Potential of The Manufacturing Sector to Absorb Rural Labor: A Case Study of Two Towns in Bihar

In the context of India's potential demographic dividend resulting from a faster growth of the working age population vis-à-vis the total population, productive deployment of the labour force is key, since otherwise it may well give rise to adverse consequences for the society. Efforts towards absorbing the labour-force available in large numbers in the country are therefore crucial. Industrialization, with focus on manufacturing, has traditionally been the route to economic growth for many developed countries, and recently the service sector has emerged as the driver of growth among the South Asian countries including India. Whichever route is adopted for the Indian economy for moving ahead, the surplus labour, due to new entrants as well as release of workers from agriculture sector, would have to be productively absorbed. In India, rural population forms the bulk of the total population and the majority of the workforce is still in the rural areas. One way of absorbing labour that is unemployed or underemployed in rural areas is to provide them productive employment opportunities in urban areas. The urban centres can work as a pull-factor for the surrounding rural areas through many rural-urban linkages, providing scope for absorbing workers from rural areas. It has been contended that Small and Medium Towns can play an important role in spreading urban development via rural-urban linkages. They can also provide growth impulses to surrounding rural hinterland through material linkages (backward and forward), especially in manufacturing activities. In this context, the paper examines the sources of urban output and growth as well as rural-urban linkages in terms of employment and input-output in two towns in Bihar, using detailed enterprise surveys. It was found that although the manufacturing sector shows the strongest rural-urban linkages compared to other sectors such as retail or trade and other services, making it the sector with the maximum potential to create employment for absorbing the surplus labour in the rural areas, this sector has been languishing in the sample towns and is constrained by severe infrastructure bottlenecks, among other constraints.