Kathuria, Vinish and Seethamma Natarajan, Rajesh Raj and Sen, Kunal (2010): Organized versus Unorganized Manufacturing Performance in India in the Post-Reform Period.
Download (387kB) | Preview
This paper analyses the productivity performance of the Indian manufacturing sector using unit level data, which is aggregated at four-digit industry level for the period 1994-95 to 2004-05 for 15 major states. The study focuses on both the organized and unorganized segments of the manufacturing sector. Both partial and total factor productivity (TFP) measures have been employed to trace the productivity performance of formal and informal manufacturing sector. TFP is estimated using Cobb-Douglas production functions at the four-digit industry level. The estimation is carried out by employing the Levinsohn-Petrin method, which uses intermediate inputs as the proxy to address the potential simultaneity bias in production function estimations. Our analysis reveals that labour productivity has increased for the organized sector over time whereas both labour productivity and capital intensity growth have slowed down in the unorganized sector during the 2000-01 to 2004-05 period. The production function analysis shows that capital has played a more significant role in the production process in both the sectors. TFP growth accelerated in the organized manufacturing sector during 2001-05 over 1995-2001 while the TFP decline that started in the first period (1995-2001) continued unabated even in the second period (2001-2005) in the unorganized manufacturing sector. We also find that output growth in both the sectors is productivity driven and not input driven. The improvement in TFPG of organized manufacturing in the post-2000 period as compared to the second half the 1990s across most states in India and that output growth was mostly productivity driven are important positive features of manufacturing performance in the post-reform period. However, the declining total factor productivity on one hand and increasing capital intensity of the unorganized sector is a cause of worry and raises several important questions.
|Item Type:||MPRA Paper|
|Original Title:||Organized versus Unorganized Manufacturing Performance in India in the Post-Reform Period|
|English Title:||Organized versus Unorganized Manufacturing Performance in India in the Post-Reform Period|
|Keywords:||Productivity, Organized manufacturing, Unorganized sector, Industrial Sector|
|Subjects:||D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity|
|Depositing User:||Rajesh Raj S N|
|Date Deposited:||30. Jan 2010 15:13|
|Last Modified:||12. Feb 2013 00:25|
Aghion P, Burgess R, Redding S and Zilibotti F (2008) The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India, American Economic Review, 98, No. 4, 1397–1412.
Ahluwalia, I.J. (1991) Productivity and Growth in Indian Manufacturing, Oxford University Press, New Delhi.
Balakrishnan, P and K. Pushpangadan (1994) “Total Factor Productivity Growth in Manufacturing Industry: A Fresh Look”, Economic and Political Weekly, 29: 2028-35.
Balakrishnan, P. (2004) "Measuring Productivity in Manufacturing Sector", Economic and Political Weekly, April 3-10.
Balakrishnan, P. and Pushpangadan, K. (1998), What do we know about productivity growth in Indian industry? Economic and Political Weekly, 33, 2241–46.
Balakrishnan, P., Pushpangadan, K, and Suresh Babu, M (2000) Trade liberalisation and productivity growth in manufacturing: Evidence from firm-level panel data, Economic and Political Weekly 35, 3679-3682.
Das, D. K. (2004) Manufacturing productivity under varying trade regimes, 1980-2000, Economic and Political Weekly, 39, 423-433.
Dholakia, R. H. and Dholakia, B. H. (1994) Total factor productivity growth in Indian manufacturing, Economic and Political Weekly, 29 , 342-344.
Diewert, W.E. Services and the New Economy: Data Needs and Challenges, Discussion Paper No. 03-09, Department of Economics, University of British Columbia (UBC), Vancouver, Canada, 2003.
Goldar, B. (2002) TFP growth in Indian manufacturing in 1980s, Economic and Political Weekly, 37, 4966–4968. Goldar, B. Productivity Growth in Indian Industry, Allied Publishers, New Delhi, 1986.
Grilliches, Z. and Ringsted V. (1971) Economies of Scale and Form of the Production Function, North-Holland Publishing Company, Amsterdam.
Hossain, M.A. and Karunaratne, N.D. (2004) “Trade liberalization and technical efficiency: evidence from Bangladesh manufacturing industries”, The Journal of Development Studies, 40, 87-114.
Krishna, P. and Mitra, D. (1998) Trade liberalization, market discipline and productivity growth: new evidence from India, Journal of Development Economics, 56, 447-462.
Krugman, P. (2004) The myth of Asia’s miracle, Foreign Affairs 73, no. 6: 62–78.
Kumar, S (2006) A decomposition of total productivity growth: A regional analysis of Indian industrial manufacturing growth, International Journal of Productivity and Performance Management, 55, No. 3/4, 311-331.
Levinsohn, J. and Petrin, A (2003) ‘Estimating Production Functions Using Inputs to Control for Unobservables,’ Review of Economic Studies, 70, 317–342.
Mahadevan, R. (2002) Is there a real TFP growth measure for Malaysia’s manufacturing industries?, ASEAN Economic Bulletin, 19, 178-190.
Marschak, J. and Andrews, W. H., (1944) ‘Random Simultaneous Equations and the Theory of production,’ Econometrica, 12, 143–205.
Mukherjee, D. (2004) Productivity in the small manufacturing enterprises: determinants and policy issues, The Indian Journal of Labour Economics, 47, 913-927.
Nagaraj, R. (1999) How Good are India’s Industrial Statistics? An Exploratory Note, Economic and Political Weekly, 34.
NAS (2007) National Accounts Statistics – Sources & Methods, Chapter 13, CSO, Govt. of India, New Delhi.
Olley, G. S. and Pakes, A. (1996) ‘The Dynamics of Productivity in the Telecommunications Equipment Industry’,’ Econometrica, 64 (6), 1263–1297.
Pattnayak, S. S. and Thangavelu, S.M. (2005) Economic reform and productivity growth in Indian manufacturing industries: an interaction of technical change and scale economies, Economic Modelling, 22, No.4, 601-615.
Pradhan, G. and Barik, K. (1998) Fluctuating total factor productivity in India: evidence from selected polluting industries, Economic and Political Weekly, 33, M25–M30.
Ramaswamy, K. V. (1999). The Search for Flexibility in Indian Manufacturing: New Evidence on Outsourcing Activities. Economic and Political Weekly, 6 February, pp. 363–68.
Rao, J.M. (1996) "Manufacturing Productivity Growth: Method and Measurement", Economic and Political Weekly, 31: 2927-36.
Ray, S. C. (1997) Regional variations in productivity growth in Indian manufacturing: a nonparametric analysis, Journal of Quantitative Economics, 13, 73-94.
Ray, S. C. (2002) Did India’s economic reforms improve efficiency and productivity? a nonparametric analysis of the initial evidence from manufacturing, Indian Economic Review, 37, 23-57.
Salim, R. A. and K.P. Kalirajan (1999) “Sources of output growth in Bangladesh food processing industries: a decomposition analysis”, The Developing Economies, 37, 247-269.
Sarris, A. and Hallam, D. (2006) Agricultural Commodity Markets and Trade, Edward Elgar, Cheltenham.
Sen, K. (2009), Trade Policy, Inequality and Performance in Indian Manufacturing, Routledge, London.
Sen, K. and R.R. Vaidya (1997), The Process of Financial Liberalization in India, Delhi: Oxford University Press.
Srinivasan, T.N., 2000. Eight Lectures on India’s Economic Reforms. Oxford University Press, New Delhi.
Srivastava, V. (2000), “The Impact of India’s Economic Reforms on Industrial Productivity, Efficiency and Competitiveness.” Report of a project sponsored by the Industrial Development Bank of India. New Delhi: National Council of Applied Economic Research.
Trivedi, P. (2004) An inter-state perspective on manufacturing productivity in India: 1980-81 to 2000-01, Indian Economic Review, 39, 203-237.
Trivedi, P., A. Prakash and D. Sinate (2000) Productivity in Major Manufacturing Industries in India: 1973-74 to 1997-98, Study No. 20, DRG, RBI, August.
Unel, Bulent (2003) Productivity Trends in India's Manufacturing Sectors in the last Two Decades, IMF Working Paper No. WP/03/22.
Unni, J., Lalitha, N. and Rani, U. (2001) Economic reforms and productivity trends in Indian manufacturing’, Economic and Political Weekly, 36, 3915-22.