WORKING PAPER
In with the Big, Out with the Small
Removing Small-Scale Reservations in India
Leslie $. Martin, Shanthi Nataraj, and Ann E. Harrison
RAND Labor & Population
WR-1038
February 2014
This paper series made possible by the NIA funded RAND Center for the Study of Aging (P30AG012815) and the NICHD funded RAND
Population Research Center (R24HD050906).
RAND working papers are intended to share researchers’ latest findings and to solicit informal peer review.
They have been approved for circulation by RAND Labor and Population but have not been formally edited or
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In with the Big, Out with the Small:
Removing Small-Scale Reservations in India
Leslie Martin, Shanthi Nataraj, and Ann Harrison1
February 2014
Abstract
For the past 60 years, India has promoted small-scale industries (SSI). Industrial promotion took
the form of reserving certain products for manufacture by small and medium firms. The stated
goal of Indian policy makers was to promote employment growth and income redistribution. In
this paper, we use a new version of the Annual Survey of Industries (ASI) that allows us to follow
plants over time, and to examine whether small factories in India exhibit faster employment
growth than larger factories. We find that, as in the United States, larger, younger factories grow
more quickly, and create more jobs than smaller, older factories. We then exploit the fact that
India eliminated SSI reservations for more than half of all reserved products between 1997 and
2007 to identify the consequences of removing these policies. We find that districts more exposed
to the de-reservation experienced higher employment and wage growth than those that were less
exposed. These effects are driven by the growth of factories that moved into the de-reserved
product space, whose expansion more than compensated for the shrinking of smaller, incumbent
firms.
JEL No. O12, O25, O38
1 This material is based upon work supported by the National Science Foundation under Grant No. SES-0922332. We thank Mr. M.L.
Philip, Mr. P.C. Nirala, Dr. Praveen Shukla, and Mr. M.M. Hasija at the Ministry of Statistics and Programme Implementation for
their assistance in obtaining and interpreting the ASI data; David Nelson and Steve Otto for assisting in matching the product
reservation codes with the ASICC codes; and Jeff Wenger, as well as seminar participants at RAND, for their valuable comments.
Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily
reflect the views of the National Science Foundation.
Page 1
draft date: 2/25/14
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