From Protection to Competition: Assessing the Impact of De-reservation on India's MSMEs and Exporting Enterprises

India's policy of reserving certain products exclusively for small-scale industries (SSI) aimed to promote the labour-intensive sector and promote employment. However, this policy was criticised for hindering growth and technological advancement of the overall manufacturing sector. The present paper focuses on the impact of India's de-reservation policy on micro, small, and medium enterprises (MSMEs), based on unit level panel data, published by Annual survey of Industries. Utilising a staggered Difference-in-Difference method and fixed effect model, the study evaluates establishment-level outcomes such as sales, output, capital, employment, wages, and labour productivity. Results highlight that MSMEs exposed to de-reservation experienced growth in these outcomes. Further the study observed that the performance of exporting MSMEs contracted after de-reservation. While the growth performance of incumbent exporters shown a positive trend after de-reservation, new large sized firms that entered after de-reservation shown a declining trend. The findings suggested that dereservation ultimately enhanced productivity, output, and employment within India's manufacturing sector by improving incumbent firms' access to input and resources. This study contributes to the understanding of size-dependent policies and resource allocation in developing countries, highlighting firms' dynamic responses to regulatory changes. The paper concludes by discussing the broader impacts on MSMEs, the specific effects on exporting firms, and implications for future policy and research.