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Friday, March 01, 2019

The geography of firms and firm formation in India

by Surbhi Bhatia, Manish Singh, Susan Thomas.

We look at the geographical location of firms in the figure below. The map on the left shows the stock of the firms in India, with all firms as on 31st Dec 2015 while the map on the right shows the flow of new firms that were added in the year ended 31st Dec 2016. All values are expressed per unit population.

The graphs are built using the list of all active companies registered with the Registrar of Companies on 31st Dec 2015 and on 31st Dec 2016. This is from the Ministry of Corporate Affairs (MCA) website. This data contains the unique identification number of the firm, firm name, current status (active or not), type of firm (public, private, LLP, etc.), authorised and paid-up capital, date of registration, office address, sector, and ownership details.

Most Indian firm research uses the CMIE firm database, which has deep information about 50,000 firms. The MCA dataset shows limited information about all limited liability firms. The headcount of the stock of firms on 31st Dec 2015 was 1,022,174 and the new firms registered in 2016 were 111,274 in number.

What do these maps tell us? Let us start at the left map. This is on somewhat expected lines. The highest values are found in Maharashtra and in West Bengal (where there are many ancient firms). For the rest, there is strength in the West: from Punjab/Haryana to Rajasthan to Gujarat to Maharashtra to the Southern peninsula. This is generally the region of prosperity in India, in the common preconception.

The map on the right, with new firm creation in 2016, diverges from this picture in striking ways. Five states dominate: Haryana, Maharashtra, Karnataka, Andhra Pradesh and Tamil Nadu. The NCT of Delhi shows a high concentration of new firms.

In our prior, Gujarat and Rajasthan might have fared well, but they do not. We may have expected Uttar Pradesh to be weak, but it is similar to Gujarat. West Bengal has a very low density of new firms, showing that conditions there for firm formation have deteriorated when compared with the past.

The authors are researchers at IGIDR. They acknowledge useful discussions with Anjali Sharma.

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