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Beyond Survival: Assessing the Subcontracting Strategy in India’s Unorganised Manufacturing Enterprises

Author

Listed:
  • Samar Kumar Mishra

    (Indian Institute of Technology
    Galgotias University)

  • Bimal Kishore Sahoo

    (Indian Institute of Technology)

  • Rasmita Nayak

    (Nirma University)

Abstract

This paper critically examines the quantitative returns of subcontracting within India’s unorganised manufacturing sector, utilising data from the National Sample Survey Office’s 62nd and 73rd rounds. The study applies an endogenous switching regression model to assess the impact of subcontracting on Gross Value Added (GVA) and Net Accumulation Fund (NAF), providing a nuanced analysis of its economic viability. Contrary to the prevalent perception of subcontracting as a universally beneficial strategy, our findings suggest a differential impact, influenced by factors such as firm type, ownership, and registration status. The study reveals that while establishments and male-owned firms can accrue a 'subcontracting premium,' indicating an increase in GVA and NAF, female-owned and Own Account Enterprises (OAEs) often experience a 'subcontracting penalty,' reflected in reduced financial outcomes. The empirical results, delineated through the Average Treatment Effect on the Treated (ATET), underscore the complex realities of subcontracting decisions, driven by resource limitations and competitive pressures, which do not consistently result in performance gains. This investigation contributes to the literature by challenging the monolithic view of subcontracting benefits and providing grounded insights for policy-making aimed at fostering sustainable industrial growth within the informal manufacturing sector.

Suggested Citation

  • Samar Kumar Mishra & Bimal Kishore Sahoo & Rasmita Nayak, 2024. "Beyond Survival: Assessing the Subcontracting Strategy in India’s Unorganised Manufacturing Enterprises," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 67(4), pages 973-991, December.
    • Handle: RePEc:spr:ijlaec:v:67:y:2024:i:4:d:10.1007_s41027-024-00527-z
    DOI: 10.1007/s41027-024-00527-z
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    More about this item

    Keywords

    Subcontracting; Unorganised manufacturing sector; Net Accumulation Fund; Endogenous switching regression; Decomposition analysis;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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