Introduction

Data from India’s Periodic Labour Force Survey (PLFS) for recent years have shown an increasing trend in the overall (usual status) work participation rate (WPR). For the population as a whole, taking all ages into consideration, the WPR was estimated to be 39.6 per cent in 2021–22 and rose to 43.7 per cent in 2023–24; the WPR was only 34.7 per cent in 2017–18. The increase in WPR has been largely in the rural segment of the population with the rate in urban areas showing only minor changes – for both men and women. The rise in WPR has been remarkable for rural women – from a mere 17.5 per cent in 2017–18 to 34.8 per cent in 2023–24. Corresponding figures for rural men were 51.7 per cent in 2017–18 and 56.3 per cent in 2023–24.

Overall, the percentage of workers in agriculture for rural female workers increased from 73.2 per cent in 2017–18 to 76.9 per cent in 2023–24. For rural men, the percentage declined from around 55 per cent in 2017–18 to around 49 per cent in 2023–24. The share of rural women in manufacturing remained at around 8 per cent. In absolute terms, the number of rural women employed in both agriculture and manufacturing has risen, though much more in the former. While employment in agriculture is largely in the informal sector and mainly as family workers, the nature of employment in manufacturing and the type of industry requires more detailed analysis.

The non-agricultural sector in India is also dominated by small and micro and mostly own-account units with no formal “registration,” engaged in “low productivity” activities. The size of the non-agriculture sector and the diverse activities within it make it difficult to generalise the growth and performance of this sector. Small but significant changes in survey coverage and practices over the years are additional factors that serve to complicate such analysis. However, extensive information on the economic and operational aspects of the surveyed units from recent surveys offers opportunities to understand different segments of the non-agricultural sector in some detail.

While the National Statistical Office (NSO) through its sample survey division (National Sample Survey Office [NSSO]) has collected data from unorganised sector units for a long period, in recent times, the surveys have been relaunched as an annual survey of unorganised sector enterprises (ASUSE). Basic concepts and definitions have remained unchanged in these surveys, allowing us to make comparisons of the size, distribution, and performance of these units over time.

In this Note, we present a broad picture of the unorganised manufacturing segment of the Indian economy with a focus on one segment of manufacturing units whose contribution has not been critically examined in the literature. These are what are called manufacturing service providers (or MSPs) that appear as part of the manufacturing sector but have characteristics quite distinct from those carrying out manufacturing activities independently.

Manufacturing services are the output of manufacturing activities of units using inputs owned by other entities. The MSPs involved in activities like custom tailoring and small-scale flour milling work on inputs supplied by their customers and directly serve the needs of households. Other activities, such as bidi making, manufacture of textile garments and clothing accessories, weaving etc. that fall under the class of MSPs are carried out for other businesses. Such services, called “manufacturing services,” when provided on contract are a major form of outsourcing of manufacturing processes as they carry out job work for other manufacturing units. In other words, in this case, a unit provides “goods for processing” to an MSP which works on this material to provide the specified outputs to the input supplier and in this process, earns manufacturing service charges. The increasing presence of “job work units” (JWUs) in the unregistered manufacturing sector has direct relevance to low industrial productivity and indicates the absence of better job opportunities elsewhere.

Growth of Unorganised Manufacturing

Recent data relating to employment in manufacturing from different sources like the Annual Survey of Industries (ASI), PLFS, and the ASUSE show that employment in the manufacturing sector has grown (Biswanath 2024; Mohanan 2024). But there are question marks on the nature and extent of this growth, including its gender dimensions. We show that the sectors contributing to growth in manufacturing employment are mostly labour-intensive activities in the unorganised sector such as apparel, food products, etc. This is in line with the observed growth in women’s employment with the increasing share of unpaid and subsidiary work and share of self-employment in manufacturing among women workers (Mohanan 2024).

The overall picture of the unorganised sector shows that unorganised manufacturing did not perform well post 2015–16 as compared to the services sector (Table 1). While unorganised manufacturing reported significant growth both in the number of enterprises and employment between 2010–11 and 2015–16, it recorded a fall between 2015–16 and 2022–23, recovering to the earlier level in 2023–24. The trading sector has been reasonably static in recent years in terms of number of trading enterprises. In terms of employment too, trade has stagnated. This could be, in part, due to the expansion of organised retailing, increased online trading and direct delivery. The striking performance of the services sector in the latest survey, in terms of number of enterprises and employment, may be partially due to change in coverage of personal services and private tuition providers (please see Table 1, Note).

The data shows that during the five-year period starting from 2010–11, the number of enterprises in unorganised manufacturing showed a healthy growth of around 3 per cent per annum (Table 2). However, the period 2015–16 to 2022–23 showed a drastic decline in manufacturing activities. The demonetisation that impacted the economy appears to have played a major role in the overall decline in manufacturing activity. Recovery from this disruption was further affected by the lockdowns during the COVID-19 pandemic and consequent restrictions on economic activities.

The two recent surveys, however, show that the number is marginally more than that in 2015–16. The estimated number of unorganised sector manufacturing enterprises in 2015–16 was 19.7 million and the most recent survey, ASUSE 2023–24, estimated it to be 20.2 million. However, the number of enterprises in urban areas (8.1 million in 2023–24) is still a shade lower than the 8.3 million estimated from the 2015–16 survey. The number of rural unorganised manufacturing enterprises has gone up from 11.4 million in 2015–16 to 12.1 million in 2023–24.

Note that the growth of manufacturing enterprises has been higher in rural areas and not in urban areas, where manufacturing growth is normally expected, which means it is unlikely to have been in modern industries.

The results of the latest ASUSE show that over 80 per cent of the unorganised manufacturing enterprises fall in five groups: apparel making (44.3 per cent), tobacco products (0.25 per cent), textiles (11 per cent), food products (10.8 per cent), and wood and furniture (7.3 per cent) (Table 3). Compared to 2015–16, the share of apparel-making activity has gone up significantly. These activities are largely undertaken in own account enterprises. Only the activity “manufacture of other non-metallic products,” which includes brick-making units, has a much larger share of employment. While brick-making units have a sizable number of workers, they are often not covered under organised manufacturing due to the seasonal and shifting nature of the operations, but are covered in surveys of the unorganised sector.

In sum, the predominant categories under unorganised manufacturing in the country seem to be activities that do not require advanced skills or technology. These sectors/categories are also capable of absorbing women workers. As shown by Kar and Mohanan (2025), a significant part of the increase in women’s employment over the last two surveys is accounted for by these sectors. Even in sectors such as bidi and tobacco making, whose size has not expanded in terms of number of units, the employment of women has gone up.

Given this context of employment in the manufacturing sector, we now examine the prevalence of manufacturing service providers and job work units among unorganised manufacturing enterprises.

Manufacturing Service Providers

A manufacturing process is generally defined as one that transforms raw materials into finished products through a series of steps. The input materials could be raw materials, components, or semi-finished goods required for further processing. The transformation process could be operations such as cutting, shaping, assembling, or chemical processing using machines/tools in designated places.

Globally, the presence of units providing manufacturing services is indicative of a modern industrial sector based on outsourcing of non-core activities. Instead of relying on in-house production, the modern manufacturing sector depends on specialised manufacturing services, such as contract manufacturing, outsourcing, and supply chain integration. These services can also leverage advanced technologies. Some of the modern sectors in which the presence of manufacturing service providers (MSPs) plays a key role are electronics (manufacturing for semiconductors, consumer electronics, and components, smartphones, personal computers (PCs)); automotive sector with outsourced production of parts, assemblies, and electric vehicle components; consumer goods, apparel, footwear, and household products through outsourcing etc. Though one might expect to see small enterprises in modern sectors, in the Indian context, these are unlikely to be dominant.

The characteristics of establishments engaged in manufacturing services are chiefly that that they do not own or control the intellectual property, the design of the final product manufactured, or the (major) input materials but own the production facilities. While they transform the inputs, they do not own the manufactured products, and do not sell the final product. The ownership of the physical raw materials does not lie with the manufacturing service provider (MSP) but with the one receiving the service.

Outsourcing of manufacturing is expected to enable cost reduction for the principal manufacturer. It allows use of more specialised technology and expertise, and increases flexibility in manufacturing, allowing companies to focus on core area of product development and marketing. It is assumed that outsourcing makes the manufacturing process more efficient. While many of these advantages are applicable to organised industries, the practice of outsourcing in the unorganised sector arises out of an entirely different set of reasons.

Modern manufacturing now includes manufacturing services obtained from external providers in functions and aspects such as production and assembly, handling production process, manufacture of specialised components or parts, logistics and supply chain, etc. The basic objective of seeking these services from outside is to reduce labour costs with more efficient production processes, besides having access to advanced technologies without own investment. The large scale informality in Indian manufacturing indicates that enterprises covered in ASUSE type of surveys would be concentrated in specific industries that are not likely to incorporate modern technology.

In the context of ASUSE, manufacturing services are services provided by an establishment in transforming the material inputs of other establishments or other households. There are two categories of manufacturing service providers: (i) those who provide manufacturing services under contract to other establishments using input materials supplied by them according to contract specifications and (ii) those who provide manufacturing services to households for final consumption. For the purpose of the survey, MSPs in the second case were not treated as working under contract. Examples of this are establishments engaged in custom tailoring.

The present study uses two distinct terms, viz. “manufacturing services” and “job work.” Characteristically, the MSP establishments are small, and are most often run without hired workers. Mostly, MSPs derive their principal income in the form of commissions and service charges. They are predominantly engaged in specific activities in the manufacturing industry and their clients are either: (i) households using their services for final consumption, (ii) other enterprises using their services for capital formation, or (iii) other enterprises using their services as intermediate inputs.

An MSP pursuing an activity of the third kind carries out job works for its client. The activities of providing manufacturing services for intermediate use of the principal is called job work and the unit carrying out the job work is called a job work unit (JWU). Evidently, the category of contracts falling under job work is a subset of manufacturing service where the material transformed by the JWU is used for further production by the outsourcing firm, i.e. the principal. In this study, the term “job work” is used for all kinds of manufacturing service providing activities carried out for a principal outsourcing whole or part of its production processes. Besides the self-employed “homeworkers,” there are small establishments who work for principals under a putting-out system. All such units are treated as JWUs in this study.

Some manufacturing services such as custom tailoring and flour milling are provided directly to consumer households. Most other activities, such as bidi making, manufacture of textile garments and clothing accessories, weaving, manufacture of cotton and cotton mixture fabrics, are carried out for other businesses.

Whether provided for final use of consumer households or intermediate use of other manufacturing firms, the activity of producing manufacturing services, according to the International Standard Industrial Classification of All Activities (ISIC), is included in manufacturing. There are several terms, such as outsourcing, offshoring, sub-contracting, contract manufacturing, job production, that relate to manufacturing services in the literature.

Manufacturing Service Providers and Job Work Units in ASUSE

In the ASUSE, MSP is identified through a direct question on whether the establishment undertook any contractual manufacturing services during the reference period. If an establishment reports providing any manufacturing services, it is noted if it undertook any manufacturing services on contract basis during the reference period. For example, for custom tailoring, the response will be “no” as the work is not usually undertaken on contract, but for customers. The types of contracts are identified as: i) working solely for other establishment/contractor, ii) mainly on contract but also for other customers, and iii) mainly for customers but also for contract. Further information on whether equipment/design is supplied by the contractor is noted. Details of the establishment doing any other services on contract basis during the reference period are also noted with similar details.

Survey data shows that over 80 per cent of the unorganised manufacturing in the country comes under the category of MSPs (Table 4 and Table 5). Units involved in Job Work are less than a quarter of all enterprises. This means that the majority of unorganised manufacturing units basically serve other units or are for direct use of households. In its latest survey, NSSO has made an effort to map the units in micro, small, and medium enterprise types using the criterion specified by the Government of India (para 3.9.1 of the report [NSSO Report: Operational and Economic Characteristics: ASUSE 2023–24]). According to this mapping, 99.9 per cent of the estimated manufacturing units come under the micro category wherein the investment in plant and machinery or equipment does not exceed Rs 10 million and turnover does not exceed Rs 50 million. This, in effect, means that our discussion relates to the smallest level of economic activity under manufacturing.

As we noted, unorganised manufacturing suffered badly after 2015–16, generally attributed to the introduction of demonetisation and the Goods and Services Tax (GST). In fact, as per the 2023–24 survey, the size of this sector was at nearly the same level as it was in 2015–16. The share of employment of these enterprises in total manufacturing employment was slightly lower compared to previous estimates. The overall employment is yet to reach the 2015–16 level, though the number of enterprises is a shade higher than the 2015–16 level. The estimated Gross Value Added, however, shows a moderate increase from the 2015–16 level at constant prices.

The share of GVA from JWUs and MSPs in the total GVA of the unorganised manufacturing segment changed drastically after 2015–16 (Table 6). The share of MSPs has gone down from 64 per cent in 2015–16 to 46 per cent in 2023–24. Share of JWUs decreased from 22.6 per cent to around 12 per cent. The drastic fall in the shares of JWUs and MSPs in the GVA of unorganised manufacturing, without a corresponding change in share of total units, indicates worsening returns from manufacturing activities in general and job work activities in particular. The industries in which the share of MSPs in total enterprises decreased can be seen in Table 7.

We now look at the industrial distribution of these activities. For this, instead of taking the industry at a two-digit level of each activity, we use the compilation category grouping followed in the national accounts classification. This grouping provides a more logical aggregation of activities.

In 2023–24, close to half of the units under MSP were in custom tailoring. This was followed by manufacture of textiles including cotton ginning (11.7 per cent). The group in the third position is manufacture of tobacco products (10.8 per cent). It is interesting to note that the manufacture of tobacco products like bidi is a sunset activity. The share of MSP in this category was 20 per cent in 2015–16 and went down to 14 per cent in 2022–23.The restrictions on tobacco use could be one reason for this decline.

Other activities accounting for a significant share of MSPs in 2023–24 were the manufacture of grain mill products, cattle feed, etc. (4.8 per cent). The share of the category “Manufacture of wood and its products, except furniture etc.” is declining. Its share in total unorganised manufacturing fell from 6.1 per cent in 2015–16 to 3.7 per cent in 2023–24. The share of MSPs in wood and wood products fell to 1.7 per cent in 2023–24 from 3.3 per cent in 2015–16. The decline in wood-based manufacturing for household use could be due to the easy availability of plastic and pre-fabricated furniture. Dressmaking other than custom tailoring has retained its share in both total manufacturing and MSP categories.

A closer look at women’s participation in manufacturing work (Kar and Mohanan 2025) using the PLFS data show that the manufacturing workforce grew from 58.5 million to 73.8 million during the seven-year period from 2017–18 to 2023–24. The manufacturing sector employs about one-eighth of the total workforce. The lower average annual growth rate of the manufacturing workforce (3.75 per cent) compared to that of the entire workforce (4.66 per cent) indicates that the share has declined slowly during the seven-year period. More importantly, of the total 15.3 million increase in manufacturing employment, close to three-fourths (73.6 per cent) was contributed by women workers, with those in rural areas accounting for 45.6 per cent of the increase. The share of the female workforce in manufacturing employment stood at 34 per cent in 2023–24, up from 23 per cent in 2017–18.

The findings from PLFS on the growth in employment, especially of women workers, and the decline in the share of MSPs and JWUs in the GVA are not necessarily contradictory. That the increase in workers is contributed by women workers employed in sectors with low productivity coupled with their role as unpaid family workers possibly explains this.

Women’s Participation in MSPs and JWUs

The participation of women in MSPs and JWUs is further examined using the ASUSE 2023–24 survey data. Female-owned enterprises have a very low GVA compared to enterprises owned by men (Table 8) both in urban and rural areas. In the rural sector, the GVA from JWUs was much lower than the GVA from MSPs, while both were lower than the average GVA from unorganised sector units. The rural–urban differences are comparatively lower for men-owned enterprises in these categories. The oft-claimed manufacturing resurgence in rural areas actually contributed little to the overall manufacturing GVA.

Women-owned MSPs and JWUs make a very low contribution to manufacturing GVA. Disaggregating further, three activities, namely custom tailoring, tobacco products, and textiles, account for over 85 per cent of women-owned MSPs (Table 9). In these three activities, it is women who own most of the MSPs. In the case of JWUs, we found a slightly different picture. Tobacco manufacturing accounted for 44 per cent of the units, followed by textiles (24 per cent), and other manufacturing (17 per cent). Home-based enterprises in the bidi and tobacco industries usually worked for large principal employers purely as a JWU.

State-wise Distribution of MSPs and JWUs

The distribution of unorganised manufacture and MSP across States shows that some States have very high shares relative to their economy (Table 10). West Bengal leads in the distribution with 16 per cent of all unorganised manufacturing and 16.4 per cent of MSP. Uttar Pradesh has 11.8 per cent of the overall share and 12.5 per cent of MSPs. What is interesting to note is that West Bengal has over 50 per cent of the JWUs in the country.

Conclusions

The motivation for this Note is the observation, from recent rounds of the Periodic Labour Force Survey, of a consistent rise in women’s employment in rural areas. While the bulk of this employment is in the agricultural sector, in absolute terms, women’s employment in manufacturing has grown too. To understand the nature of expansion of manufacturing in rural areas, in this Note, we examined components of unorganised manufacturing drawing on data from the Annual Survey of Unincorporated Sector Enterprises (ASUSE).

Data from different rounds of ASUSE surveys show a rise in manufacturing employment between 2010–11 and 2015–16, followed by a fall between 2015–16 and 2022–23, and then, a recovery in 2023–24. The decline in employment (as well as in number of manufacturing enterprises) between 2015–16 and 2022–23 could have arisen from demonetisation and the introduction of the Goods and Services Tax, that hurt small unorganised sector enterprises.

Based on an analysis of disaggregated data from ASUSE, we did not find any modern sectors emerging in micro manufacturing. Specifically, over 80 per cent of unorganised manufacturing units belonged to five groups: apparel making, tobacco products, textiles, food products, and wood and furniture. Of these five groups, there was a clear rise in employment in the first group, apparel making. All these activities are likely to be in own-account enterprises, and have the capacity to absorb women workers. The numerically important industries are those requiring only limited technological innovation and can be seen as an extension of the traditional household industry.

Manufacturing service providers (MSPs) are units whose services transform material inputs provided by other units or households into intermediate or final products. Manufacturing services could be provided under contract to other establishments (sub-contracting work) or directly for final consumption (to households). The former, units providing services for intermediate use of a principal, are termed job work and such a unit is termed Job Work Unit (JWU).

MSPs have played a significant role in boosting the manufacturing sector as this segment has shown commendable increase in number of enterprises and employment especially in the latest survey (2023–24). However, data from different rounds of ASUSE show that more than 80 per cent of unorganised manufacturing is accounted for by MSPs. Of all MSPs in manufacturing, 50 per cent of units were engaged in custom tailoring, followed by textiles including cotton ginning (11.7 per cent), and manufacture of tobacco or bidi making (10.8 per cent). The latter is clearly a sunset industry. Lastly, unorganised manufacturing is found to be concentrated in certain States, with West Bengal and Uttar Pradesh accounting for a quarter of all units in the country.

Another important finding was that the share of women in unorganised manufacturing employment has actually gone up. We also found an increase in the share of women-owned MSPs and JWUs, which is in close agreement with the overall increase in women’s participation. But this growth, as we have shown, is in sectors with low value addition. We found that the share of Gross Value Added (GVA) of MSPs and JWUs in unorganised manufacturing actually declined. Further, in all unorganised manufacturing units, the GVA per worker was lower in units with female proprietors as compared to others, and the GVA per worker was lower in rural areas relative to urban areas.

In conclusion, outsourcing is becoming widespread in manufacturing in modern economies. In the Indian case, especially in the unorganised sector, the story is slightly different – a story of women working in sectors with traditional technology and low earnings on account of the absence of other opportunities and constraints of mobility. It is a story of women providing manufacturing services and taking up job work in attempts to supplement family earnings while meeting family obligations. The units providing the job work to women, on the other hand, utilise the available cheap labour for maximising profit, possibly also evading compliance with labour laws.