Determinants of rising profit rates in India’s rural industries

Existing studies on the rural non-agricultural sector in India have not examined profit rates to understand the growth of the sector. Most studies have examined the rapid increase in this sector’s workforce size, and some have probed the share of this sector in the rural National Domestic Product (NDP). This paper addresses this gap. It examines the profit rate and growth in output (net value added) of the rural organised manufacturing industries segment, in the period 1998–1999 to 2007–2008. For comparison, the same parameters have been examined for urban industries. It is found that the profit rate of rural industries grew faster than urban industries. Given the significance of the profit rate, the factors driving change in the profit rate have been identified in this paper. It is found that worsening wage share and improving output-capital ratio underpinned by the rising labour productivity were responsible for rising profit rates of rural industries.