Midgets making widgets’: New paper says Indian factories are smaller than estimated, less productive

Posted 14 Oct 2024

2 min read

Working paper titled ‘Multiplying Multi-Plants and Large Plant Size: Consequences, Costs and Rationale’ highlights concern about “midgets making widgets” i.e., the growing trend of "multi-plants" in Indian manufacturing.

Key highlights

"Midgets making widgets" phenomenon
- Indian firms are increasingly setting up multiple factories (multi-plants) in the same state instead of expanding a single large factory.
- Multi-plants now account for 35% of employment in large firms (those with over 200 workers).
- Large plants either stagnated or shrunk in the last two decades despite sharp increase in contract workers.
Silver lining: There have been a series of investments in which worker size has been 10,000 and upwards in electronics, apparel and footwear in Tamil Nadu and Karnataka
- This could have been triggered either by China plus one opportunity or new subsidy schemes.

Reasons for midgets making widgets

Indian businesses deliberately keep their operations small to manage the risks and regulatory pressures (like Industrial Dispute Act, 1947).
- Example, in case of dispute shutting down a plant with five hundred employees is less costly than one with five thousand employees.

Consequences of midgets making widgets

Multi-plant firms have lower productivity than single-plant firms of equivalent size.
Hence, Indian firms are losing out to smaller countries like Bangladesh, which benefits from larger plants in labour-intensive sectors like apparel.
- Bangladesh exports 95% of apparel output, compared to 37% for India.