Subcontracting in Unorganized Manufacturing: A Mode of Survival or a Strategy of Growth?

Samar Kumar Mishra () and Bimal Kishore Sahoo ()
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Samar Kumar Mishra: IIT Kharagpur
Bimal Kishore Sahoo: IIT Kharagpur

The Indian Journal of Labour Economics, 2022, vol. 65, issue 4, No 6, 1029-1051

Abstract: Abstract This paper investigates the incidence and determinants of subcontracting (SC) in unincorporated non-agricultural enterprises, the nature of the relationship and the net accumulation fund of firms undergoing subcontract. The incidences of subcontracting in India among small manufacturing firms have remained stagnant over time. However, there have been some changes within the categories. States with relatively poor infrastructure and industries that involve relatively low skill and technology have higher incidences of subcontracting. The profit share of SC firms is higher than those who do not subcontract, owing to low assets, location and ownership of firms. The higher profit share of the SC firms is because it consists of more OAEs. A considerable portion of the profit of OAEs comprises the wage of working proprietors and unpaid family workers. The net accumulation fund (NAF) of these firms is very low. Low NAF of SC firms is a major obstacle to firm size and output growth and is an important cause behind stagnant and contracting firms’ decisions to subcontract. The study also finds that the subcontracting relationship and aftermath of own account firms (without hired workers) and establishments (with at least one hired worker) are different. The institutional intervention in terms of credit and provisions of subcontracting exchanges may lead the unorganized firms to grow and develop stable contracts for the benefit of firms and the economy.

Keywords: Subcontracting; Manufacturing sector; Unorganized enterprises; Profit share; Net accumulation fund (search for similar items in EconPapers)
JEL-codes: D22 L21 O14 O17 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s41027-022-00413-6

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