Abstract
Subcontracting with its employment-generating and capital-saving characteristics has the potential to play a very important role in the Indian economy by forging a mutually beneficial linkage between the organised and unorganised manufacturing sectors. Rising competition in the face of opening up of the economy has made subcontracting even more relevant in recent periods. This paper attempts to explore different aspects of subcontracting within unincorporated manufacturing enterprises in the unorganised sector using recent NSSO data. Incidence and pattern of subcontracting across regional, locational, industry groups and enterprise types have been examined. Determinants of subcontracting and its impact on the performance of the units have been explored using econometric exercises. The results indicate that the probability of subcontracting is significantly higher for larger units, in urban areas, in intermediate goods, and for units with a higher proportion of skilled workers. However, subcontracted firms are more likely to contract in size over a 3-year period compared to non-subcontracted firms. This indicates that modern aspects in terms of a larger scale of operation, better accessibility, connectivity, infrastructure, and higher skill intensity are preconditions for subcontracting but unfortunately this tied mode of production has failed to play its expected role. Though they are stepping stones to the modernisation process, they have remained as survival strategies for a large mass of unregistered units. A well-designed policy targeted to promote formal–informal linkage and change of outlook towards the phenomenon of subcontracting may go a long way in exploiting the full potential of subcontracting in India.
This is a preview of subscription content, log in via an institution to check access.
Availability of Data and Material
The paper uses secondary data from data sources mentioned in the paper. Authors will provide further details about data availability on request.
Code Availability
Open-source software R has been used. Codes may be provided on request.
Notes
The revealed comparative advantage of a nation is measured by the ratio of a percentage of total export of a commodity in a nation to the percentage of world export in that commodity.
Skill is defined by NSSO as “any special ability/ expertise to perform a particular task related to the activity of the enterprise” (NSSO, 2016).
OAME: Own Account Manufacturing Enterprises, i.e., enterprises with no hired worker on a fairly regular basis. NDME: Non-Directory Manufacturing Establishments, i.e., enterprises with at least one hired worker and less than 6 total workers. DME: Directory Manufacturing Establishments, i.e., enterprises with at least one hired worker and 6 or more total workers.
The groups have been created as follows: Consumer Goods—Food Products, Beverages, Tobacco Products, Textiles, Wearing Apparel, Furniture; Intermediate Goods 1—Leather & Related products, Wood Products, Paper Products, Printing & Recorded Media etc.; Intermediate Goods 2—Coke & Petroleum products, Chemical & Chemical Products, Pharmaceuticals, Rubber & Plastic Products, Other Non-Metallic Mineral Products, Basic Metal Products, Fabricated Metal Products; Machinery & Equipment – Computer, Electronic, Optical & Precision products, Electrical Equipment, Machinery & Equipment nec, Motor Vehicles &Trailers, Other Transport Equipment; Others – the remaining.
References
ASI (2015) Annual Survey of Industries (2015–16). Central Statistics Office (Industrial Statistics Wing)—Ministry of Statistics and P.I, Govt. of India. http://microdata.gov.in/nada43/index.php/catalog/143
Arimah, B.C. 2001. Nature and determinants of the linkages between informal and formal sector enterprises in Nigeria. African Development Review 13: 114–144.
Bairagya, I. 2013. Sub-contracting and efficiency of the informal sector in India. The Journal of Developing Areas 47: 341–361. https://doi.org/10.1353/jda.2013.0036.
Baishya, Prabin. 1997. The putting out system in ancient India. Social Scientist 25 (7/8): 51–56. https://doi.org/10.2307/3517604.
Basole, Amit, Deepankar Basu, and Rajesh Bhattacharya. 2015. Determinants and impacts of subcontracting: evidence from India’s unorganized manufacturing sector. International Review of Applied Economics. https://doi.org/10.1080/02692171.2014.1001324.
Basole, Amit; Basu, Deepankar; Bhattacharya, Rajesh (2014). Determinants and Impact of Subcontracting: Evidence from India’s Informal Manufacturing Sector, Working Paper, No. 2014–04, University of Massachusetts, Department of conomics, Amherst, MA
Bhattacharya, R., S. Bhattacharya, and K.K. Sanyal. 2013. Dualism in the informal economy: exploring the indian informal manufacturing sector. In Development and sustainability: india in a global perspective, ed. S. Banerjee and A. Chakrabarti, 339–362. Springer.
Breman, Jan (1976) A dualistic labour system? A critique of the `informal sector' concept; Economic and Political Weekly, Nov. 27/Dec 4/11
Christerson, Brad, and Richard Appelbaum. 1995. Global and local subcontracting: space, ethnicity, and the organization of apparel production. World Development. 23: 1363–1374. https://doi.org/10.1016/0305-750X(95)00048-H.
Crone, Mike. 2002. Local sourcing by multinational enterprise plants: evidence from the UK regions and the implications for policy. Environment and Planning C: Government and Policy. 20: 131–149. https://doi.org/10.1068/c0026.
Dutta, Partha Priya (2015). Achieving India’s Manufacturing Growth Dream. https://www.iimcal.ac.in/achieving-india%E2%80%99s-manufacturing-growth-dream-prof-partha-priya-dutta
Fields, G. 1975. Rural urban migration, urban unemployment and underemployment and job search activity in LDCs. Journal of Development Economics 2
Funkhouser, Edward. 1996. The urban informal sector in Central America: household survey evidence. World Development 24
Goldar, B. 2011 Growth in organised manufacturing employment in recent years. Economic and Political Weekly 46(7):12–18
Gowtham, M.T and V. Kathuria. 2017. Determinants of Subcontracting in the Indian Manufacturing Sector and the Apparel Industry, [available from https://www.academia.edu/64183636/Determinants_of_ Subcontracting_in_the_Indian_Manufacturing_Sector_and_the_Apparel_Industry, accessed on 12–07–2022]
House, W.J. 1984 Nairobi's informal sector: dynamic entrepreneurs or surplus labour?; Economic Development & Cultural Change
Kar, Alok and Mrinal Bhaumik. 2014. Growing Prevalance of Subcontracting in West Bengal- an Impediment to Industrial Growth or a Consequence of its Absence?. Online at https://www.theigc.org/wp-content/uploads/2015/01/Kar-Bhaumik-2014.pdf
Kar, Saibal and Meghna Dutta. 2018. Outsourcing and productivity during economic crisis: evidence from indian manufacturing firms. Arthaniti- Journal of Economic Theory and Practice
Kimura, Fukunari. 2002. Subcontracting and the performance of small and medium firms in Japan. Small Business Economics. 18: 163–175. https://doi.org/10.1023/A:1015187507379.
Marjit, S. 2003. Economic reform and informal wage—a general equilibrium analysis. Journal of Development Economics 72: 371–378.
Mehrotra, S. 2019. Informal employment trends in the indian economy: persistent informality, but growing positive development, Working Paper No. 254, Employment Policy Department, ILO, Geneva
Moreno-Monroy, Ana I., Janneke Pieters and Erumban, Abdul A. 2012. Subcontracting and the size and composition of the informal sector: evidence from Indian manufacturing. IZA Discussion Paper No. 6785, IZA, Bonn, Germany
Mukherjee, Dipa. 2004. Informal manufacturing sector in India: pre and post reform growth dynamics. Indian Journal of Labour Economics 47 (2): 2004.
Nagaraj, R. 1984. Sub-contracting in Indian manufacturing industries: analysis, evidence and issues. Economic and Political Weekly 19(31/33) Annual Number: Focus on Industry (Aug., 1984), pp. 1435–53
Nagaraj, R. 2000 Indian economy since 1980: Virtuous Growth or Polarisation? Economic and Political Weekly 35(32), Aug 5–11, 2000, pp. 2831–39
NCEUS. 2007. Report on Conditions of work and promotion of livelihoods in the unorganized sector. Government of India: National Commission for Enterprises in Unorganized Sector.
NSSO. 2016. Unit level data on unincorporated non-agricultural enterprises (excluding construction), NSS 73rd Round (July 2015–June 2016), Data CD 73rd Round – Schedule. 2.34
NSSO. 2018. Key indicators of unincorporated non-agricultural enterprises (excluding construction) in India. NSS 73rd Round (July 2015–June 2016), Report No. NSS KI (73/2.34)
Portes, A. 1996. The informal economy: perspectives from Latin America, Susan Pozo ed Exploring the Underground Economy, Upjohn Institute Press.
Rani, Uma and Jeemol Unni. 2004. Unorganised and organised manufacturing in India: potential for employment generating growth, Economic and Political Weekly 39(41)
Ranis, Gustav and Stewart, Frances 1994. V-Goods and the role of the urban informal sector in development. Discussion Papers. 732. https://elischolar.library.yale.edu/egcenter-discussion-paper-series/732.
Sahu, P.P. 2010. Subcontracting in India’s unorganised manufacturing sector: a mode of adoption or exploitation? Journal of South Asian Development 5 (1): 53–83. https://doi.org/10.1177/097317411000500103.
Sahu, Partha Pratim 2007. Subcontracting in India’s small manufacturing enterprises- problems and prospects, ISID Working Paper 2007/01, Institute for Studies in Industrial Development, New Delhi.
Shekhar, K.C., and M. Nataraj. 2022. Subcontracting and enterprise development in India’s informal manufacturing sector. Journal of Small Business and Enterprise Development, Forthcoming. https://doi.org/10.1108/JSBED-02-2022-0106.
Taymaz, Erol, and Yilmaz Kiliçaslan. 2005. Determinants of subcontracting and regional development: an empirical study on Turkish textile and engineering industries. Regional Studies 39 (5): 633–645. https://doi.org/10.1080/00343400500151913.
Tokeman, V.E. 1978. An exploration into the nature of informal-formal sector relationships. World Development 6 (9/10): 1065–1075. https://doi.org/10.1016/0305-750X(78)90063-3.
Unni, Jeemol, et al. 1999. Subcontracted women workers in the global economy: case of garment industry in India. Ahmedabad: Study Report Submitted by GIDR and SEWA.
Weeks, John. 1975. Policies for expanding employment in the informal urban sector of developing economies. International Labour Review. 111: 1–13.
Yun, Mikyung. 1999. Subcontracting relations in the Korean automotive industry: risk sharing and technological capability. International Journal of Industrial Organization. 17: 81–108. https://doi.org/10.1016/S0167-7187(97)00024-6.
Funding
The authors did not receive support from any organisation for the submitted work.
Author information
Authors and Affiliations
Corresponding author
Ethics declarations
Conflict of interest
The authors have no relevant financial or non-financial interests to disclose.
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Mukherjee, D. Subcontracting: A Stepping Stone for Modernisation or a Survival Strategy for Unorganised Manufacturing Sector in India?. Ind. J. Labour Econ. 65, 1155–1177 (2022). https://doi.org/10.1007/s41027-022-00403-8
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s41027-022-00403-8