Informal Sector: Progression or Persistence? A Study of Four Traditional Clusters of West Bengal, India

(a) while handloom is dominated by the Hindu owners, forging and fabrication units of Asansol and Bolpur are mostly owned by Muslims ; (b) despite the presence of reg[r]

Informal Sector: Progression or Persistence?

A Study of Four Traditional Clusters of West Bengal, India

In the context of development, the informal sector assumes importance owing to its large workforce; all the more

so, because it is a major site of exclusion A study of this sector has, therefore, become essential from the standpoint of the mainstream strategy of inclusive growth It is opined by the dominant discourse that, a major part of this informal sector could, in fact, act as dynamic micro-capital and thereby, could engender an inclusive growth process

In this context, we have tried to understand, whether the informal firms have the potential to survive and grow as micro-capital or they are just subsisting and even decaying as non-capitalistic petty firms, using quantitative as also qualitative information on a variety of unorganised/informal manufacturing units engaged in iron forging and fabrication and in handloom weaving We have tried to understand these tendencies focusing on various aspects like, production organisation especially owner-labourer relation, market structure especially hierarchies and bottlenecks and on abilities/intensions of the firms to survive/grow We have also considered certain firm- characteristics as well as socio-economic-cultural features of the surveyed locations to analyse how firm behaviours (as micro-capital or non-capital) are influenced by these firm-traits and environment

Summarising our results and engaging with the literature, we could say that, although, a few firms may be behaving like dynamic micro-capital (Bardhan, 2009; Marjit and Kar, 2011) having symptoms of progression and some control over markets, overwhelming majority, without much of owner-worker separation and almost no control over markets, is able and/or interested in maintaining their existence only (Sanyal, 2007; Chatterjee, 2008) Keywords: production organisation, owner-worker relation, market structure, market dependence, micro-capital, non-capital, accumulation/survival

1 M.Phil Scholar, Department of Economics and Politics, Visva-Bharati (University), Santiniketan, India PIN-731235

2 Ph.D Scholar, Department of Economics and Politics, Visva-Bharati (University), Santiniketan, India PIN-731235

3 Assistant Teacher of Economics and Mathematics, Rajatpur Indranarayan Vidyapith, Rajatpur, Birbhum, West Bengal, India PIN-731204 The author takes this opportunity to express his gratitude to Professor Sarmila Banerjee who has not only been a great teacher, but also a great source of inspiration

4 Corresponding Author: Associate Professor, Department of Economics and Politics, Visva-Bharati (University),

Santiniketan, India PIN-731235 Mobile: +917602865059, Mail: saumya_chakrabarti@biari.brown.edu

1 Introduction:

1.1.Prologue:

In the context of development, the non-farm informal sector assumes importance owing to its large workforce (La Porta and Shleifer, 2014); all the more so, because it is a major site of exclusion (Chen, 2007) Consequently, a large literature has emerged on the informal sector This sector is advocated as a probable engine of progressive transformation by the mainstream researchers and policy makers Thus, the informal firms are projected mostly as micro-capital, linked with the global economy in one way or the other and as one of the most dynamic economic entities (Ranis and Stewart, 1993; De Soto, 2000; Bardhan, 2009; Marjit and Kar, 2011)5

However, heterodox researchers are critical of such optimism The Structuralists (Moser, 1978; Mezzadri, 2010; Breman, 2013) see the informal sector as a site of petty commodity production with either absence or very little separation between capital/owner and labour/hired-workers These researchers also look at this sector as an appendage to the formal sector that exploits it through a variety of market and non-market institutions and perpetuates its existence On the other hand, postcolonial researchers describe the informal sector as a ‘need economy’, whose primary objective is not accumulation of capital and hence, growth, rather fulfilment of need (Sanyal, 2007; Chatterjee, 2008)6

Contrarily, in the Indian context it is shown that, while a part of the informal sector prospers,

a large section remains stagnant Further, researchers show that, linkages with the formal sector, in general and local linkages, in particular play a significant role (Kundu, 1993; Mitra, 1994,1998; Liebl and Roy, 2003; Mukherjee, 2004 a, b; Kundu et al 2005; Mitra and Mitra, 2005) On the other hand, a group of researchers posit the informal sector as a composite of capitalistic and non-capitalistic firms While, a few firms behave like micro-capital, use hired labour, participate in a variety of relationships with corporate capital and accumulate; majority

of the firms have non-capitalist production structures, are mostly dependent on household labour, exploited by the formal sector through a variety of market and non-market relationships and able to produce either very little or no economic surplus for re-investment and

accumulation (Khasnabis and Nag, 2001; Kundu and Chakrabarti, 2008; Bhattacharya et al, 2013; Basole et al, 2015; Chakrabarti, 2016; Raj and Sen, 2016; Bhattacharya and Kesar,

2018) Finally, the following definition of the Indian informal sector could act as a launching pad for our own intervention

“Informal sector may be broadly characterized as consisting of units engaged in the

production of goods or services with the primary objective of generating employment and incomes to the persons concerned These units typically operate at low level of organisation, with little or no division between labour and capital as factors of production and on a small scale Labour relations, where they exist, are based mostly

on casual employment, kinship, or personal or social relations rather than contractual

arrangements with formal guarantees” (NSSO, 2001, report no: 459, pp 1; emphasis

Taking cue from the heterodox literature we can hypothesise the following:

1 While a small section of informal firms behaves like dynamic (‘progressive’) micro-capital,

a very large section persists essentially as non-capital

2 For these non-capitalistic enterprises:

(a) there is little separation (if any) between hired-worker and owner (in terms of pattern and duration of work, skill and to some extent income as well); there is a significant extent of community participation and a variety of non/hierarchical processes determine the wage and work of the hired worker (if any);

(b) there is drain of surplus due to a variety of input-output market distortions (due to market and non-market power) and other problems (related to market size, market access, raw material, labour supply, increasing competition);

(c) the surplus is mostly used for an improvement of standard of living; thus, satisfaction of need, rather than accumulation is the primary objective of such firms

1.3.Methodology and Data Source:

This study is a primary data-based work on a cross-section of informal/unorganised7/micro firms of few traditional/natural clusters of West Bengal As we have focused on clusters of micro-firms, rather than stray and extremely heterogenous service units scattered across rural-urban spaces, we have chosen manufacturing as our target of analysis Further, so far as micro/unincorporated manufacturing sector is concerned, West Bengal’s share is overwhelmingly larger than any other state (NSSO Report No.582, 2018) Local bodies and community-based organisations are the sources of additional extra-firm information Data are collected via structured questionnaire, focus group discussions (FGDs) and individual interviews during August 2017 to February 2019 Some important FGDs, personal interviews

4

in the following way (Chart 1) The rationale of choosing the specific products and corresponding locations are presented in this Chart 1, along with the rest of the sampling process

Manufacturing Units

Chart 1: SAMPLING PROCESS

Table 1: Sample profile across locations

Product Categories Handloom Iron Forging & Fabrication

Registration (no of units)

Net income per family labourer (Rs/Month)

Labour productivity (Rs/Month)

Major output destinations

Traders, contractors and Mahajans

Average cost of raw material per firm

214 (raw material from cooperative)

Average cost on repair of machineries, etc

580 (30 units did not invest and 18 units invested Rs.800 each)

14 (only 1 firm invested)

4693 (45 units did not invest at all)

Authors’ compilation from field survey

Table 1 represents a profile of our sample firms across survey locations:

(a) while handloom is dominated by the Hindu owners, forging and fabrication units of Asansol and Bolpur are mostly owned by Muslims ; (b) despite the presence of regulatory institutions and government agencies, Tantipara weavers and many of the producers of Bolpur and Asansol are not having trade licence, neither their units are registered; (c) the units are pretty old and duration of operation is almost similar across all the segments, with slight difference across handloom units and forging and fabrication units, as the former segment is fully household based, while the latter uses a somewhat separate production space; (d) average net income per firm, average value of asset per firm and per capita income of family labour as well as combined (family plus hired) value of labour productivity of the fabrication units are much more than the handloom units; (e) despite spending higher amount on raw material and labour, the firms of Bolpur are unable to generate even equal amount of net income vis-à-vis that of Asansol (elaborated subsequently); (f) the fabrication units use both family and hired labour, whereas the handloom units are dependent on family and community labour; (g) family-labourers work more (per day) in the fabrication units than the handloom units, although, the unit owners of Tantipara work most intensively; (h) in Asansol and Bolpur, both family labour and hired worker work for around 8 hours a day (without much of difference in terms of type

of work as well, as will be elaborated subsequently); (i) average family-labour income is around three times compared to skilled wage in fabrication (however, this difference is considerably less for smaller firms, as will be seen subsequently); (j) there are a variety of institutional arrangements in input and output markets; however, whatever be these institutional arrangements, the firms across all the locations suffer from a variety of market related problems, as will be discussed subsequently; (k) while Bolpur and Asansol spend substantial amount on hired labour, Tantipara and Dhaniakhali use only household labour; (l) while Bolpur and Asansol spend sizable amount on raw material and Tantipara too has to spend some amount, Dhaniakhali gets it from the cooperative; (m) the old units of Tantipara and especially, Dhaniakhali have to spend significant amount against wear and tear and for design (through frequent change of loom accessories); Bolpur and Asansol too spend substantial amount as depreciation cost; (n) although there is a substantial use of raw material and family and/or hired labour and sizable depreciation cost, in all the locations, fresh investment is miserably low; the units seem to be more interested and/or able to maintain the existing scale of operation, however, they are neither interested nor able to invest to expand the scale of production

1.4.Chapter Organization:

This book chapter is organised in the following way In the next section, we map some of the historical-social-cultural and economic characteristics of the clusters, and overall firm-level production organisations, market structures and firm-level performances, in general This section presents certain qualitative information providing additional insights necessary to understand the empirical results of the subsequent section Empirical analysis of the succeeding section tries to understand whether the surveyed firms behave like non-capitalist producers or micro-capital, despite their apparent differences in terms of some firm level characteristics as well as social-cultural-economic environment Finally, in the concluding section, we engage with the theoretical debate on characterisation of the informal sector

2 Beyond Firm: A brief description of our study areas along with some general firm-level characteristics

Our objective is to understand the firms in terms of owner-labour relationships, patterns of market dependence and pattern of expenditure across household consumption and investment However, to comprehend this, it is essential to know the environment of the surveyed locations, that offers the bedrock for any organisation to take birth, evolve, grow or die

2.1.Tantipara: a tale of surplus extraction using feudal institutions

Tantipara (locale of weavers8) is a village just 18 kilometres away from the district

head-quarter, Suri The occupational pattern of the weavers has been mostly shaped through their interactions with the global traders of the Mughal period, feudalistic exploitations by the Mahajans during the British period and also the struggles of modern times

The production organisation of handloom tassar silk is a unique socio-cultural-economic practice The weavers use manual looms, locally crafted instruments with the active participation of family especially, women and community involvement and little presence of hired labour This process is skill intensive, prolonged, laborious and collaborative

The weavers work for more than 9 hours a day, putting around 16 hours of family work effort

daily, to produce 4-5 thaan for a meagre monthly family income (approximately Rs.7000) An

average family of three, work all day to earn their daily needs The weavers’ aspiration for earning more by adding value to their products with new designs is constrained by resource and time shortages

The input-output markets are controlled by the Aratdars, sub-contractors, Mahajans and traders resulting in price distortions The input-price is artificially pushed up by a few Aratdars, from

whom the weavers are compelled to buy even low-quality cocoons, as they are either denied access to the tribal cocoon-traders or constrained by limited cash-in-hand

Despite moderate transport and communications, the weavers cannot sell their output in national-international markets, because of lack of access to trusted networks and small scale of production This forward linkage is skewed in favour of the sub-contractors, Mahajans and traders who suffocate the weavers by appropriating the benefit of high price of tassar silk in urban/global market This is happening even in the era of globalisation of capital and perhaps, through a tacit understanding between globally linked capital and these intermediaries

Moreover, government failure in the context of backward and forward linkages and inadequate technical support have led to discontent among the weavers

Despite owning the loom and the workspace and despite a very rich experience and understanding about design, the weavers of Tantipara have not been able to expand their business and more strikingly, have not been able to produce innovative mechanisms of weaving and designs, most probably, because of the presence of long term sub-contracting, putting-out and a variety of hierarchical (feudalistic) arrangements with the Mahajans, Aratdars, traders and sub-contractors

8 Who consider themselves as ‘shilpi’ i.e artists

All these problems push the weavers to intensify self-exploitation and the younger generation towards menial factory jobs (having no/little access to agricultural land and Mahatma Gandhi National Rural Employment Guarantee (MGNREG) programme) Alarmingly, the young men are rejected by brides’ family for this demanding but low-income lifestyle

Details of synthetic thread used in production of cheap tassar product:

Pure tassar-silk products are relatively high priced than other silk products, and now-a-days, it is rare in supply, but has high international demand Thus, to meet this high demand, the weavers, being directed by the traders and Mahajans, use this synthetic (tassar) thread to weave cheap products which are sold at urban markets to reap additional surplus per unit by the intermediaries

The weavers of Tantipara, get this synthetic tassar thread from few traders who come from Kolkata (a metropolitan city nearby) and sell it to the weavers, for a price between Rs.5000 - Rs.5500 a kilogram The production process for blended product and pure tassar product is no different

Details of quantity and price of silk threads used in production

Silk Required

Price (Rs.)

Synthetic Tassar required

Price (Rs.)

% of weaver weave specific products (from sample)

Average remuneration/ surplus

of a weaver (per thaan)

Monthly income of a weaver (Approx.) Pure Tassar

(47 out of 74 weavers)

1200 (approx.) (as in 2018)

600gms to 700gms (approx.)

3000 (as in 2018)

36%

(27 out of 74 weavers)

Source: Authors’ calculation from field survey data

While calculating values, in section 3 below, we have incorporated these issues appropriately

The Aratdars buy the

cocoons from these tribal people at a very low price

(Govt failure & Mkt

power of intermediaries)

Chart 2: PRODUCTION PROCESS & MARKET STRUCTURE of TANTIPARA

1 The cocoons are generally sold at the end of Autumn (Oct.–Nov.) Price of one ‘KAHAN’ (1280 cocoons) increased from Rs.3000 to Rs.4200 over 2017-18 Government store generally sells cocoons during Jan.–Feb instead of Autumn; but in 2019 no cocoons were available

2. From a ‘kahan’ of cocoon (depending on the quality), generally 1 kilogram of thread is extracted and one ‘Thaan’ (2 Sarees) can be weaved The process of ‘Thigh reeling’ is done by the

women possessing sex specific traits Apart from the silk, a coarse by-product is also obtained locally known as ‘NATHA’, which is sold at around Rs.600 a kilogram

3 Since currently, final-product price-range is Rs.5200-5800 and cost of a Kahan of cocoon is Rs.4200, income-range is just Rs.1000-1800 weekly Due to this laborious and less remunerative work, young people are going for other occupations

4 Some local traders practice putting-out system with weavers against remuneration Moreover, weavers lacking access to markets buy cocoons independently and sell the final product to the local traders.

5 Although a part of tassar ‘thaan’ is used after re-designing, the main value addition is done at the stage of ‘thaan’ production.

6 The weaver sells their output to Traders (who buy the product on spot, without any kind of pre-contract), sub-contractors (who pre-contract with the weaver for certain stipulated number of products but donot provide any financial assistance to buy raw materials) and Mahajans (with whom the weavers are engaged through neo-putting out system)

Weavers buy cocoons

from a handful of

ARATDAR (wholesalers

having significant market

power) at a higher price

than open market1

Steaming and drying

the cocoons under sun

for 4 to 10 Days

Cocoons from Farm / Forest

are brought by the local Tribal

CALENDARING

(A process of packaging)

The weavers sell3

the ‘thaan’ to

sub-contractors, new band of local traders, powerful

‘Mahajans’ &

visitors at a lower price than the retail price

These sub-contractors and new band of local

traders (villagers having access to global

markets), buy the ‘thaan’ in bulk & sell it to

other traders/showrooms In return, the weavers receive a miniscule remuneration.4

These traders often design the products (embroidery or hand painting) and sell those at

a higher price5

The weavers also sell their product to visitors (even

from Afghanistan)

Govt Cocoon Store

products (through embroidery

or hand painting with the help

of other community) & sell at

a higher price in the domestic and/or global market.

GLOBAL MARKET

There was an export demand for the original/

authentic natural product of Tantipara which has squeezed recently due

to entry of cheap synthetic tassar.

MARKETING

The weavers aren’t able to access open markets

Also uses synthetic tassar

threads, bought from

traders of Kolkata

2.2.Dhaniakhali: a tale of unequal competition and lust for life:

Dhaniakhali is an agriculturally prosperous village having strong urban linkages (61 kilometers from Kolkata), where generations of weavers are engaged in handloom The entire process of production is primarily organized by co-operatives against ‘remuneration’ to weaving-members The production process is majorly household labour based with significant contribution of women However, some stages of production require locally sourced skilled hired labour The looms are heavy and require intense physical labour, as these weavers (unlike Tantipara) weave designed sarees with the help of additional accessories and intricate manoeuvering of their looms Still, the weavers have to work for long hours to earn miniscule

‘allowance’ from cooperative Lack of dependable government support in input-output markets, absence of direct/independent access to trusted urban market-networks, inadequate product sophistication and entry of cheap, duplicate and power-loom products from nearby locations are making the situation vulnerable for the cooperative and hence for the weavers Therefore, despite the possibility of a variety of demand-supply support (from urban market and local agriculture), income from weaving is meager This situation is forcing the weavers

to take part in MGNREGP along with other menial jobs like construction work The Cooperative struggles to keep the youth in this profession The youth, however, fight to adapt

to newer, distant, risky occupations for their survival, and similar to Tantipara, the bachelors are refused by the brides’ family However, despite all these odds, weavers are not ready to compromise with the quality and distinctive nature of Dhaniakhali brand

Not only the affinity to stick to the tradition, rigidity against shifting towards a new/different raw material or design and financial constraints restricting innovations, but also the question

of pride and more importantly, a scope for catering to a niche high value national-international market are inducing them to stick to their present profession

Chart 3: Production Process & Market Structure of Dhaniakhali

1 In 1948, the co-operative was formed by the weavers for safeguarding themselves from intermediaries Currently, the cooperative provides the weavers

coloured threads to weave 26 sarees (at least) in one ‘CHARAN’ (one specific loom-design setting) estimating market demand To avail of the benefits

(bonus, allowances, paid leave, etc) of co-operative, the weavers are required to produce at least 48 sarees in a year In return, the weavers get

‘remuneration’ based on degree of sophistication One 100 thread saree takes 3 days of rigorous work for 3 persons working simultaneously Against this, they get average remuneration of Rs.250 per saree; out of this, there is pre-weaving service cost of Rs.100 (approx.) So Rs.150 (net income per saree) is divided among 3 members working for three days Thus, per-head per-day income is Rs.16.66 (approx.) For 80 thread sarees, this is Rs 12 (approx.) and for 60 thread it is Rs 8 to 10 (approx.)

Dyeing of threads as per

requirement

(Done by Co-operative)

Threads are then given to the

weavers as per the degree of sophistication of weaving

Then starch is applied to the threads followed by drying,

sizing and rolling the threads in bobbins mostly by

female members

Drumming, Denting, Drafting and Warping

(For these the weavers avail paid services

Recently, Co-Op is providing the service for

free.)

WEAVING

(There are different looms used for

weaving the three types of cloth [100 thread, 80 thread and 60 thread] The loom for100 thread saree being the most sophisticated involves minute designing,

followed by 80 and 60 threads)

Local Open Market / Visitors

Design Setting

Plain cotton threads & s ilk

2.3.Asansol and Bolpur: stagnant market and intense competition

Asansol is a famous industrial metropolitan city and Bolpur a municipal town reaping the benefits of tourism and real estate (of the twin town of Santiniketan); both having relatively advanced infrastructure

Unorganized iron forging and fabrication is a major earning avenue for a large number of people in both the locations The production process is mainly based on skilled labour machines, and electricity, using raw materials (iron rods, sheets, angles, welding-rod, chemicals etc.) Hired labour is prominent in this process over and above family labour In this work, skill is percolating through generations via (religion specific) community interactions Many of the firm owners begin as apprentice in others’ workshops and gradually start their own business Thus, entry is not very costly and in fact, acquiring skill is perhaps the determining factor Conversely, this owner acts as a skilled worker in his own firm The owner-worker dichotomy gets blurred

The outputs are locally sold to individual buyers or through contracts Although, those firms which are able to work through contracts with large-buyers/big-showrooms/real-estate-contractors/Agents are better off, there are instances of contract failures Moreover, intense competition in the output markets of Asansol and Bolpur is putting pressure on price Increased competition from new micro-units opened by the distressed skilled workers (as elaborated below) as well as from nearby villages is making the condition worse

Conversely, the raw materials are locally sourced Although in Bolpur, raw material supply is not reported as a serious bottleneck, in Asansol, increasing cost of raw material (due to market imperfection, introduction of GST, etc.) poses a serious problem Additionally, in both the locations, there exists shortage of skilled labour pushing up wage for the following reasons: (i) since the work is trying, not many young people are eager to enter into this profession; (ii) as

it takes around 10 years for an unskilled labourer to become skilled, there is this long gestation period; and (iii) despite some rise in wage due to labour shortage, this increased remuneration

is not adequate and hence, workers are shifting to start their own local workshops and even to other states and countries (mainly Middle East)

Thus, currently, deviating from the traditional owner-worker separation, sheer competition, on the one hand and increasing costs of raw material and labour, on the other, are compelling the unit owners to physically take part in production along with managerial activities and thereby intensifying self-exploitation9 This self-exploitation is more intense in Asansol than Bolpur Thus, size of the output market, source of raw material and access to these are crucial for Bolpur and Asansol too (like Tantipara and Dhaniakhali) The micro firms cannot have any control over the markets, rather the volume and structure of market determine their conditions These market problems plague the firms of Bolpur and Asansol, especially those of the latter; the firms are left with very little surplus for re-investment and accumulation To maintain the current standard of living becomes an overriding concern

Some units of Asansol and Bolpur sell their products to individual buyers through spot exchange The buyer visits the firm, selects the item, bargains for price and purchases (if both agree)

[spot contract]

Buying of Raw Material:

Iron Sheets, Bars, Rods, Angles,

Paints etc from local traders 1

Order of product from Market,

Setting of Design & Measurement

(Grills, gates and Almirahs)

Cutting, Bending, Shaping, Moulding, Drilling & Welding

Jointly2 done by Owner/family members, Skilled labourers and Unskilled labourers

Polishing and Painting

(Specially for Almirahs, Showcases, etc.)

Final product fitting in construction site or selling to showrooms/individual buyers/Agents

1 As there are few raw material sellers, they control the price of raw material by exerting market power (in Asansol) In recent times, the price of raw material has increased along with GST application However, the situation is not reported to be that difficult in Bolpur

2 There are sizable number of skilled and unskilled child labourers, especially in Asansol, which has been considered in calculations of section 3

Chart 4: Production Process and Market Structure of Iron Forging & Fabrication Units

Some units of Asansol and Bolpur sell their products to individual buyers A buyer approaches a unit owner, giving him order for goods as per his/her requirement and at a bargained price The owner supplies the product after

production

[Pre-contracted]

29 units of Asansol work under long term contract with big showrooms/large buyers (for almirah) and real-estate-contractors (for grills) and also agents, who, however, give the contract without any forward payment The pre-contracted number of products are supplied at a price lower than market.

[sub-contracting arrangements]