Ancillarisation and Sub-contracting in India, started simultaneously with the Govt. setting up enterprises almost in all the core sectors viz. manufacturing equipment for Defence/ Railways/ Telecommunications, Heavy Electricals, Electronic, Chemical, Fertiliser, Petroleum/ Petrochemicals, Ship & Aircraft manufacturing and various other engineering and processing industries The large industries notably HMT and other Public Sector undertaking (PSUSs) started sub-contracting the standard and low technology items to small-scale industries which developed a sound base of ancillarisation, helped proliferations and development of industries.

The controlling agency of PSUs i.e. Bureau of Public Enterprise in consultation with Small Industries Development Organisation (SIDO) framed the guidelines in 1978 for Proponing linkages between small & large Industries through ancillarisation. PSUs were required to concentrate on core activities of design, development, research and manufacturing critical items thereby sub-contracting the standard items (for which technology was available with the small-scale industries) or the items, which could be developed in small-scale sector. PSUs were required to provide raw material technological support, tooling and testing support.

The concept of ancillarisation, though limited to certain pockets/regions in the vicinity/proximity of the PSUs, proved a milestone in ushering in an era of sub-contracting amongst the Indian Industries. There was continuous effort by PSUs to indigenise/develop the items through ancillary industries/SSIs which resulted in technological/qualitative development of the latter and further cemented/enhanced the bonds of Sub-contracting partnership.

The combination of Govt. PSUs/private sector large industries and Ancillary Industries combinations worked as a model of partnership and Sub-contracting with assured orders to Ancillary Industries by providing the assistance of technology assistance, specialized manufacturing facility, raw material, tooling and testing facilities and financial assistance in certain cases to ancillary industries.

Large industries in private sector such as Telco, Escorts, Eicher, Ashok Leyland, Mahindra & Mahindra, Punjab Traches have also developed a chain of their ancillaries and major percentage of their components are sub-contracted. The private sector has provided good base for partnership & sub-contracting in India as was done by Govt. PSUs.

SIDO proactively promotes ancillarisation through its vender development programmes and sub contracting exchanges.