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The industry structure of India's large firms: IT is the biggest industry

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by Ajay Shah.

When trade liberalisation took place, roughly 1991-2007, there was large turbulence in the structure of production in India. It’s interesting to take stock and wonder: What is the present industry structure of the large firms of India?

The overall output of the country is, of course, made up of both large and small firms. Small firms are illegible, so we know much less about what is going out in the vast informal sector. What we do observe with confidence is the large firms. So, while we recognise that the industry structure of the large firms is not the industry structure of the overall economy, we examine this here.

We look at the 26,040 non-financial firms where data is visible for 2018-19 in the CMIE database. For each firm, we focus on gross value added (GVA) and the wages paid. Our crude estimator of GVA, from the income side, is profit before tax (PBT) + depreciation + wages. All values are nominal.

Industry No. firms Wages GVA Share in Share in
(Rs. Trn.) (Rs. Trn.) wages (%) GVA (%)
Information technology 1117 3.83 5.56 30.92 22.84
Chemicals 1997 0.95 3.44 7.69 14.12
Mining 175 0.64 1.82 5.16 7.49
Transport equipment 899 0.69 1.78 5.60 7.30
Miscellaneous services 4043 1.08 1.37 8.75 5.62
Metals, metal products 1525 0.48 1.34 3.86 5.51
Wholesale, retail trading 4378 0.61 1.19 4.93 4.90
Food, agro-based products 1645 0.40 1.06 3.27 4.37
Machinery 1591 0.51 0.98 4.08 4.03
Electricity generation 640 0.30 0.88 2.41 3.62
Electricity trans., distn. 120 0.47 0.66 3.77 2.69
Consumer goods 645 0.25 0.58 2.02 2.38
Construction materials 416 0.18 0.58 1.43 2.36
Transport services 783 0.45 0.57 3.67 2.36
Ind., infr. construction 2255 0.39 0.54 3.11 2.21
Communication services 153 0.32 0.50 2.55 2.07
Textiles 1111 0.31 0.50 2.48 2.04
Misc. manufacturing 1005 0.14 0.35 1.15 1.44
Div. non-fin. services 692 0.20 0.31 1.58 1.26
Div. manufacturing 82 0.05 0.13 0.40 0.55
Hotels, tourism 564 0.12 0.13 0.93 0.54
Real estate 204 0.03 0.07 0.26 0.29
All non-fin. firms 26040 12.39 24.35 100.00 100.00

IT was the most important industry: with 30.92% of the wages and 22.84% of the GVA. This category includes computer services and IT-enabled services.

There are six big industries, which have atleast 5% of either wages or GVA, and they are: IT, Chemicals, Mining, Transport equipment, Misc. (non-financial) services, and metals. The fortunes of the economy are now primarily about the fortunes of these six industries, which add up to about 60 per cent of the total.

It’s surprising, how little is going on in some labour-intensive industires like textiles which is at 2.48 or 2.04 per cent.

The mean firm size (overall) is Rs.935 million of GVA or about $12 million. In the case of IT, the mean firm is bigger, at about Rs.4,978 million or $65 million.

Some will read read this table and jump to calls for industrial policy that favours these six industries. This would work poorly, as all industrial policy does. But this table should influence our thinking on the prioritisation of the public goods that will serve the six most important industries, and most notably IT.

India is in a position of strength in IT. This is inconsistent with the language of weakness in a lot of policy thinking on IT, where we see an emphasis upon national champions and protectionism [example]. It is in India’s best interests to favour an open global order for the IT industry, but the Indian state tends to argue for a world of narrow domestic walls.


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