The impact of easing labour regulations on the rate of entry of new small and medium industrial enterprises is examined for Indian manufacturing, taking additionally into account the effect of improved infrastructure, particularly augmented power availability, on the entry rate. Econometric analyses are undertaken using state-level panel data for 2006-2018. Inter-regional variations in the entry rate of small and medium enterprises are utilized to establish the causal effect. The results indicate that easing labour regulations in a region (state) significantly enhances the pace of setting up new small and medium industrial enterprises in the region, and the beneficial impact of labour reforms is greater in regions where power availability is relatively abundant. Another finding is that an increased rate of entry of new small and medium industrial enterprises leads to increased growth rate in employment in manufacturing.
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