Assessing gender disparities in entrepreneurship and employment in India

Economic growth depends on successful utilisation of the entire workforce. Ejaz Ghani argues that gender equality is not only a key pillar of human rights, but could be a powerful tool for sustaining higher and more inclusive economic growth. He notes that despite the economic advances that India has made, its gender balance in economic participation remains among the lowest in the world, and shares some statistics from the manufacturing and services sector which highlight these disparities.

Economic growth is an inherently gendered process and gender-based inequalities are huge barriers to shared prosperity (United Nations, 2019). A central driver of economic growth over the past century has been the increased role of women in society. This growth has come in many forms: the removal of political and cultural barriers to the participation of women in the labour force, and reduced discrimination in education, wage differentials, and management practices that prevent talented women from reaching leadership roles.

A stimulus towards promoting female participation in economic activities has also played a critical role in driving economic growth and creating jobs in most countries (World Bank, 2012). Since women also have greater environmental, governance, and social awareness, and tend to invest more in the family’s future than men do, empowering half of the potential workforce has significant economic and social benefits beyond promoting gender equality.

Despite the huge economic advances that India has made through economic liberalisation and structural reforms, gender inequality remains deep-rooted in the Indian economy. Female labour force participation rates have been declining during the last two decades, and remain well below several Sub-Saharan African countries (Najeeb et al. 2020, World Bank, 2022). Women are underrepresented in economic and political leadership positions and paid less when they perform the same or equal-value jobs as men. Women face the highest incidence of poverty, the worst health conditions, and highest likelihood of being victims of violence, and as girls are also exposed to the possibility of child marriage, teenage pregnancy, and child domestic work (Ghani et al. 2012).

Gender segmentation in entrepreneurship

India and many developing countries around the world have implemented structural reforms – supported by regional and global multilateral institutions – ranging from better macroeconomic policies, trade and regulatory reforms, investments in human and physical infrastructure, and so on. Structural transformation generates higher economic growth and job creation through increased use of factors of production and higher productivity growth.

The focus of structural policy reforms on gender equity has increased in recent years. India provides a good data point for examining the links between structural transformation and gender equity, as it is simultaneously a leader in promoting women’s participation in government but also a laggard in regulating gender issues in the workplace. The UN Global Gender Gap data from 2023 shows that women’s economic participation and opportunity is worse in India than in 127 of the 146 countries studied.

A gender lens was applied in India to the different drivers of economic growth, using an enterprise survey of more than 900 districts in India. Enterprises provide a micro lens to the drivers of growth and structural transformation in India (Ghani et al. 2016). Unfortunately, it found that India’s structural transformation has failed to make a significant contribution to increased female participation in jobs and reduce gender gaps. The share of females in manufacturing employment has not increased significantly, and more female workers are finding the services sector to be a better (or more accessible) employment avenue than manufacturing.

Women owned enterprises in India remain concentrated in low-paying industries, and this concentration has only increased over time. Statistics suggest a strong negative relationship between average industry wages and the share of female-led plants in the unorganised manufacturing sector (Ghani et al. 2016). This negative association between the share of female-owned plants and average industry wages is also prevalent in the services sector, but is not as strong as in the manufacturing sector.

An examination of the gender pattern by industry shows that tobacco products, ready-to-wear apparel and textiles attract the largest count and share of women entrepreneurs, perhaps because these industries are known to impose relatively lower requirements in terms of physical labour. Among the services, it is education, sewage, refuse disposal, sanitation and financial intermediation services that attract the largest share of female proprietors. These are broadly also the industries that have attracted the largest count and shares of female employees.

In India, the gender of the enterprise owner overwhelmingly predicts the gender of the employees. Industries that have higher rates of female entrepreneurship and employment are also broadly the industries that have the highest segmentation in terms of female employees being matched to female owners. People seem to prefer to work with others of their own gender – this is also true for male-led plants. Some industries, like transport equipment, radio, television, and fabricated metal products are among the most segmented in manufacturing, while in the case of services, male-led plants in water transport, land transport and research and development tend to employ the largest share of male workers.

Although segmentation by gender has increased in most industries, it is more significant in smaller enterprises. However, gender segmentation is greater for men compared to women across enterprises of all sizes. Said differently, on average, a male employee is more likely to be working with a male co-worker than a female employee is to be working with a female co-worker. For female employees, this segmentation declines with increase in plant size up to mid-sized plants. Segmentation among men in manufacturing does not change much across the various size bands.

Spatial disparities in gender gaps

Despite liberalisation and structural transformation to propel growth higher, gender disparities have remained deep in both manufacturing and services sector in India. This is unlike the East Asian experience, where increased female labour force participation played a role in the East Asian miracle (Ghani et al. 2016).

Some southern states in India, like Karnataka, Kerala, and Tamil Nadu, have shown an improving trend in gender parity and business-ownership by women in the manufacturing sector (Ghani et al. 2014). However, female establishment ownership rates still remain extremely low in states like Bihar, Haryana, and Gujarat. Deep gender disparities in the female ownership rates in the manufacturing sector are also evident across major cities.

India’s services sector, a fast growing and more dominant sector, has also failed to reduce gender disparities in start-up of new enterprises. Female enterprise ownership shares in services barely reach 10% in states with the highest female ownership rates, like in Kerala, Tamil Nadu, and Andhra Pradesh, and remains much lower in states like Rajasthan, Bihar, Orissa, and Uttar Pradesh, at less than 6% (Ghani 2013). Female enterprise ownership rates in major cities, however, tend to be higher than overall state averages in services. Gender disparities remain worse in the rural areas, due to poor infrastructure, and restrictive family norms that become constraints to starting a business. Women owned enterprises therefore do seem to benefit from strong agglomeration economies in case of both manufacturing and service sector (Ghani et al. 2016).

However, India hasn’t experienced any convergence in gendered participation across states. Rather, the states with higher income have continued to display higher growth in shares of female-led plants, and the gap in female-led plants has widened between the leading and lagging states within India. Urbanisation hasn’t reduced the gender gap in tier two or tier three cities and in rural areas either. The share of female-owned businesses has declined with the increase in distance from the major cities in India, as has female employment share in the services sector.

A good predictor of women entrepreneurs entering a market is the higher female enterprise ownership among incumbent businesses in that industry. Moreover, higher female ownership of local businesses in related industries (with similar labour needs and input-output markets) predicts greater female entry rates. Gender networks thus clearly matter for women's economic participation. There is no doubt that gender empowerment can be the escalator to realising human potential and creating a robust platform for growth and job creation.

The way ahead for gender parity

Gender equality is a fundamental human right, and women entrepreneurship is a central driver of higher and a more inclusive growth. Low female labour force participation and occupational segregation lead to inefficiencies and misallocation of talent that, if addressed, would boost incomes, and stimulate growth. Long-run GDP per capita would be almost 20% higher if gender employment gaps are closed (Pennings 2022). Gender equality in leadership positions could not only increase economic growth, but also improve social and environmental outcomes.

India needs a comprehensive strategy to reduce deeply embedded gender gaps that have persisted. The first pillar of a gender transition path should be to scale up education to reduce the huge gender gap at schools and colleges. The second pillar is to integrate the country’s growth strategy with its gender strategy – India’s growth agenda should focus more on closing gender gaps in access to economic opportunities, earnings, and productivity. The third pillar is to scale up the political representation of women. India has already made huge progress in increasing women representation in local Panchayat elections, and this could be scaled up to assembly and parliament elections.

There is a huge potential for reducing gender disparities and increasing economic growth by improving investments in physical and human infrastructure (especially in rural areas and tier two cities), strengthening the links between formal and informal sectors through the digital revolution and technological advances, and promoting gender networks in local businesses. Female networks in labour markets and input-output markets need to be encouraged to promote more women entrepreneurs. Inadequate infrastructure affects women more than men, as women face greater constraints in geographic mobility imposed by safety concerns and/or social norms. Travel in India can be limited, congested and unpredictable, and therefore states with better transport infrastructure have alleviated one of the major constraints to female entrepreneurs in accessing markets.

Reducing the time required for unpaid household responsibilities also requires scaling up investments in infrastructure. These investments are useful not only for women, but also for businesses and the economy. Lack of access to certain types of infrastructure services (such as access to water, electricity, and sanitation) have a greater impact on women who bear a larger share of the time and responsibility for household maintenance and care activities. Better electricity and water access reduce the burden of women in providing essential household inputs for their families and allow for more time to be directed toward entrepreneurial activities.

Empowering half of the potential workforce has significant economic benefits beyond promoting gender equality. While achieving economic equality sometimes requires tough choices (such as progressive taxation) that may discourage effort, the opposite is true here. Unlocking female empowerment and entrepreneurship will promote a broader dynamic economy and economic growth.

For India to become a world class economy, women entrepreneurship will need to play a bigger role in economic growth and development. Despite recent economic advances, India’s entrepreneurial gender balance remains among the lowest in the world. Improving this balance is an important step for India’s development and its achievement of greater economic growth and gender equality.