1 0.6 5.6 6.4 Food processing 4,244.3 7,145.2 0.6 4,767.3 7,908.0 0.6 2.0 1.7 23-25 Cotton-Wool-Jute Textile 3,810.9 8,620.8 0.4 5,206.9 11,029.3 0.5 5.3 4.2 26 Textile products 2,520.4 5,230.9 0.5 5,520.7 9,600.8 0.6 14.0 10.7 27 Wood and its products 2,963.9 6,184.9 0.5 3,363.2 4,466.0 0.8 2.1 -5.3 28 Paper and its products 3,876.9 6,131.7 0.6 4,219.4 6,209.8 0.7 1.4 0.2 29 Leather and its products 5,683.9 5,599.1 1.0 6,935.4 8,157.6 0.9 3.4 6.5 Non-food processing 3,243.3 6,590.7 0.5 4,856.0 8,232.0 0.6 7.0 3.8 Total agro-based 3,698.9 6,758.0 0.5 4,820.6 8,161.4 0.6 4.5 3.2 30-39 Total non-agro-based 4,231.5 7,185.0 0.6 7,423.1 10,739.0 0.7 9.8 6.9 All industries 3,974.3 6,942.8 0.6 5,542.4 9,090.1 0.6 5.7 4.6 (iii) Directory manufacturing establishments(DMEs) 20-21 Food products 2,879.9 8,697.3 0.3 4,174.8 10,404.1 0.4 6.4 3.0 22 Beverages, etc. 2,741.0 3,543.2 0.8 2,167.2 6,823.8 0.3 -3.8 11.5 Food processing 2,856.8 8,219.6 0.3 3,571.7 10,133.3 0.4 3.8 3.5 23-25 Cotton-Wool-Jute Textile 5,289.6 9,224.8 0.6 6,672.9 11,580.2 0.6 3.9 3.9 26 Textile products 3,903.3 7,639.1 0.5 6,770.4 11,553.6 0.6 9.6 7.1 27 Wood and its products 2,744.6 6,377.0 0.4 4,931.0 5,234.3 0.9 10.3 -3.2 28 Paper and its products 2,208.2 7,669.4 0.3 6,256.4 7,951.1 0.8 19.0 0.6 29 Leather and its products 6,267.3 7,672.7 0.8 6,610.8 11,667.0 0.6 0.9 7.2 Non-food processing 4,606.4 8,019.0 0.6 6,454.3 10,445.5 0.6 5.8 4.5 Total agro-based 3,798.0 8,048.0 0.5 4,804.7 10,395.2 0.5 4.0 4.4 30-39 Total non-agro-based 5,981.0 12,219.6 0.5 7,404.7 13,448.7 0.6 3.6 1.6 All industries 4,310.4 9,285.0 0.5 6,155.9 11,042.7 0.6 6.1 2.9 (Contd.) SMALL SCALE AGRO-INDUSTRY IN INDIA: LOW PRODUCTIVITY IS ITS ACHILLES' HEEL 539

TABLE 6.(Coneld.) 1994-95 2000-01 Rural Urban Rural: Rural Urban Rural: NIC urban urban Growth rate Code ratio ratio (per cent) Rural Urban (2) (3) (4) (5) 9) (10 DME:OAME Ratio 20-21 Food products 1.4 2.1 1.3 2.0 22 Beverages, etc. 2.5 1.8 - 1.8 4.9 Food processing 1.7 2.6 - 1.6 3.0 23-25 Cotton-Wool-Jute Textile 3.1 3.2 - 2.9 3.2 26 Textile products 3.4 3.2 2.0 2.4 27 Wood and its products 2.5 2.9 4.2 2.1 28 Paper and its products 2.1 2.4 2.5 3.3 29 Leather and its products 2.1 1.4 - 1.7 2.2 Non-food processing 3.6 2.9 3.0 2.6 Total agro-based 2.6 2.8 2.2 2.7 30-39 Total non-agro-based 3.0 2.0 2.8 2.5 All industries 2.4 2.3 2.4 2.6 Source: Same as in Table 4.

First, leaving aside a stray exception, rural productivity levels are much lower than those among their urban counterparts, for all types of manufacturing activities, under each of the three industrial groups, viz., OAMEs, NDMEs and DMEs. For example, in 2000-01, among the tiniest of the unorganised enterprises (OAMEs), rural productivity was around 70.0 per cent of its urban counterpart for the food- processing segment, 50.0 per cent for non-food processing, and 60.0 per cent for the total of agro-based industry. Similar productivity disadvantages are operating among rural-NDMEs and rural-DMEs as well. Again, only with one stray exception, productivity setbacks for rural units are discernible, in varying degree, for each individual type of manufacturing activity both within food- and non-food processing ago-industries, among each of the three layers of the unorganised industry, namely, OAMEs, NDMEs and DMEs. Yet again, only with a few stray exceptions, the rural- urban productivity gaps have generally tended to widen between 1994-95 (Col. 5) and 2000L01 (Co1.8) across the board. It is thus abundantly clear that rural locale of an agro-manufacturing unit itself inflicts substantial productivity losses, irrespective of the size of the unit. During the post-reform years, the productivity handicaps of the rural units have tended to widen. Second, substantial diseconomies' of scale are also discernible, for each category of manufacturing activity, both among the rural and urban enterprises. Taking the ratio of productivity for DMEs to the one for OAMEs as a surrogate of such diseconomies, we discover a relatively better post-1994 record for the latter; for most of the manufacturing activities, the ratio has declined for the rural areas while it has increased, or remained nearly the same, in the urban areas. This means, in the urban 540 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

areas, the tiniest of the agro-based manufacturing units have not been able to get closer to the productivity level of their bigger counterparts while in the rural areas, they have registered some success in this regard. This is plainly explained by a higher rate of productivity growth during 1994-95/2000-01, registered by rural- OAMEs compared with rural-DMEs, for nearly the whole range of agro-based manufacturing activities; it is not quite so between urban-OAMEs and urban-DMEs. Finally, once again, with stray exceptions, productivity among rural enterprises registered a varying degree of improvement during the post-1994 years, for all types of agro-based manufacturing activities, in respect of each of the three groups, viz., OAMEs,NDMEs and DMEs. Interestingly, for most of the agro-based manufacturing activities, for each of the three production groups, the degree of improvement was, in no way, lower than that of their corresponding urban counterparts. In spite of such creditable post-reform record of improvement in productivity growth rates, the locational disadvantage of the rural units stayed pretty high in 2000-01, primarily because their productivity levels were considerably lower in 1994-95. In plain terms, in spite of their creditable efforts to improve their productivity performance, the rural units continue to suffer production losses for the sheer fact of their rural location; in most parts of India, rural-urban divides in terms of institutional, infrastructural and marketing outfits seem to be too daunting not only for the tiniest of the agro-based manufacturing enterprises (0AMEs) but also for the biggest group among them (DMEs). A recent (April-June 2000) primary survey of 399 rural and urban tiny/small industrial enterprises, spread over three states of India (Maharashtra, Haryana and West Bengal), adequately testifies, albeitfor a limited number ofparameters, to the relatively harsher infrastructural and institutional infirmities being faced by rural industrial enterprises. The rural enterprises trail behind their urban counterparts, practically in respect of each kind of infrastructural or institutional support item; their locational handicaps are most astounding in respect of sewerage, telephone, fax and computer, which are now, by any objective reckoning, the minimum essentials for a modern production outfit. Their handicap is no less glaring in terms of educational background, including technical training accomplishments, of the entrepreneurs. The relatively larger neglect of rural enterprises by public agencies that provide institutional services such as information center, product designing, industrial training, finance, etc. is also more than apparent (Chadha, 2001, pp. 130-139).

CONCLUDING OBSERVATIONS

Undoubtedly, agro-industry occupies an important place in India's manufacturing sector. The post-reform pace and pattern of its growth throws up a mingle of cheers and setbacks. For example, the share of agro-based manufacturing enterprises in the number of industrial units increased sizably between 1994-95 and 2000-01. So did SMALL SCALE AGRO-INDUSTRY IN INDIA: LOW PRODUCTIVITY IS ITS ACHILLES' HEEL 541

the number of workers employed in them. Also, the rate of growth of the number of agro-based production units, as also the number of workers employed by them, was remarkably higher during the post-reform years, compared with the pre-reform decade; in fact, it was a switchover from varying levels of negative growth rates, during the pre-1994 years, to fairly high levels of positive growth rates, during the post-1994 years, both for the number of enterprises as well as employment. From the viewpoint of ago-industry as a whole, these post-1994 changes could be interpreted as cheering spots, although some of these changes may as well be interpreted as distress-driven. Agro-industry suffered a huge productivity setback during 1994-95/2000-01 compared with 1984-85/1994-95. The growth rate of per worker productivity declined from 6.2 per cent during the pre-reform decade to a mere 1.5 per cent during the post-reform years. Not only that productivity/worker in agro-industry increased very sluggishly during the post-reform years but also its absolute level continued to vary markedly between the organised and the unorganised sectors, between the lowest and the highest rungs within the unorganised sector, and between rural- and urban-located enterprises. The worst placed are the rural unorganised agro-based manufacturing enterprises, and amongst them, the group of tiny own-account enterprises, which constitute a very big proportion of the -agro-based enterprises. The abysmally low levels of productivity in these segments is the real Achilles' heel of India's agro-industry. The most festering part of the Achilles' heel lies among the lowest rung of the unorganised agro-based units (0AMEs). For example, the ratio of productivity between the directory manufacturing units and the own-account enterprises increased from 2.2:1.0 in 1994-95 to 3.5:1.0 in 2000-01, for the food-processing units; came down from 4.4:1.0 to 3.6:1.0 for the other agro-based industrial units, and remained nearly unchanged (3.5:1.0 against 3.2:1.0) for the total of agro-based enterprises. Substantial productivity gaps thus continue to exist between the lowest and the highest segments even within the unorganised agro-based industry. And the productivity gaps would look rather alarming if we were to compare the levels of OAMEs in the unorganised segment with the average levels in the organised segment. It is abundantly clear that diseconomies of scale are operating in each branch of agro-industry, most ostensibly within the unorganised segment, both in the rural and urban areas; these are indeed operating more rampantly among the rural segment of agro-industry. The clinching point that unfolds the mother of all problems in the agro-based industry is the sheer size of the most disadvantaged segment, namely own-account unorganised agro-based enterprises. In 2000-01, this segment constituted no fewer than 88.0 per cent of the agro-based enterprises and provided employment to 66.0 per cent of the workers engaged in the agro-based industry. In terms of sheer numbers, in 2000-01, this segment 'accommodated' as many as 21.94 million of a total of 33.21 million workers engaged in agro-industry. Pro-reform policy makers may pat 542 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

themselves because of the increasing size of the agro-based industry, as also the increase in productivity, during the post-reform years. A more balanced approach would impel all stakeholders to point towards the abysmally low levels of productivity in the most dominating segment of the agro-based industry. As a matter of fact, low productivity level among the fast expanding house of the tiny agro-based enterprises (0AMEs), should be the beginning of any analytical study on India's agro-industry. Such a study must throw bare the numerous constraints that work together, or singly, to keep productivity levels in the most domineering unorganised segment of agro-industry in general, and in it, the OAMEs comprising tiny enterprises in particular. Rural-Urban gaps in productivity is another worrisome feature of India's agro- industry. Productivity levels among rural enterprises are much lower than those among their urban counterparts, for all types of ago-industrial activities, both within agro food-processing and non-food processing segments, irrespective of the scale of production. In other words, varying levels of productivity exist gap between urban- 0AMEs and rural-OAMEs, between urban-NDMEs and rural-NDMEs and urban- DMEs and rural-DMEs, for all types of ago-industrial activities. It is abundantly clear that rural locale of an agro-manufacturing unit itself inflicts substantial productivity losses, irrespective of the size of the unit. During the post-reform years, the productivity handicaps of the rural units have tended to widen, albeit on a limited scale. In sum, agro-industry in India continues to suffer substantial productivity losses in comparison to non-agro based industry. Within agro-industry itself, the un-. organised segment is way behind its organised counterpart. And within the unorganised agro-industrial segment, the group consisting of tiny enterprises (0AMEs) are at the very bottom of the productivity hierarchy, lurching with productivity levels that look abysmally low by any objective reckoning. Perhaps, for some of these tiny household enterprises, some kind of distress, brought over from other ago-industrial or non-agro based activities, may be at work. But then, the distress phenomenon cannot be invoked to cover everything that causes productivity setbacks. There must be a host of constraints that hold back productivity to its low levels. In a separate on- going study, we look into the institutional, technological and marketing constraints, that are holding up productivity to low levels, especially among the tiny and small rural agro-based enterprises (Chadha and Gulati, 2003).

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