Performance of Indian Manufacturing in the Post Reform Period

Gupta, Poonam and Kumar, Utsav (2010): Performance of Indian Manufacturing in the Post Reform Period. Forthcoming in:

Abstract

Many emerging countries in recent decades have relied on a development strategy that focused primarily on promoting the manufacturing sector and the exports of manufactured goods. However, an acceleration of growth of output and employment in manufacturing has eluded India. This is despite the fact that the central focus of the reforms in the 1980s and 1990s was to unshackle the manufacturing sector. Instead it is the services sector which has grown rapidly, contributing about two-third of GDP growth in recent years. This paper discusses the reasons behind the modest performance of the manufacturing sector in India post reforms. It argues that there are many factors that have inhibited the growth of industrial sector in India. One major factor is the rigid and strict labor laws which have affected the industrial performance in a number of ways, by keeping the size of the establishments small, by not encouraging the production of labor intensive goods, by pushing activities to the unorganized sector, and by keeping the Indian industry uncompetitive. Besides the labor laws other factors that are responsible for the modest performance of the manufacturing sector include difficulty in the acquisition of land for industrial use, inadequate financing and infrastructure, and cumbersome business climate. The paper presents arguments and evidence which shows the importance of these factors.

• Item Type: MPRA Paper
• Language: English
• Keywords: Delicesning, employment, growth, India, infrastructure, labor market regulations, liberalization, manufacturing, reforms, services
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O10 - General; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O53 - Asia including Middle East; L - Industrial Organization > L5 - Regulation and Industrial Policy > L50 - General; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L60 - General

References

Aghion, P., R. Burgess, S. Redding, and F. Zilibotti. 2006. “The unequal effects of liberalization: Evidence from dismantling the License Raj in India.” CEP Discussion Paper no. 728.

Ahluwalia, I. 1987. Industrial Growth in India: Stagnation since the Mid-Sixties. Delhi: Oxford University Press.

__________. 1991. Productivity and Growth in Indian Manufacturing. Delhi: Oxford University Press.

Ahluwalia. M. 2002. “Economic reforms in India since 1991: Has gradualism worked?” Journal of Economic Perspectives, 16 (3): 67-88. Where did you cite this paper in the text I did not find

Ahsan, A. and C. Pagés. 2007. “Are all labor regulations equal? Assessing the effects of job security, labor dispute and contract labor laws in India.” Policy Research Working Paper no. 4259. World Bank.

Anant, T.C.A. 2000. “Reforming the Labour Market,” in S. Gangopadhyay and W. Wadhwa (eds.), Economic Reforms for the Poor. Delhi: Konark.

Anant, T.C.A., R. Hasan, P. Mohapatra, R. Nagaraj, R. and S.K. Sasikumar. 2006. “Labor markets in India: Issues and perspectives.” in J. Felipe and R. Hasan (eds), Labor Markets in Asia: Issues and Perspectives. London: Palgrave Macmillan for the Asian Development Bank. 205-300.

van Ark, B., V. Chen, A. Erumban, and U. Kumar. 2009. “The Cost Competitiveness of the Manufacturing Sector in China and India: An Industry and Regional Perspective”, The Conference Board Economics Working Paper, EPWP#09-02.

Banerjee, A. and E. Duflo. 2008. “Do firms want to borrow more? Testing credit constraints using a directed lending program." Bureau of Research and Economic Analysis of Development. Working Paper no. 5. Available at http://www.cid.harvard.edu/bread/abstracts/005.htm.

Banerjee, A., S. Cole, and E. Duflo. 2004. “Banking reform in India.” Bureau of Research and Economic Analysis of Development. Policy Paper no. 6.

Besley, T. and R. Burgess. 2004. “Can regulation hinder economic performance? Evidence from India.” Quarterly Journal of Economics, 119(1): 91-134.

Bhattacharjea, A. 2006. “Labour market regulation and industrial performance in India: A critical review of the empirical evidence.” The Indian Journal of Labour Economics, 49(2): 211-32. Where did you cited this paper in the text I did not find??

__________. 2008. "How do Indian firms respond to employment protection legislation?" mimeo.

Bosworth, B., S. M. Collins and A. Virmani.2007. “Sources of Growth in the Indian Economy ”, NBER working paper. W12901.

Das, D. K.. 2003. "Manufacturing productivity under varying trade regmies: India in the 1980s and 1990s," ICRIER, New Delhi Working Papers 107.

Datta-Chaudhuri, M. 1996. “Labor markets as social institutions in India.” IRIS-India Working Paper no. 10. University Of Maryland at College Park.

Debroy, B. 2010. “Segmentation and Unification in the People’s Republic of China’s Labor Market: Lessons for India.” in K. Gerhaeusser, Y. Iwasaki, and V. B. Tulasidhar (eds), Resurging Asian Giants: Lessons from the People’s Republic of China and India. pp. 167-200. Asian Development Bank: Manila.

Datta, R. 2003. “Labor market, social institutions, economic reforms and social cost.” in S. Uchikawa (ed), Labour Market and Institution in India, 1990s and Beyond. New Delhi: Manohar.

Eichengreen, B. and P. Gupta. 2009. “Two Waves of Services Growth”, NBER Working Paper# 14968.

Eichengreen, B. and P. Gupta. 2010. “Services Sector Growth: India’s Road to Economic Growth. Indian Council for Research on International Economic Relations (ICRIER) Working Paper no 249.

Gordon, J. and P. Gupta. 2004. “Understanding India’s services revolution.” Working Paper no. WP/04/171. International Monetary Fund.

Gupta, P., R. Hasan, and U. Kumar. 2008. “What constrains Indian manufacturing?” ICRIER. Working Paper no. 211.

Gupta, P., R. Hasan, and U. Kumar. 2009. “Big Reforms but Small Payoffs: Explaining the Weak Record of Growth in Indian Manufacturing” in S. Bery, B. Bosworth, and A. Panagariya (eds), India Policy Forum, volume 5, pp 59-108.

Gupta, P. and A. Palit. 2010. “Reforms of the State Owned Enterprises in Resurging Asian Giants: Lessons from the People's Republic of China and India.” in K. Gerhaeusser, Y. Iwasaki, and V. B. Tulasidhar (eds), Resurging Asian Giants: Lessons from the People’s Republic of China and India. pp. 167-200. Asian Development Bank: Manila.

Gupta, P., K. Kochhar, and S. Panth. 2010. “Bank Ownership and the Effects of Financial Liberalization: Evidence from India”. mimeo.

Haldea, G. 2010. “Building Infrastructure: Challenges and Opportunities”. Presentation at Planning Commission. New Delhi. Available at http://infrastructure.gov.in/presentation_march23_2010/pres/building-infrastructure.pdf

Hasan, R., D. Mitra, and K.V. Ramaswamy. 2007. “Trade reforms, labor regulations, and labor-demand elasticities: Empirical evidence from India.” Review of Economics and Statistics, 89(3, August): 466–81.

Kochhar, K., U. Kumar, R. Rajan, A. Subramanian, and I. Tokatlidis. 2006. “India’s pattern of development: What happened, what follows?” Journal of Monetary Economics. vol. 53: 981-1019.

Krueger, A.O. 2007. “The missing middle.” The Stanford Center for International Development Working paper no. 343.

Kumar, U. 2008. “Will India Become the New Engine of Manufacturing Production in the World?” Presentation at Tsinghua University, Beijing.

Lall, R., A. Rastogi, and R. Anand. 2007. “Financing and Implementation of Infrastructure Projects”, mimeo, IDFC.

McKinsey Global Institute. 2006. Accelerating India’s Growth through Financial System Reform. San Francisco: McKinsey&Company.

McKinsey. 2007. Clearing the Way for Robust Growth: An Interview with India’s Chief Economic planner. The McKinsey Quarterly.Special Edition: Building a Better India. McKinsey&Company.

Mohan, R. 2002. “Small Scale Industrial Policy in India: a Critical Evaluation.” In: Krueger, A. O. (Ed.), Economic Policy Reforms and the Indian Economy. Chicago: University of Chicago Press.

Nagaraj, R. 2002. “Trade and labor market linkages in India: Evidence and issues.” Economic Series Working Paper no. 50. East West Center, Hawaii.

Nagaraj, R. 2005. “Industrial Growth in China and India: A Preliminary Comparison." Economic and Political Weekly, Vol. 40, No. 21, May 21-27, 2005. China-India Comparison

Nagaraj, R. 2009. “Is Services Sector Output Overestimated? An Enquiry” Economic and Political Weekly, 44(5), January 31, 2009.

OECD. 2007. OECD Economic Surveys: India. Volume 2007, Issue no. 14. Organization for Economic Co-operation and Development: Paris

Panagariya, A. 2004. “India’s Trade Reform.” in S. Bery, B. Bosworth, and A. Panagariya (eds), India Policy Forum, vol. 1, 1–57.

Panagariya, A. 2008. India: The Emerging Giant. Oxford University Press. New York

Papola, T. S. 2008. Labor Regulation in Indian Industry. Volume 1-10. Bookwell Publishers: New Delhi.

Planning Commission. 2007. “Projections of Investment in Infrastructure During the Eleventh Plan”, The Secretariat for the Committee on Infrastructure, Planning Commission, Government of India.

Pursell, G., N. Kishor, and K. Gupta. 2007. “Manufacturing Protection in India Since Independence,” ASARC Working Paper 2007/07, Australia South Asia Research Centre, Australian National University.

Ramaswamy, K.V. 2003. “Liberalization, outsourcing and industrial labor markets in India: Some preliminary results.” In Labour Market and Institution in India: 1990s and Beyond, edited by Shuji Uchikawa. New Delhi: Manohar.

Rangarajan, C., Padma Iyer Kaul, Seema. 2007. “Revisiting Employment and Growth”. ICRA Bulletin Money and Finance. September 2007. pp 57-68.

Report of the Second National Commission on Labor. 2002. Ministry of Labour and Employment. Government of India.

Sharma, A. N. 2006. “Flexibility, Employment and Labour Market Reforms in India,” Economic and Political Weekly, May 27, 2006, pp. 2078-85;

World Bank. 2004. India Investment Climate Assessment 2004: Improving Manufacturing Competitiveness.