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

Samar Kumar Mishra (), Bimal Kishore Sahoo and Rasmita Nayak
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Samar Kumar Mishra: Indian Institute of Technology
Bimal Kishore Sahoo: Indian Institute of Technology
Rasmita Nayak: Nirma University

The Indian Journal of Labour Economics, 2024, vol. 67, issue 4, No 2, 973-991

Abstract: 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.

Keywords: Subcontracting; Unorganised manufacturing sector; Net Accumulation Fund; Endogenous switching regression; Decomposition analysis (search for similar items in EconPapers)
JEL-codes: D22 L25 O14 O17 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s41027-024-00527-z

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