10 Zib Vol2 Issue4

7/30/2019 10 Zib Vol2 Issue4

1/16

ZENITH International Journal of Business Economics & Management ResearchVol.2 Issue 4, April 2012, ISSN 2249 8826Online available at http://zenithresearch.org.in/

www.zenithres

earch.org.in

146

PRODUCTIVITY AND GROWTH IN INDIAN MANUFACTURING

SECTOR SINCE 1984-85 TO 2004-05S: AN ANALYSIS OF SOUTHERN

REGION STATES

SANDEEP KUMAR*; KAVITA**

*Research Associate,

Division of Agricultural Economics,

Indian Agricultural Research Institute, Pusa,

New Delhi-110012.

**Senior Research Fellow,

National Centre for Agricultural Economics and Policy Research,

New Delhi -110012.

ABSTRACT

This paper examines the Southern region state-wise trend of total factor productivity (TFP)growth in Indian manufacturing sector for the periods 1984-85 to 2004-05. Kendrick index is

used to compute total factor productivity index. The resulting information is used to examine

whether the post-reform period shows any improvement in productivity in comparison to the pre-reform one. Findings of the present study indicate that total factor productivity growth of Indian

manufacturing sector for all states combined and selected South region states have declined

during the post-reforms period as compared to the pre-reforms period. Further, growth of grossvalue added (GVA) in India and most of the states in the study reveal that there has been decline

in growth of GVA during the latter period as compared to the earlier one. Its implying thatindustrial sector failed to sustain the growth momentum in output during the period after 1991. It

is also found that there is a tendency of convergence in terms of TFP growth rate among Indian

states during the post-reform years and only the states that were technically efficient at thebeginning of the reform remain innovative.

KEYWORDS: Gross Value Added, TFP, Economic Reform, Kendrick Index.

______________________________________________________________________________

SECTION I. INTRODUCTION

Productivity is a key and major factor in the victory of any socio-economic system because of its

direct relationship with economic welfare and also to achieve various goals of economic growth.The concept of productivity has come into greater prominence during the recent years and has

assumed great importance and significance in the context of industrial development. If the someproduction units can be used more efficiently, the net addition to the total national product willbe much higher which will result in the process of industrial growth. Productivity increase is,

thus, an indispensable and powerful stimulus to and the end result of a complex socio-

economic process of economic development. Since the objective purpose both of productivityincrement and economic growth is to satisfy the material needs of individual members as well as

of society to the fullest possible extent, economic growth is positively correlated with

productivity increase. The degree of general welfare, in its ultimate analysis, is therefore, the real

7/30/2019 10 Zib Vol2 Issue4

2/16


www.zenithresearch.org.in

147

barometer of a nations progressive prosperity, the real roots of which til in the productivitygrowth.

The structure of the Indian economy has achieved a remarkable change after

independence. It has been transformed from an agriculture-based economy which relied heavily

on primary commodities production for exports to a manufacturing sector based economy. Theshare of the agriculture sector in the gross domestic product (GDP) dropped from 56 percent in

1950-51 to 40 per cent in 1980-81 and further to 19 per cent in 2006-07. On the other hand, the

share of the manufacturing sector increased from 13 percent in 1950-51 to 17 per cent in 1990-91and further to 24 per cent in 2006-07 (Central Statistical Organisation, 2007). A high rate of

industrial development characterized by an increasing share of industrial output in gross

domestic product (GDP) of an economy is an essential condition to achieving a sustained rise in

rate of growth (UNIDO, 1997).

The Liberalisation, Privatisation and Globalisation (LPG) policies that started in early

1980s in India, and strengthened in the 1990s, opened the Indian manufacturing sector to greater

competition from within as well as from outside. One of the major components of the economicreforms package has been the deregulation and relicensing in the manufacturing sector. The

justification provided for this often centers on the reason of encouraging competition, which, inturn, is expected to enhance the efficiency and productivity performance of the manufacturing

sector. Given that the main objective of reforming the manufacturing sector was to improve

industrial productivity, it would be appropriate to probe how far the reforms have contributed tothe productivity performance of the Indian manufacturing sector.

Over the past three decades, several studies have attempted to study the productivityperformance of the Indian manufacturing sector (Brahmananda, 1982; Ahluwalia, 1991;

Balakrishnan and Pushpangadhan, 1994; Dholakia and Dholakia, 1994; Rao, 1996; Srivastava,

1996; Goldar, 2002; Goldar, 2004). Majority of these studies have focused on the measurementof productivity or the methodological aspects associated with it. Some of these studies have also

examined the relationship between policy changes and movement of industrial productivity.

Especially, the turnaround in productivity growth in the 1980s became a highly debated issue

(Trivedi, 2004). The literature on productivity in India has also made an attempt to examine therelationship between economic reforms and manufacturing productivity. Some studies have

showed that the total factor productivity growth has improved in the reforms period (Krishna and

Mitra, 1998; Pattnayak et. al, 2003; Unel, 2003) whereas the studies by Goldar and Kumari(2003) and Balakrishnan, Pushpangadan, and Suresh Babu (2000) have found that economic

reforms have adversely affected industrial productivity. These studies have examined

manufacturing productivity either at the sectoral or industry levels.

It is in this context that the present paper attempts to undertake a detailed state level

analysis of the performance of the Indian manufacturing sector from the point of view ofdetermining the relative importance of various factors explaining variation in productivity in the

face of changing policy environment. Further, our focus is on the dynamics of the efficiency

rankings of the states over a time period that includes the pre-reform and post-reform years. In

addition, our study period includes more recent years of data as compared to the studiesmentioned above. In order to examine the impact of economic reform on productivity over the

7/30/2019 10 Zib Vol2 Issue4

3/16



148

time period, the analysis has been carried out at two sub-periods; pre-reform period i. e., 1984-85

to 1994-95 and post-reform period i.e., 1995-96 to 2004-05.

OBJECTIVE OF THE STUDY

In the proposed study, the overall aim is to estimate efficiency and its different measuresas well as total factor productivity growth of regional wise states in India. There are two main

objective of the study:

(1) To estimate the industrial TFPI of Indian manufacturing sector in major industrial Southregion state of India since 1984-85 to 2004-05.

(2) To estimate the industrial CAGR of Indian manufacturing sector in major industrialSouth region state of India since 1984-85 to 2004-05.

Besides introduction, this paper has been organized as follows: Section II discusses the

methodological framework and database of the study. Section III presents the main findings ofempirical analysis and the section IV presents the suggestions for policy.

SECTION II: METHODOLOGY AND DATA SOURCES

Productivity growth is recognized as a key feature of economic dynamism today.

Fabricant (1964) defined productivity as the power to produce economic goods and services.

According to Kuznets (1966), an essential element in the development and structuraltransformation of the developed economies was the fast growth in industrial productivity

(Duraisamy, 2000).

Productivity is what you get out for what you put in. It expresses the relationship

between output of goods and services or real output and the various inputs required forproduction.

Total factor productivity measures the increase in total output which is not accounted for

by increases in total inputs. The TFP index is computed as the ratio of an index of aggregatedoutput to an index of aggregate inputs. Growth in TFP is, therefore, the growth rate in total

output less the growth rate in total inputs.

There are three approaches to the measurement of TFP, namely, parametric approach,

accounting approach and non-parametric approach. Most studies on productivity of India have

relied on the growth accounting approach. This approach is popular because computations

involved are simpler and it does not require any econometric estimation. As such, the datarequirements are minimal. It has also several useful properties [Diewert (1976), Christensen

(1975), Capalbo and Vo (1988)]. Thus, the Kendrick index is used in the present paper for

estimating Southern region state-wise total factor productivity indices for Indian manufacturingsector.The general formula of Kendrick index is given below;

7/30/2019 10 Zib Vol2 Issue4

4/16



149

KENDRICK INDEX

Kendrick index (1961) of total factor productivity is an arithmetic measure of rate oftechnological change, which was developed by Kendrick. This is based on liner production

function, which assumes infinite elasticity of substitution between the factors of production. The

index is defined as the ratio of value added in production to a weighted average (arithmeticmean) of the two factors of production.

The total factor productivity index of Kendrick is based on a production function is

homogeneous or liner of the from-

Y = L+ K

Where,

Y = Value of output in real terns.

L = Labor in real terns

K = Capital in real terns

& = are +ve constants

The India is the ratio of output to weighted average of the two factors of production, wherebase year rates of reward are taken as weight.

TFP index of Kendrick is given by

Where,

At = productivity index at time t

yt = actual output at time t.

Lt = Labour used at time t.

Kt = Capital stock used at time it.

W0 = share of labor in the base year

r0 = share of capital in the base year.

Ay

W L r K t

t

t0 0 6

7/30/2019 10 Zib Vol2 Issue4

5/16



150

The Kendrick index compares the actual output (yt) with the output that would have

resulted from resources, working at their base year efficiency.

The expression W0Lt + r0Kt imply that the application labour and capital in different years

are weighted by their factor rewards in the base year. These base year factor rewards i.e. W0 + r0

represent the efficiency with which factors operated in the base year.

Under the assumption of constant returns to scale-perfect computation and payment to factorsaccording to their marginal product, the total learning of labour and capital in the base year

exactly equal to the output of that year and therefore A t is equal to unity in the base year.

COMPOUND ANNUAL GROWTH RATE (CAGR)

In the present study, we have estimated compound annual growth rate of total factorproductivity, labour productivity and capital productivity. For this purpose, exponential function

has been used to estimate compared annual growth rate (CAGR) symbolically it is as follower:

Y = abt

Where,

Y = is the dependent variable (i.e. total factory productivity, labor & capital

productivity.

t = is the independent variable (i.e. time period)

a & b are the parameters. After getting b (coefficient) the following method is being used to

estimate CAGR:

CAGR = [Antilog p1] x 100.

MEASUREMENT OF VARIABLES

OUTPUT (Q):The Annual Survey of Industries provides data on both the output and the valueadded at the current prices. But our production, which is the basis of total factor productivity

estimation, assumes output to be the function of labour and capital only. It is; therefore,

appropriate to take value added as representative of output instead of the value of output. Out of

the two measures of value added provided by the ASI namely, net value added and gross valueadded, we have used the latter. In this paper, the Wholesale Price Index (WPI) for manufactured

products has been used to deflate the nominal values of gross value added.

LABOUR (L):- Total number of persons engaged is taken as the measure of labour input. As

both workers, working proprietors and supervisory/managerial staff can affect productivity, sonumber of persons engaged is preferred to number of workers.

CAPITAL (K):- Gross fixed capital stock at constant a (1993-94) price is taken as a measure ofcapital input. ASI provides data on fixed capital stock at historical cost. It consists of land,

buildings, plant and machinery, capital work in progress, furniture, fixtures and office

7/30/2019 10 Zib Vol2 Issue4

6/16



151

equipments and others. For constructing the capital stock for the sector, CSOs data on fixedcapital stock for 1973-74 has been considered as the benchmark year of capital stock. Capital

stock series is then constructed by using perpetual inventory accumulation method.

Capital stock for the industrial sector in the subsequent years has been arrived at by adding the

real investment figures to the stock of capital of the previous year. The relationship betweengross fixed capital stock in year t, denoted by Kt, the benchmark capital stock, Ko. Following

Goldar (1986) we have uniformly applied 2% rate of obsolescence for each year. For year t, the

estimate of capital stock (K) is obtained by using the following equation

t t 1 t 1 t0.02K K K I

This means that

1 0 1 00.02K K I K

2 1 1 20.02K K K I , and so on

The investment figures were obtained using the formula:

Ittt t 1

t

FC FC D100

WPIC

Where FC is the book value of fixed capital, D is the depreciation, and WPIC is an

appropriate deflator for fixed capital. For WPIC, we have used the wholesale price index of

machines and machine tools published by the CSO. The base of this index series has beenconverted to 1993-94 year to retain the consistency of single base year for all the price indices.

EMOLUMENTS: - Total emoluments primarily constitute wages to workers, provident fund

(PF) and other benefits and so on. To estimate real emoluments, the nominal value has been

deflated by Consumer Price Index. In the present study, the share of emoluments in total valueadded is taken as the share of labour. Assuming constant returns to scale, the share of capital is

one minus the share of labour.

The above equation (1) provides the total factor productivity index for the specified

periods. In this study, TFP is measured for Southern region states of India for the period 1984-85

to 2004-05. For analytical convenience this period has been divided into two sub periods,

namely, 1984-85 to 1994-95 (Pre-Reforms) and 1995-96 to 2004-05 (Post-Reforms). For

analysis of performance of manufacturing sector, the study covers Southern region states.

For the estimation of Southern region state-wise TFP index of Indian manufacturing

sector, state-wise data on relevant variables are collected from various issues of Annual Surveyof Industries, a publication of Central Statistical Organization (CSO), Government of India,

New Delhi., Reports of Currency and Finance, RBI, Economic Survey, Hand Book of Statisticson Indian Economy, RBI and National Account Statistics.

7/30/2019 10 Zib Vol2 Issue4

7/16



152

SECTION III: RESULTS AND DISCUSSION

(A)Total Factor Productivity and Partial Factor Productivity Measures in Southern Region Statesof Indian Manufacturing Sector

The present study aims to analyze inter temporal and Southern region states comparisonsof Total actor Productivity (TFP) and Partial Factor Productivity (PFP) in Indian manufacturing

sector by using an integrated growth accounting framework. In the present analysis labourproductivity has been define as gross real value-added per employee, and capital productivity has

been measured as the ratio of gross real value-added to gross fixed capital stock at constant price.

The section presents an analysis of inter temporal comparisons of PFP and TFP growth in

manufacturing sector of Southern region states in India during the period (1984-85) to (2004-05).Besides this, an attempt is also made to evaluate the impact of industrial liberalization and

deregulatory policies on productivity growth in terms of the variations in TFP growth rates

during two distinct sub-periods, the whole study period has been divided into two distinct sub-

period: (1) Pre-reforms period (1984-85 to1994-95) and (2) Post-reforms period (1995-96 to

2004-05).

Table 1.1 & 1.2 express the annual trends of labour productivity, capital productivity and

total factor productivity in Southern region in Indian manufacturing sector in pre-reform and

post-reform periods. Southern region also includes four states i.e. Andhra Pradesh, Karnataka,Kerela and Tamil Nadu. All these states also show the variations in TFP, labour productivity and

capital productivity across themselves and at all states level pre-reform period.

7/30/2019 10 Zib Vol2 Issue4

8/16

ZENITH International Journal of Business Economics & Management ResearchVol.2 Issue 4, April 2012, ISSN 2249 8826

Online available at http://zenithresearch.org.in/

i t h h

i

1 5 3

TABLE1.1: ANNUAL PARTIAL FACTOR PRODUCTIVITY OF SOUTHERN REGION IN INDIAN MANUFACTURING

SECTOR

STATES

YEARS

Andhra Pradesh Karnataka Kerela Tamil Nadu All States

LP KP LP KP KP LP LP KP LP KP

1985-86 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

1986-87 107.47 86.05 112.56 97.78 108.30 96.41 109.92 97.40 110.87 96.33

1987-88 95.65 68.40 110.07 86.41 129.56 104.26 113.75 89.14 118.43 91.58

1988-89 114.66 66.51 121.30 84.31 118.34 96.00 129.40 90.15 125.24 91.84

1989-90 121.72 59.19 139.23 93.28 159.94 116.01 143.86 93.24 141.25 92.13

1990-91 138.19 44.37 156.31 96.70 115.80 86.03 152.99 92.32 145.51 87.88

1991-92 138.26 41.17 168.80 101.83 136.82 98.73 143.22 81.76 139.98 78.05

1992-93 157.72 42.21 178.87 94.86 130.60 90.86 148.96 79.22 164.08 81.12

1993-94 146.50 39.38 163.48 83.47 102.96 78.97 167.61 84.61 174.35 83.59

1994-95 208.77 47.54 197.98 89.70 122.28 83.47 175.35 76.91 187.02 79.94

1995-96 205.48 54.68 204.48 85.04 130.43 88.52 185.16 78.63 213.55 83.56

1996-97 150.89 42.84 239.57 91.57 137.23 90.22 178.28 74.62 196.34 78.89

1997-98 242.44 51.12 208.52 72.18 145.05 79.16 167.29 66.87 215.85 77.40

7/30/2019 10 Zib Vol2 Issue4

9/16

ZENITH International Journal of Business Economics & Management ResearchVol.2 Issue 4, April 2012, ISSN 2249 8826

Online available at http://zenithresearch.org.in/

i t h h

i

1 5 4

1998-99 138.08 36.53 201.97 58.59 157.97 102.29 155.05 61.09 186.72 68.60

1999-00 209.63 37.94 193.37 57.57 172.88 85.40 188.17 61.48 225.94 68.83

2000-01 191.47 35.67 217.91 55.89 158.56 78.99 205.98 63.67 214.83 60.63

2001-02 219.45 37.44 267.14 58.53 145.43 71.37 176.50 55.08 226.62 57.79

2002-03 239.46 38.08 299.80 63.54 154.67 73.46 189.40 51.41 289.97 66.65

2003-04 234.82 39.41 333.37 65.53 183.74 74.88 215.28 56.46 247.54 65.53

2004-05 305.20 41.84 424.08 80.88 149.47 68.17 221.46 55.95 336.79 72.57

*LP- Labour Productivity & *KP- Capital Productivity.

Andhra Pradesh shows the more fluctuation in TFP, which is due to fluctuation in labour productivity and capital productivity because

labour productivity fluctuation more in pre-reform period an capital productivity show declining trend in this period. Some situation

continues to prevail in the post-reform periods. Kerela and Karnataka have similar conditions in TFP in pre-reform and post-reform

periods. As both states shows less fluctuation in TFP in pre-reform period and more fluctuation in post-reform period. But trend of

labour productivity and capital productivity is different in both states. In Karnataka labour productivity shows incurring trends in pre-

reform period and less fluctuation in post-reform period.

7/30/2019 10 Zib Vol2 Issue4

10/16



155

TABLE 1.2: ANNUAL TOTAL FACTOR PRODUCTIVITY OF SOUTHERN REGION

STATES IN INDIAN MANUFACTURING SECTOR

STATES

YEARS

Andhra

PradeshKarnataka Kerela Tamil Nadu All States

1985-86 100.00 100.00 100.00 100.00 100.00

1986-87 94.70 101.33 101.40 103.43 101.98

1987-88 79.16 96.53 109.46 98.94 101.36

1988-89 88.86 99.25 108.70 109.92 108.20

1989-90 82.76 112.34 128.85 116.74 113.02

1990-91 87.00 124.56 97.12 123.16 117.39

1991-92 85.14 132.73 115.41 112.88 109.99

1992-93 88.98 134.70 100.52 111.70 119.41

1993-94 92.93 121.93 93.82 127.42 131.54

1994-95 105.49 141.50 92.90 128.58 132.79

1995-96 113.06 137.25 115.77 131.26 141.76

1996-97 103.70 153.64 112.71 132.70 145.42

1997-98 121.87 134.97 107.16 120.75 148.72

1998-99 106.64 144.76 153.40 124.57 146.96

1999-00 111.21 141.36 126.03 133.64 159.80

2000-01 106.50 143.37 118.44 139.30 146.89

2001-02 120.15 161.31 112.89 125.78 150.06

2002-03 117.05 184.43 127.49 124.48 162.64

2003-04 143.73 194.62 118.39 139.75 182.95

2004-05 149.10 237.54 111.07 136.63 200.66

7/30/2019 10 Zib Vol2 Issue4

11/16



156

Where in Kerela labour productivity and capital productivity shows more fluctuation in pre-

reform period but in post-reform period condition of capital productivity is more or less same but

labour productivity is different i.e. it and often its show declines trends. Tamil Nadu also showsmore fluctuation is TFP in pre-reform period but trends of labour productivity in different. In

pre-reform period labour productivity shows less fluctuation than post-reform period and its

reverse in case of capital productivity shows more fluctuation in pre-reform period and less in

post-reform period. As compare to national level or all major manufacturing states the TFP inAndhra Pradesh, Kerela and Tamil Nadu is being lesser where as Karnataka shows higher trends

in TFP.

The trends of Total Factor Productivity (TFP) of Southern region and at aggregate level

in Indian manufacturing sector, also has been shows in the pre-reform period (1984-85 to 1994-

95) and post-reform period (1995-96 to 2004-05) by the figure 1.2.

FIGURE 1.2: ANNUAL TOTAL FACTOR PRODUCTIVITY OF SOUTHERN REGION

STATES IN INDIAN MANUFACTURING SECTOR

0

50

100

150

200

250

TotalfactorProd

uctivity

Andhra Pradesh Karnataka Kerela

Tamil Nadu All States

7/30/2019 10 Zib Vol2 Issue4

12/16



157

It has been observed that there are wide variations in TFPI growth rates across the

manufacturing sector of Indian states. On the whole, it has been observed that no impressive

enhavement in labour productivity, capital productivity and Total factor productivity. Totalfactor productivity growth has been taken place in Indian manufacturing sector from national and

regional perspectives on account of augmented intensity of macro economic reforms in general

and industrial reforms in particular under the thrust of most recent programmer of

Liberalization, Privatization and Globalization (LPG) since1991 which is the reform period.

(B)CAGR OF TOTAL OUTPUT, TOTAL INPUT & TOTAL FACTORPRODUCTIVITY IN INDIAN MANUFACTURING SECTOR

This section presents an analysis and explaining of inter temporal comparison of compoundannual growth rates (CAGR) of total factor productivity index (TFPI), total output index (TOI)

and total input index (TII) measures in the manufacturing sector of Region-wise states in India

during 1984-85 to 2004-05. Besides this, an attempt is also made to evaluate the impact of

regime o industrial liberalization on growth rates of TFPI, TOI and TII measures during two

distinct sub-periods. The whole study period has been divided into two distinct sub-periods; (1)Pre-reform period (1984-85 to 1994-95); and (2) Post-reform period (1995-96 to 2004-05). The

growth of output (i.e. value-added, in case of two input framework) can be decomposed into: (I)the share-weighted growth of labour, (II) the share-weighted growth of capital, and (III) total

factor productivity growth. In has been observed that there are wide variations in TFPI growth

rates across the manufacturing sector of Indian states. In this context, an interesting questionarises spontaneously that what are the factors/ forces that may contribute the productivity growth

differentials in manufacturing across states within the same country.

TABLE 1.3: CAGR OF TOTAL OUTPUT, TOTAL INPUT & TOTAL FACTOR

PRODUCTIVITY INDEX OF SOUTH REGION STATES IN INDIAN

MANUFACTURING SECTOR

States Indies All Period

(1984-85to2004-05)

Pre-Period

(1984-85to1994-95)

Post-Period

(1995-96to2004-05)

Andhra

Pradesh

TOI 7.327 11.743 2.185

TII 4.697 11.165 -0.798

TFPI 2.513 0.520 3.007

Karnataka TOI 8.306 9.691 6.388

TII 4.415 5.096 1.051

TFPI 3.726 4.372 5.281

7/30/2019 10 Zib Vol2 Issue4

13/16



158

Kerela TOI 3.773 4.370 0.173

TII 2.848 5.473 0.259

TFPI 0.899 -1.046 -0.086

Tamil Nadu TOI 5.385 9.105 1.520

TII 3.801 6.194 0.940

TFPI 1.526 2.742 0.575

All States TOI 5.980 8.501 2.222

TII 2.558 5.108 -0.926

TFPI 3.337 3.227 3.177

CAGR- Compound Annual Growth Rate, TOI- Total Output Index,

TII- Total Input Index & TFPI- Total Factor Productivity Index.

Table 1.3 highlights the average annual growth rates of total factor productivity index

(TFPI), total input index (TII) and total output index (TOI) in southern region in Indian

manufacturing sector at all-India and states levels.

During the all period 1985-86 to 2004-05, the growth rate of TFPI has been 3.33 per cent,

growth rate of TOI 5.98 per cent and TII growth rate 2.55 per cent in aggregate Indian

manufacturing sector. In the Andhra Pradesh, Karnataka, Kerela, and Tamil Nadu attainedpositive growth rates of TFPI (2.51%, 3.72%, 0.90%, & 1.53%, respectively), but Kerela and

Tamil Nadu growth rate of TFPI has been more lesser than all-India growth rate of TFPI. It hasbeen noticed the in post-reform period the growth rate of TOI in all southern region shows a

declining trends as against to per-reform period i.e. In Andhra Pradesh (from 11.74% to 2.18%),

Karnataka (from 9.69% to 6.38%), Kerela (from 4.37% to 0.17%) and in Tamil Nadu (from9.10% to 1.52%). The trends of Compound Annual Growth Rate (CAGR) of total factor

productivity index (TFPI), total output index (TOI) and total input index (TII) of Southern region

states and at aggregate level in Indian manufacturing sector, also has been shows in the all period

(1984-85 to 2004-05), pre-reform period (19845-56 to 1994-95) and post-reform period (1995-96to 2004-05) by the figure 1.2.

7/30/2019 10 Zib Vol2 Issue4

14/16



159

FIGURE 1.2: CAGR OF TOTAL OUTPUT, TOTAL INPUT & TOTAL FACTOR

PRODUCTIVITY INDEX OF SOUTH REGION STATES IN INDIAN

MANUFACTURING SECTOR

The empirical results suggest that it is imperative to fine turn the ongoing programme of macro-economic reforms in general, and industrial reforms in particular, for pervasive diffusion of

technology in Indian manufacturing sector. To foster the TFPI growth in manufacturing sector of

industrially developing and backward states, it is essential to speed up the flow of fiscal and

financial incentives and resources towards these states. Besides this, the restructuring of

Liberalization, Privatization and Globalization (LPG) programme become indispensable in thelight of poor performance and slow down of TFPI growth of Indian manufacturing sector at

national an state levels during Intensive-liberalization phase.

SECTION IV: CONCLUSION AND SUGGESTION

The special features of social overhead capital formed some of the building block of the

development strategy. The strategy called for a Big push towards balanced growth amongvarious sectors of the economy. For a predominantly agricultural country like India, development

of industries is a must. In recent times, beginning from the early 1990s the Indian economy isopening up to the world in a big way. An important feature of the new economic policy is to

reorient the working of the public sector along the principles of the private sector or free marketwhile growth is on or output is increasing, it is essential to ensure efficiency in the use of

resources.

To sum up, performance of the industrial sector has witnessed noticeable change during

the reforms period. There has been substantial fall in the share of employment, gross value added

and capital stock of the manufacturing sector as a whole during the reforms period. Further,growth of gross value added in India and selected states has declined during the reforms period

CAGR of TFPI, TOI & TII in SouthernRegion

-5

0

5

10

15

T

OITII

TF

PI

T

OITII

TF

PI

T

OITII

TF

PI

T

OITII

TF

PI

T

OITII

TF

PI

AndhraKarnatakaKerelaTamil AllIndex and State

%o

fIndex

All Period

(1984-

85to2004-05)

Pre-Period

(1984-

85to1994-95)

Post-Period

(1995-

96to2004-05)

7/30/2019 10 Zib Vol2 Issue4

15/16



160

as compared to the pre-reforms period, implying industrial sector failed to sustain the growth

momentum in output during the period after 1991. The total factor productivity growth in

combined states together (India) and selected states reflects wide fluctuations over the years. Theextent of fluctuations is pronounced in India during the reforms period. A comparative analysis

of total factor productivity growth in India and most of the states reveals that there has been

decline in total factor productivity growth during the latter period as compared to the earlier one.

The average annual growth of the GDP was 5.8 % during 1980s and its went up to a

little more than 6 % during 1990s. While the contribution of agriculture to GDP decreased from31.3 % in 1991 to 22.1 % in 2003, the contribution of services increased from 41.9 % in 1991 to

56 % in 2009. The contribution from industry had, however, remained stagnant around 27 %

GDP between 1991 and 2003, which included manufacturing component of about 17 percent.

The Shear of manufacturing sector within industry sector has shown only a marginalimprovement from 15.8 % in 1991 to 28 % in 2009. In comparison some of the East Asian

economies have recorded a share of manufacturing ranging from 25 % to 35 % of their GDP.

Indias share in the global trade is less than 1 %, which is much is below the potential

manufactured goods from three- fourths of all exports from India.

In order to step up the rate of productivity growth further so as to catch up with fastgrowing economies, it is required that India develops indigenous technological capabilities

which can match the international standards. For this it is suggested that firms should be

encouraged to invest more in Research & Development. In view of the positive impact of tradeopenness on total factor productivity growth of the manufacturing sector, it is recommended that

India needs more opening up of the economy through further trade reforms aiming at further

reductions in import duties so that these are par with the fastest growing economies of Asia. It

will lead to more imports of capital goods and hence increased productivity and improvedcompetitiveness of the firms.

The Liberalisation, Privatisation and Globalisation (LPG) policies that started in early

1980s in India, and strengthened in the 1990s, opened the Indian manufacturing sector to greater

competition from within as well as from outside. One of the major components of the economic

reforms package has been the deregulation and relicensing in the manufacturing sector. Thejustification provided for this often centers on the reason of encouraging competition, which, in

turn, is expected to enhance the efficiency and productivity performance of the manufacturing

sector. Given that the main objective of reforming the manufacturing sector was to improveindustrial productivity, it would be appropriate to probe how far the reforms have contributed to

the productivity performance of the Indian manufacturing sector.

SELECTED REFRENCES

Ahluwalia, I.J. (1991), Productivity and growth in Indian manufacturing, Delhi: Oxford

University Press,

Balakrishnan, P. and Pushpangdan, K. (1995), Total Factor-Productivity Growth in

Manufacturing Industry, Economic and Political Weekly, March, pp. 462-464.

7/30/2019 10 Zib Vol2 Issue4

16/16



161

Balakrishnan, Pulapre, K. Pushpangadan, and M. Suresh Babu (2000), Trade Liberalisation andProductivity Growth in Manufacturing: Evidence from Firm-Level Panel Data, Economic and

Political Weekly, Vol. 35, No. 41, pp. 367982.

Das, D. K. (2003), Quantifying Trade Barriers: Has Trade Protection Declined Substantially in

Indian Manufacturing, Working Paper No. 105, Indian Council for Research on InternationalEconomic Relations, New Delhi.

Dholakia, R.H. and Dholakia, B.H. (1994), Total Factor Productivity Growth in Indian

Manufacturing, Economic and Political Weekly, 31 December, pp. 3342-3344.

Fare R and Lovell C. A. Knox (1978), Measuring the Technical Efficiency of Production,Journal of Economic Theory, Vol. 19, pp. 150-162.

Farrell, M.J. (1957) The Measurement of Productive Efficiency, Journal of the RoyalStatistical Society, 120, No. 3:253-290

Goldar, B. N. (2004), Productivity Trends in Indian Manufacturing in the Pre and Post Reform

Periods," Working Paper No. 137, Indian Council for Research on International EconomicRelations, New Delhi.

Jorgenson, D.W. and Griliches, Z. (1967), The Explanation of Productivity Change, Review of

Economic Studies, Vol. 34, pp. 249-283.

Kendrick, J.W. (1957), Productivity trends, capital and labour, Review of Economics and

Statistics, Vol. 39:3, pp. 248-257.

Krishna, Pravin, and Devashish Mitra (1998) Trade Liberalization, Market Discipline andProductivity

Growth: New Evidence from India, Journal of Development Economics, 56, No. 2: 44762

Kumar, Surender (2004), "A Decomposition of total factor productivity growth: A Regionalanalysis of

Indian industrial manufacturing growth," Working Paper No. 22, National Institute of Public

Finance And Policy (NIPFP), New Delhi, India

Lewis,W.A..(1954),Economic Development with Unlimited Supply of Labour, Manchester

School of Economics and Social Studies, Vol.22, pp139-151

Ray, S.C. (1997), "Regional Variation in Productivity Growth in Indian Manufacturing: A Non-

parametric Analysis ", Journal of Quantitative Economics, Vol. 13: 73-94.

Solow, R.M. (1957), Technical Change and the Aggregate Production Function, Review of

Economics and Statistics, Vol. 39, No. 3, pp. 312-320.

UNIDO (1997), "Industrial Development in the Era of Globlisation: Competitiveness and South-

South Cooperation", G-77 and China South-South Conference on Trade, Investment and

Finance, San Jose, Costa Rica, 13-15 Jan.

N.G.Pendse and L.M.S.Baghel, (2008), Technological Change and Productivity Growth

In Manufactruing Sector of India Sarup & Sons, New Delhi, ISBN 978-81-7625-822-7

10 Zib Vol2 Issue4

Documents

Transcript of 10 Zib Vol2 Issue4