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REIMAGINING INDIA
Figure 3. Value-Added Shares In Unregistered Manufacturing
3.0
2.5
2.0
1.5
1.0
0.5
Share of High Labor Intensity Industries
Share of High Skill Intensity Industries
0.0
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000
Source: Authors’ calculations; data on unregistered manufacturing are from the Central Statistical Organization,
Government of India.
Notes: The share of high labor (skill) intensity industries is the ratio of value added in sectors with above-median labor
(skill) intensity to that in sectors with below-median labor (skill) intensity. The relevant sector classification is given in
Table 3.
Figure 4. Diversification In Indian Manufacturing
Herfindahl Index
.12
.1
.08
.06
Herfindahl Index based on value added
7.5 8 7.5 9 9.5
CHN IND IDN KOR MYS
Sources: Authors’ calculations; UNIDO 3-digit industrial statistics database (2003).
Notes: The sample for all countries includes observations from 1981 to 1996. CHN stands for China, IND
for India, IDN for Indonesia, KOR for Korea, and MYS for Malaysia. For each country, the Herfindahl
Index measures concentration in the value added across sectors; the lower the index, the lower the concentration,
or the higher the diversification.
the decline in the share of food, beverages,
tobacco, textiles, and paper related
industries was matched by a significant
increase in the share of basic metals and
alloys). Interestingly, neither the fast nor
the slow growing states increased their
share of value added in labor intensive
industries.
By contrast, nearly all states in India
have seen a uniform shift toward services
but there is a noteworthy difference between
services that are predominantly in
the public sector and those that are in the
private sector. In Figure 5, we find a neg-
ative correlation between the change in
share of services that are performed
mostly by the public sector (such as electricity,
public administration, railways,
and other community services) and the
average annual state growth. In other
words, the share of public sector services
including administration is growing in the
laggard states, while the share of private
sector services is growing in the fast-moving
states.
Armed with all this, let us turn to the
question of where India may be headed?
It would appear that the fast growing peninsular
states are starting to resemble
more developed countries in their specialization,
while the slow growing hinterland
states, with their still rapidly growing,
less well-educated, populations are
falling behind. Visaria and Visaria (2003)
suggest that 60 percent of the expected
620 million addition to the Indian population
between now and 2051 will be in Bihar,
Madhya Pradesh, Rajasthan and Uttar
Pradesh; only 22 percent will be in the
fast growing states of Kerala, Tamil Nadu,
Andhra Pradesh, Karnataka, and Maharashtra.
Such trends could create immense
economic and political strains between
Indian states.
It may well be that the slow growing
states will have to follow a more traditional
path of growth, focusing on laborintensive
manufacturing. But for that
further reform is needed—in particular,
more flexible labor laws and an improvement
of infrastructure, especially vis-à-vis
the states in the hinterland so that these
industries can be internationally costcompetitive—to
revitalize labor-intensive
manufacturing. But the archaic labor laws
have strong organized constituencies, in
particular, labor unions tied to political
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