A Madhya Pradesh District Chooses Between a Food-Processing Plant and Public Works
A district in Madhya Pradesh has 5,00,000 workers and gross value added of ₹5,000 crore. Agriculture employs 3,00,000 workers and produces ₹1,200 crore; manufacturing employs 1,00,000 and produces ₹1,800 crore; services employ 1,00,000 and produce ₹2,000 crore. The district plan proposes moving 1,00,000 agricultural workers into a food-processing plant that would produce as much per worker as existing manufacturing, without reducing farm output - the planners say the extra hands in farming are 'not doing much'. A rival group wants instead to expand public works paying ₹200 a day for 100 days to the same 1,00,000 people. Women's workforce participation in the district is 18 per cent against 41 per cent for men, and only 22 per cent of workers have completed class 10. The collector must choose one proposal for the annual plan.
1. Compute value added per worker in each sector and for the district as a whole. What does the pattern reveal, and what is the evidence for disguised unemployment?
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Value added per worker.
- Agriculture: ₹1,200 crore ÷ 3,00,000 = ₹40,000
- Manufacturing: ₹1,800 crore ÷ 1,00,000 = ₹1,80,000
- Services: ₹2,000 crore ÷ 1,00,000 = ₹2,00,000
- District: ₹5,000 crore ÷ 5,00,000 = ₹1,00,000
Pattern. Agriculture absorbs 60 per cent of the district's workers but generates only 24 per cent of its output; services and manufacturing each use 20 per cent of workers for 36–40 per cent of output. Farm productivity is one-fifth of services productivity - this is the classic picture of incomplete structural transformation.
Disguised unemployment. The claim is that 1,00,000 farm workers could leave without lowering output. If that happened, farm value added per remaining worker would jump from ₹40,000 to 1,200 crore ÷ 2,00,000 = ₹60,000 with no extra output at all - implying that those workers' marginal product is close to zero. That is the definition of disguised (surplus) unemployment: extra workers on a fixed plot share the work rather than adding to it.
Caveat for the collector. Low average productivity is not proof of zero marginal productivity. Farm labour demand is seasonal - sowing and harvesting may still face shortages - so much of the surplus is seasonal rather than year-round, which is exactly why any transfer must be phased and timed to the crop calendar.
2. Quantify the two proposals and say which one actually raises the district's income. Which would you recommend?
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Processing plant. 1,00,000 workers at manufacturing productivity: 1,00,000 × ₹1,80,000 = ₹1,800 crore of new value added.
- District GVA: ₹5,000 crore → ₹6,800 crore
- Per worker: 6,800 ÷ 5 = ₹1,36,000, a rise of 36 per cent
- Farm sector: unchanged ₹1,200 crore on 2,00,000 workers = ₹60,000 each
Public works. ₹200 × 100 days × 1,00,000 workers = ₹200 crore in wages, about ₹20,000 per worker. But this is largely a transfer financed from the budget: it redistributes purchasing power and provides a safety net, and only the assets created (ponds, roads, watershed works) add to the district's productive capacity. By itself it barely changes the production structure.
Recommendation. The plant is the only proposal that changes what the district produces and how productively, so it should be the core of the plan. But three constraints must be handled before claiming the ₹1,800 crore: (i) only 22 per cent of workers have passed class 10, so the plant may not find trainable labour unless a skilling component is funded upfront; (ii) the plant needs demand and logistics, not just workers; (iii) women's participation of 18 per cent means the district's largest underused resource is female labour, so the plan should include transport, crèches and safe workspaces. Public works should continue as a bridge for those not absorbed.
3. The state offers instead either ₹300 crore of capital subsidy to the plant or ₹300 crore on irrigation raising farm yields by 15 per cent. On what evidence would you choose?
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Irrigation option. Farm value added rises 15 per cent: ₹1,200 crore → ₹1,380 crore, an extra ₹180 crore a year, with the same 3,00,000 workers, so farm productivity becomes ₹46,000. Two qualifications: the gain recurs every year, so it pays back the ₹300 crore in under two years on paper; but the workers stay in agriculture, so structural transformation is postponed, and with inelastic demand a 15 per cent yield increase can depress local prices, so farmers' incomes may rise by much less than 15 per cent.
Plant subsidy. ₹300 crore for 1,00,000 jobs is ₹30,000 per job, and the plant adds ₹1,800 crore of GVA - far larger in transformation terms. But it is a one-off, sunk, and conditional: if demand fails or the plant chooses capital-intensive technology, the money is gone and the jobs never appear.
Decision criteria. Compare (a) cost per permanent job, (b) whether the gain recurs or is one-off, (c) additionality - would the plant have come anyway? (d) risk and reversibility, and (e) which constraint actually binds. Here the binding constraint on the plant is skills (only 22 per cent have class 10) and market access, not capital; subsidising capital may therefore buy little. The defensible choice is irrigation plus a smaller, milestone-linked skilling and plant-support package, reviewed after two years - buying the lower-risk recurring gain while leaving the transformation option open.