Annual Survey of Industries- Highlights of Recent Results*

The Annual Survey of Industries (ASI), conducted by The Central Statistical Organisation (CSO) since 1959, is considered as one of the most authentic and by far the most comprehensive sources of industrial statistics in India . The continuous time series generated in these surveys relate to the factories sector-factories as defined under the Factories Act, 1948. This definition, unchanged now for over 60 years, sought to cover factories employing 10 workers or more with the aid of power or 20 workers or more without the use of power.

The ASI is an annual data gathering system. Though the objective is to obtain and tabulate information on all factories in operation every year, it is difficult to do so because of the vast size of factories involved, more than 140,000 factories as per the latest count. The authorities conducting survey have devised a system of dividing the factories into two categories namely, census and sample categories. There have been changes in sampling design in successful rounds. As per the arrangements since 2000-01, the large size factories employing 100 workers or more are categorised as census factories and the data for all of them are obtained every year.  They have numbered about 10,000.The rest of the factories, numbering about more than a lakh, are classified as sample sector, and as the name implies, they are covered on a sample basis that is, a representative sample of units from the sample sector is selected for collection of data in a given year. The results of the sample factories are blown with the help of appropriate sampling procedures so as to provide complete estimates for the sample sector. Whereupon, the results of the census and the sample sector are combined to produced the total picture for the factories sector as a whole.

The CSO has provided on its website (www.mospi.nic.in) a set of continuous time series data for 25 years from 1981-82 to 2005-06 based on the ASI results. The results so provided cover 30 major characteristics of industrial performance, capital, employment, output, inputs remuneration of workers and employees and profits. The objective of this note is to analyze the trends in these characteristics over years and bring out the key highlights of the results which would depict the country’s progress made in the process of industrialization.

Periodisation

The 25-year period referred to above has had a chequered history. First, there was the 1980s which experienced some gentle process of decontrol and there was acceleration in the industrial growth process. Even so, the period continued to face substantial degree of bureaucratic control, Second there came the full-throated liberalization of the 1990s. In the ASI data set the time series has a break in 1997-98 because it was only up to that year that the electricity establishments were covered under the ASI; in 1998-99 and thereafter only captive units of power generation not registered with the Central Electricity Authority (CEA) continue to be covered under the ASI apparently not so as separate factories. The third period thus covers the period from 1998-99 to 2005-06- a period there has occurred some rapid increases in industrial investment and output.

1.      Growth of Factories

The growth in the number of factories in the three periods starting from pre-reform period of 1980-81 to 1990-91 to reform period of 1990-91- 1997-98 and the post reform period of 1998-99 to 2005-06, has seen divergent trends. During the first period from 1980-81 to 1990-91, the annual rate of increase in the number of factories was moderate. Thus in 1980-81, the number of factories was 96,503 and it increased to 110,179 at the rate of 1.1% per annum in 11 years of 1980s (Graph A (i)).

In the reform period from 1990-91 to 1997-98, abolition of industrial controls except for some strategic industries, gave a push to the growth in the number of factories. But, the increase was not steady; there was a sudden 6.4% increase in 1992-93, stagnation next year but again jumped by 4.5% in 1994-95 and 10.4%  in 1995-96, the heyday of industrial activity in the reform period, though for a brief period. Overall, the average increase during the 7-year period 1991-92 to 1997-98 was impressive at 3.2% per annum (Graph A (ii)).This was interestingly the best period of factory sector growth in terms of the number of factories before as well as after reforms.

In the second half of the post-reform period (1998-99 to 2005-06), the 1997 Asian financial crisis and political instability coincided with industrial stagnation. As a result, the growth in the number of factories registered a decline till 2002-03. This declining trend was reversed in 2003-04 and it was followed by sizeable increases of 5.6 in 2004-05 and 2.8% in 2005-06.The  number of factories which were covered in ASI fell from 1,31,706 in 1998-99 to 1,27,074 in 2002-03, but rapidly rose to 1,40,160 in 2005-06. As explained earlier, these factories did not cover electricity establishments. The overall average growth in the period from 1998-99 to 2005-06 was a fractional 0.6% per annum (Graph A (iii)). It must be admitted that the number of factories cited here is not an accurate representation of the exact number .First, it covers only the ASI units. For instance, in 2004-05 when the ASI covered 1,36,353 units, there were as many as 18,95,000 which were left out , though they employed 10 workers or more (GC Manna 2008) Secondly, even the ASI- covered factories were partly based on sample estimates blown up.

2.      Growth of Workers and Employees

As in the case of the number of factories, the growth in factory employment has followed the same pattern in the three periods chosen for study here.

In the pre-reform period from 1880-81 to 1990-91, the growth in the number of workers was negligible at 0.1%; the growth in the number of employees was more or less the same at just 0.3% per annum. The number of workers was 6.05 million in 1980-81 and employees 7.72 million; those rose to 6.31 million and 8.16 million, respectively. The number of non-worker employees increased from 1.67 million to 1.85 million.

The reform period from 1990-91 to 1997-98 saw a more rapid increase in the number of factory employment , with the number of workers rising to 7.3 million during 1997-98 from 6.3 million during 1990-91 and the number of employees rising to 9.93 million from 8.16 million. The overall increases during the same period were 3.2% per annum for the number of workers and 3.3% per annum for the number of employees.

The next 7-years period from 1998-99 to 2005-06 has registered a distinct downward trend in factory employment to 2003-04 followed by an improvement .The overall growth in the number of workers and employees slipped to 1.3% and 0.6%, respectively. The number of workers declined from 6.36 million in 1998-99 to 6.09 million in 2003-04. Likewise, the number of employees slipped from 8.59 million to 7.80 million during the same period. Each year of the five year period 1998-99 to 2003-04 saw absolute reductions in factory employment (Table 2 & 3). The latest two years 2004-05 and 2005-06 saw sizeable increases in factory employment over 8% each year in the number of workers and about 7.4% to 7.8% in the number of employees.

3. Growth in Gross value added in real terms

 During the planning era of early 1980s, the real growth increased moderately at 7%. This was due to the importance given to the heavy industrialization mainly export oriented which was highly in efficient due to its export oriented nature. As a result, the 1991 reform period the industrial growth almost declined at 2.2% but, contrary to many serious apprehensions rebounded back in next four years (1992-93 to 1995-96) before decelerating at 0.1% in 1996-97.The latter part of 1990s (from 1997-98 to 2003-04) recorded a subdued growth followed by an improvement. The three period of analysis in Table 2 gives divergent growth behaviour. The first phase gives a growth of 6.9% per annum in real terms followed by a sizeable 9.5% growth in the second phase. The last phase again saw a dip in the average real gross value added at 6.2%. A distinct impression revealed by these is that there have been vast inter-year fluctuations in industrial growth. Also, there have been some blocks of years of which experience rapid increases but by cyclical downturns. Incidentally, there is considerable divergence in growth rates depicted in the ASI data in real terms and the index of industrial production (IIP).

 4.Disposition of Value Added

(i) Declining share of wages and emoluments

A distinct revelation in the ASI data concerns the steady and persistent decline in the share of wages as well as emoluments in the gross value added (at current Prices). In the early 1980s, the wage share in the value added was around 28% and the share of emoluments was around 44%. The wage share declined to around 21% in the early 1990s and the share of emoluments about 33%. By 2005-06, these shares have dipped to a little over 10% and 20%, respectively. It  is also true that the spread between the wage and emolument shares got considerably widened, from a ratio of 1:1.6 to 1:2.0, implying that remunerations obtained by managerial and other white- collared staff have expanded much more sharply than those received by the floor level factory workers (see Table 3 and Chart 1).

(ii) Reduced Interest Cost

Another distinct advantage that the factory owners have received during the period under study relates to considerable saving on interest cost, particularly after 2002-03. Interest paid as percentage of value added did increase from about 20% in the early 1980s to 28% in the early 1990s but thereafter the ratio reached lower levels and touched 23% in 2002-03. This was followed by a period of easy money policy, which is reflected in a precipitate fall in the share of interest in value added  from over 23% around 2000-01 to 10.5 in 2004-05 and to 9.2% in 2005-06.

The above reduction in the incidence of interest cost reflects a number of factors. Apart from the reflection of the stance of monetary policy –dear money policy during the 1990s and easy money policy after 2002-03 or so, the profitability of the industry facilitated considerable reduction in the dependence of the corporate sector on borrowed funds. The companies also resorted to larger foreign borrowings at reduced interest cost (see Tables 4 and Chart 1).

(iii) Noticeable Improvement in Profit Share

What stands out in the disposition of gross value added (GVA) is the rapidly rising share of gross profit, particularly after reform period. Apart from reduced interest burden, a significant reduction in the incidence of corporate taxation has helped to raise profits. This share of profit in GVA was around 15-20% in the first half of 1990s, it increased to 23-29% in the second of the 1990s and also the first half of the current decade (2000s). Thereafter the ratio galloped and reached an unprecedented level of 50.6% in 2005-06(see Table 4 and Chart 1).

5. An Overall Assessment

In one sense, the declining wage share and increasing profit share reflects the changing capital intensity of industry. There is no doubt that industries in the post- reform period, became increasingly capital intensive and hence the profit share in value added has gone up. Interestingly, despite so, interest share has come down, partly because of the financial engineering that has been made possible and partly because of easy money policy pursued to help industries to grow; simultaneously, the authorities have also helped the process of industrial development by reducing the burden of corporate taxation a phenomenon revealed by the RBI’s companies finance studies.

• This note has been prepared by Sonali prabhu