Labour Market Institutions, Industry Structure and Productivity in Indian Manufacturing Sector

The present paper provides an evidence-based enquiry into the causes of low productivity, polarised industry structure and their relations with labour market institutions in major states of India. Unit level data of NSSO’s 73rd Round of Unincorporated Enterprise Survey for the year 2015–16 and ASI 2015–16 unit level data have been used to estimate relevant parameters and these are cross-checked by using NSSO’s 67th Round of Unincorporated Enterprise Survey for the year 2009–10 and ASI 2009–10. The debate that took place during the late 1990s and early years of the first decade of the twenty-first century was mainly centred on explaining the reasons for low productivity syndrome as pro-labour and anti-labour policies nurturing or weakening particular labour market institutions. However, the present study shows that the broader institutional environments, which are very sticky unless the state consciously makes attempts to change through mass involvement and strict laws, under which labour market institutions operate, state policies are framed and implemented play the most determining role in the evolution of industry structure and the performance of the industry. Pro-business institutional environments are lacking and anti-establishment institutions are prominent in many states where mobility of micro and small firms along the size-ladder has been highly restricted which results in polarised structure or the so-called phenomenon of “missing middle” and low productivity of a large majority of the workers.