Micro Investment Climate Survey 2006 (India)

Abstract

This research is part of India 2006 Investment Climate Survey initiative that focused on enterprises in the manufacturing, retail, micro (unorganized), and software/information technology sectors. A separate survey was conducted for each sector.

India 2006 Micro Investment Climate Survey targeted establishments with 10 or fewer full-time paid employees. The research covered 1549 manufacturing enterprises from Delhi, Ludhiana, Mumbai, Thane, Howrah and Hyderabad. The following industries were surveyed: auto components, drugs and pharmaceuticals, chemicals, electrical goods, electronics, food processing, garments, leather, textiles, metal and machine tools.

Unorganized (micro) manufacturing employs the vast majority of India's manufacturing workforce. Unorganized manufacturing firms are not integrated into the supply chain, thus limiting the transfer of technology. Possibly due to the legacy of the small scale reservation policy, much of the manufacturing activity in the unorganized sector is geared toward producing final products for the consumer market, rather than intermediate products and parts for the organized sector.

Being part of the organized sector, often referred to as the “formal sector,” increases a firm's bargaining power (for example, it has easier access to finance). However, international experience suggests that despite the advantages, unorganized enterprises often wish to remain informal, because organized firms are subject to more regulations. In India, the 10-worker threshold is especially important because labor laws on wages and benefits are applied to units above this size. Firms can avoid being part of the organized sector in two ways: operating “under the radar” by simply not registering, or by not growing.

The Investment Climate Surveys (ICS) collected information on the investment climate constraints the sectors faced, such as infrastructure, access to land, relationship with the court system, crime, government administration, use of financial services, and labor force. In addition, the surveys collected basic information on the firms, such as ownership structure, number of years of operations, and revenues and costs. The data and results from the ICS were intended to help develop policy reforms that would further promote growth and productivity of firms in India.