This paper presents analysis of the relationship between state and social regulation in the silk-reeling cluster in the town of Ramanagaram in Karnataka. This cluster has been a site for silk-reeling since its birth and it currently contains over a thousand home-based reeling and subsidiary units and they, together, employ a majority of the population. The discussion we present here draws from in depth conversations with various stakeholders in the sector – reeling unit owners, the workers in this sector, the various agents involved in this trade, officials managing state-run markets, and the bureaucrats involved in the development and implementation of policy. Production units in the silk reeling industry come under the category of the informal: exempt from systematic enforcement of labour legislation pertaining to factory work because of their location within entrepreneur's homes.  However, the state is certainly not absent from the sector as a whole and in fact plays a crucial role in key activities located outside the site of production. We argue that in the context of an economy where owners of production units often run units with their own labour and that of their families or work alongside hired labour, state policy for the sector and the process of its implementation as a whole is a form of regulation of work. Our work analyses the complex relationship between socio-economic hierarchy of production units and the ability of firms to accumulate a surplus, in order to understand both why (i) the silk-reeling industry has seen lags in technological advancement and very little expansion despite the growing demand for silk yarn and why (ii) state support for the sector is becoming even more concentrated towards elite entrepreneurs than it was in the past.