This paper analysesthe growth and performance of the unorganized manufacturing (micro and small enterprises) sector in rural and urban India. The central concern would be to address the issues of employment potential of this sector. Based on NSS data on the unorganized manufacturing sector(40th Round, 1984–85; 51st Round, 1994–95; and thelatest 56th Round, 2000–01) the paperlooks atthe growth performance ofthissector during the pre- and post- reformperiod, and attemptsto identify challenges posed and opportunities thrown by in globalising India. To find out the special locational constraints ofruralenterprises, analysis has been madeseparately forrural and urban units. Further,to derive a firm picture aboutthespecific sectors and sub-sectorsthat wererising or declining,especially in
the wake ofeconomic reforms,the analysisisextended to covertwo-digitlevel of industrial classification forthree variables, namely, number of workers, capital:labourratio and perworker productivity. While the overall employment situation in the post-reform period is fairly depressing, the MSE sector has shown some sign of relief. It has witnessed a significant growth of employment in both rural and urban areas. But within the MSE sector, there has been a clear shift of manufacturing enterprises and employmentfrom ruralto urban areas and from tiny to biggersized units. Thelevels of productivity are abysmally low foreach ofthethreetypes ofenterprises, butthere aresubstantial differences among them and it is even more glaring between rural and urban located units. Thus, both locational and scale attributes are clearly at work. Moreover,there was a substantial changein the composition of workersin the post-reform period, i.e., part-time workersincreased at a higher rate both in rural and urban areas. The paper unfoldsthestatistical delusion of post-reformhigh employment growth in theMSEsector and callsfor a special policy attention towardstechnological improvement, promotion ofsub-contracting and clusters.