Investment and capital–labour relations in India’s organised manufacturing sector

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ABSTRACT This study is conducted against the backdrop of a significant investment crisis in India’s manufacturing sector during the second decade of the twenty-first century, marked by a substantial slowdown in capital formation. Adopting theoretical approaches from heterodox economic schools, the study seeks to explore the determinants of investment in India’s organised manufacturing sector. Through empirical analysis, the study establishes a relationship between the rate of profit and the investment rate, revealing that the conflict between capital and labour is the most critical factor determining investment rates in the short and long run. Furthermore, the analysis is extended to different size classes of manufacturing units (Large, Medium, and Small). The study shows that while technological factors determine investment in Large size class, effective demand plays a key role in Medium size class, and distributional struggles acquire a dominant part in determining investment in the Small size class. Based on the empirical findings and the global economic context, the study proposes policy interventions, emphasising the need for an active and engaged state in the economic sphere. This includes increased public research, public investment, demand management, and labour welfare to ensure sustained long-term growth and investment in the manufacturing sector.