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Enterprise Informality in India: The Blind Spots in Public Policy

Author

Listed:
  • Santosh Mehrotra

    (IZA Institute of Labour Economics)

  • Tuhinsubhra Giri

    (Research and Information System for Developing Countries)

Abstract

An essential characteristic of firm size distribution patterns in developing countries including India, is a bimodal distribution with a “missing middle”, which is widely accepted in development economics. We analyse data from the Annual Survey of Industries (ASI), National Sample Survey (NSS) and Economic Census to assess the firm size structure of the whole non-farm sector. The contribution of the paper is that for the first time a comprehensive database is constructed to enable analysis of the size structure of India’s non-farm enterprises. The second contribution is that we find a deep distortion in India, with even a “small”-scale sector being very small, relatively. We examine briefly the policy-related causes that make India an outlier even among Asian economies in respect of size structure of enterprises. Finally, we argue that the historically policy-induced informality of enterprises is being entrenched by the current hiatus in state policy in even recognising the true nature of the problem of micro, small & medium enterprises (MSMEs), which holds back both their growth and employment.

Suggested Citation

  • Santosh Mehrotra & Tuhinsubhra Giri, 2023. "Enterprise Informality in India: The Blind Spots in Public Policy," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 66(3), pages 687-710, September.
    • Handle: RePEc:spr:ijlaec:v:66:y:2023:i:3:d:10.1007_s41027-023-00450-9
    DOI: 10.1007/s41027-023-00450-9
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    References listed on IDEAS

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    6. Leslie A. Martin & Shanthi Nataraj & Ann E. Harrison, 2017. "In with the Big, Out with the Small: Removing Small-Scale Reservations in India," American Economic Review, American Economic Association, vol. 107(2), pages 354-386, February.
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