Subcontracting and Economic - Indian Institute of Public Administration

Subcontracting And Economic Reforms In India With Special Reference To Agro-based Industries In India
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Conclusions
India is undergoing a rapid phase of liberalisation and
economic reforms. The industrial sector is facing new
challenges and within this agro-based industries have
tremendous potential since the latter have not been exploited
properly. One of the major characteristics of
the Indian industrial production scenario is the prevalence
of subcontracting, which has flourished for several
reasons. One is to avoid the burden of fixed overhead
costs and the other is to avoid the risk of labour
trouble and fluctuating demand. Since the agro-based
industries, especially the food-processing sector might
flourish under a similar type of subcontract system, the
paper looks into the problem of moral hazards associated
with subcontracting in general. The main outcome
of the moral hazard problem is its adverse impact on
the quality of the products, which starts from production
to delivery and after sales services. This raises the
issue of what could be done to solve the problem. In
this context, a preliminary exercise is done regarding how
the Indian Contract Act may be suitably enlarged and
modified to tackle the question of moral hazard associated
with the process of subcontracting.
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