Big Reforms but Small Payoffs: Explaining the Weak Record of Growth and Employment in Indian Manufacturing

Gupta, Poonam and Hasan, Rana and Kumar, Utsav (2009): Big Reforms but Small Payoffs: Explaining the Weak Record of Growth and Employment in Indian Manufacturing.

Abstract

India has undertaken extensive reforms in its manufacturing sector over the last two decades. However, an acceleration of growth in manufacturing, and a corresponding increase in employment, has eluded India. Why have the reforms not produced the intended results? Using Annual Survey of Industries data at the three digit level for major Indian states, for 1980-2004, we analyze the effects of the reforms that liberalized India’s industrial licensing regime on the performance of registered manufacturing. We find that the performance of the manufacturing sector is heterogeneous across states, as well as across industries. In particular, labor intensive industries and industries dependent on infrastructure have not benefited much from reforms. Industrial performance appears to be contingent on the state specific policy and economic environment. States with relatively inflexible labor regulations have experienced slower growth of labor-intensive industries and slower employment growth overall. Additionally, states with relatively competitive product market regulations and with better infrastructure have experienced larger benefits from reforms.

• Item Type: MPRA Paper
• Language: English
• Keywords: India; Manufacturing; Product Market Deregulation; Labor Laws, Infrastructure
• Subjects: H - Public Economics > H5 - National Government Expenditures and Related Policies > H54 - Infrastructures ; Other Public Investment and Capital Stock; L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation; 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 > L52 - Industrial Policy ; Sectoral Planning Methods; P - Economic Systems > P2 - Socialist Systems and Transitional Economies > P23 - Factor and Product Markets ; Industry Studies ; Population; L - Industrial Organization > L5 - Regulation and Industrial Policy > L50 - General; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L60 - General

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