Abstract
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.
