Abstract India’s small-scale industry (SSI) product reservation policy was an unusual instrument: instead of subsidizing firms, it reserved products for exclusive manufacture by small units. Starting in the late 1990s, the policy was dismantled gradually—product by product, creating a rare opportunity to study what happens when a long-standing protection is withdrawn. Using plant-level panel data with product detail from India’s Annual Survey of Industries (1999–2016), we estimate the causal effects of de-reservation on product scope (new product introductions and the sales share of new products) and on performance (labour productivity and sales growth). We exploit staggered treatment timing using a recent multi-period difference-in-differences framework. The main finding is straightforward: de-reservation is associated with more new product introductions and faster sales growth on average. But the more important and more policy-relevant finding is that the gains are highly uneven. Larger plants within the SME universe, innovative units, and establishments that adopt new inputs are the ones that consistently translate liberalization into improved outcomes. Small plants, by contrast, show at best a modest rise in product switching, with little evidence of performance gains. The takeaway is not that small firms are inherently disadvantaged, but rather that capabilities—not just size—mediate who benefits when protections are removed, highlighting the importance of policy design that strengthens SME capabilities by addressing these uneven adjustment dynamics.
Paily et al. (2026) studied this question.