The contemporary empirical literature suggests that production processes
are fragmented and are being delegated to outsiders. The present study
is based on a field survey and attempts to observe the organisational
dynamics of production processes and labour relations in the organised
sector in two states, Gujarat and West Bengal, where a large part of
production activity is engaged in the vertical chain. The paper observes
that, while being delegated, production activities are mediated through
non-market channels like social, political and other peer group
networks. This is also true in the case of labour hiring. Labourers are
of three types: directly hired permanent workers, directly hired
contract workers and workers supplied by contractors. The share of
contract labour is as high as 70-75%, and contract workers are hired by
persons who have strong connections with trade unions, political leaders
and bureaucrats. Such networks help the firm in reducing asymmetries and
ensuring market efficiency but do not necessarily protect the interests
of upstream agents. More specifically, the existing rules of contract
labour and minimum wage are routinely violated. In bypassing the
existing rules, these transactions are quite often detected by the
regulatory framework, but bribery effectively circumvents any problems.
The process is faster in politically less active states than in
politically active states, where such extra-legal transactions often
appear before a public forum and consume considerable time and money to
resolve. Therefore, the existing form of intermediation, led by favoured
political and other peer groups, is a major obstacle to pro-poor growth
in India and strong political action is required to tackle it.
The paper was presented at the International Conference on the
'Informal Sector in South Asia: Organisational Dynamics, Institutional
Determinants, Interlinkages and Development' held at the Institute of
Economic Growth, Delhi, during 27-28th July, 2009.
Discussion Paper Series, Research Programme Consortium for Improving Institutions for Pro-Poor Growth, Manchester, UK, No. 26, 34 pp.
Institutions, Networks and Industrialisation: Field level evidence of fragmentation and flexibility from India.