Productivity Growth in India under Different Policy regimes: India KLEMS Research Team

Transcription

1 Productivity Growth in India under Different Policy regimes: India KLEMS Research Team 3 rd world KLEMS Conference May 2014 Tokyo, Japan

2 Does Policy Regimes matter? Post independence and till 1980, GDP growth in India averaged around 3.5 percent. The 1980s saw growth exceeding 5 percent per annum on a consistent basis. Economic reforms were initiated in 1991 but for a decade, there was no acceleration in GDP growth it stayed constant at 5.5 percent per annum. Starting 2003, however, there has been a marked acceleration in GDP growth to more than 8 percent per annum. Is there a connection between economic performance and policy regimes- We set out to explore the productivity performance of Indian economy under different policy regimes. Page 2

3 Policy Regimes Several scholarly write ups (Sen, Bhagwati & Panagariya, Arvind Virmani, Rodrik and Subramanian etc) address India s policy regimes since 1947 ( with emphasis on changes in Indian economy beginning 1980s) We have accordingly labeled the study period from as 3 different policy regimes- 1980s, 1990s ( beginning ) and 2000s Policy Regimes in India: A , a phase of piecemeal and ad hoc policy changes. B , a phase of major changes in economic policy. C , a period of consolidation of economic reforms. Page 3

4 India KLEMS Dataset Time period of the study: to Industrial classification: India KLEMS classification of Total economy, broad sectors and 26 disaggregated industry groups. Methodology: Growth Accounting based on both GVA and GVO approach Variables of interest: Gross value of output and Gross value added Labor input- Labor persons and Labor quality Capital input- Capital Stock and Capital services Intermediate inputs- Material, Energy and services All data have been benchmarked to National Accounts Data, Central Statistical Organization, Government of India Page 4

5 Classification of broad sectors Note : The division of manufacturing into three subgroups is based on percentile of L/k ratio obtained from India KLEMS dataset Page 5

6 Even though average GDP growth in 2000s jumped to 7.4% from 5.9% decade before, contribution of TFP growth declined to 1.3% from 1.6% in 1990s Total Economy % s 1990s 2000s GDP growth TFP Growth Page 6

7 The pick-up in GDP growth during 2000s is mostly explained by almost doubling of contribution of capital services compared to last two decades Contribution to GDP Growth: Total Economy (%) % % % % s 1990s 2000s TFPG Capital Quality Capital Services Labour Quality Labour Person Page 7

8 At an aggregate level capital services started growing much faster than GDP after In case of Manufacturing the divergence started in mid 1990s and services it has converged Page 8

9 The aggregate TFP growth in Indian economy and services sector in particular followed very similar distribution in the last 3 decades but manufacturing sector had experienced very large volatility Total Factor Productivity growth: % 25% 20% Average Total Economy TFPG=1.4% Average Services TFPG=1.7% Density 15% 10% 5% Average Manufacturing TFPG=1.6% 0% % TFP growth (%) Total Economy Manufacturing Services Page 9

10 In Manufacturing, 1990s was a decade of factor accumulation but gradual diffusion of technology may have contributed to surge in TFP growth in 2000s Contribution to GDP Growth: Manufacturing (%) % % % 8.21% TFPG Capital Quality Capital Services Labour Quality Labour Person s 1990s 2000s Page 10

11 There was sharp fall in manufacturing TFP growth in 1990s which jumped to 2.6% in 2000s, reversed was observed in case of services sector, where average TFP growth declined in 2000s TFP growth % s 1990s 2000s Manufacturing Services Page 11

12 Agriculture factor experienced surge in growth during 1990s owing to substantial jump in TFP growth. There has been doubling of capital services contribution in 2000s Contribution to GDP Growth: Agriculture (%) % 3.47% 2.88% 3.10% s 1990s 2000s TFPG Capital Quality Capital Services Labour Quality Labour Person Page 12

13 In Services, 1990s saw sudden jump in TFP growth but 2000s has been a decade of capital accumulation Contribution to GDP Growth: Services (%) % % % % TFPG Capital Quality Capital Services Labour Quality Labour Person s 1990s 2000s Page 13

14 Manufacturing TFP was higher than aggregate economy till mid 1990s but in 2000s Services TFP started growing faster than economy Total Factor Productivity Index:1980= s 1990s 2000s Total economy Agriculture Manufacturing Non manufacturing Services Page 14

15 Low labour intensive manufacturing TFP grew much faster than total economy till mid 1990s but fell sharply in second half of 1990s Total Factor Productivity: Manufacturing sector Index:1980= s 1990s 2000s Total economy High labour intensive Medium Labour Intensive Low Labour Intensive Page 15

16 Till 2000,Non market services TFP grew faster than total economy but in 2000s, Market services TFP picked up Total Factor Productivity: Services sector Index:1980= s 1990s Total economy Market services Non market services 2000s Page 16

17 Capital services growth in High Labour Intensive Manufacturing, has been highest, the pace got faster in 2000s Capital Services Index:1980= s Agriculture HLI-Manufacturing MLI-Manufacturing LLI-Manufacturing Non Manufacturing Market Services Non Market Services 1990s 2000s Page 17

18 Non-manufacturing and market services contributed majorly to the additional employment after Employment in construction was the major driver in non-manufacturing sector s job creation Labour Person Index:1980= s 1990s 2000s Agriculture HLI-Manufacturing MLI-Manufacturing LLI-Manufacturing Non Manufacturing Market Services Non Market Services Page 18

19 Till almost 2005, labour person grew at faster rate than labour productivity in the economy. After 2005, Labour productivity growth has doubled Total Economy Index:1980= s 1990s 2000s Labour Productivity growth Labour Share in GDP Labour Person Labour Quality Page 19

20 Examining different policy regimes

21 Performance of 26 industries: Based on acceleration in TFPG Value Added approach of TFP Growth estimation Acceleration in TFPG in 2000s over 1990s Coke, Refined Petroleum Wood & Wood Products Chemical & chemical products Paper & printing Textile & leather Manufacturing,nec 2 Good performer in 2000s but bad performer in 1990s Rubber & Plastic Post & Telecom Transport Equipment Hotels & Restaurents Acceleration in TFPG in 1990s over 1980s 1 Good performer both in 1990s & 2000s 4 3 Worst Performer 4 Good performer only in 1990s Page 21

22 Manufacturing sector including Non market services contributed majorly to TFP growth in 1980s TFP Growth (%): Low LI-Manufacturing Agriculture Non Market Services Industry 4 Medium LI-Manufacturing Services High LI-Manufacturing Agriculture Market Services 1 Non Manufacturing GVA Share (%): Page 22

23 With the opening up of the economy in 1991,services sector TFP growth saw substantial jump compared to 1980s TFP Growth (%): Non Market Services Medium LI-Manufacturing Agriculture 2.2 Market Services 1.9 Agriculture Industry Services 1 Non Manufacturing High LI-Manufacturing GVA Share (%): Low LI-Manufacturing Page 23

24 Market services and Low labour intensive manufacturing achieved relatively high TFP growth during 2000s, the 2 sector contributed almost 35% of GVA in 2011 TFP Growth (%): Low LI-Manufacturing Market Services 3.7 High LI-Manufacturing Agriculture Agriculture Industry Services Non Market Services GVA Share (%): Medium LI-Manufacturing Non Manufacturing Page 24

25 Manufacturing sector including Non market services contributed majorly to Labour productivity growth in 1980s LP Growth (%): Low LI-Manufacturing High LI-Manufacturing 5.1 Medium LI-Manufacturing 3.7 Non Market Services Agriculture GVA Share (%): Agriculture Industry Services Market Services 0.4 Non Manufacturing Page 25

26 Labour productivity growth increased from 2% in 1980s to 3.7% in 1990s because of substantial jump in services sector s contribution LP Growth (%): Medium LI-Manufacturing Non Market Services Agriculture Industry 5 Market Services Services High LI-Manufacturing Agriculture Low LI-Manufacturing Non Manufacturing GVA Share (%):1999 Page 26

27 Labour productivity growth increased from 3.7% in 1990s to 4.4% in 2000s, Manufacturing sector contributed along with Market services LP Growth (%): Low LI-Manufacturing Market Services 10 High LI-Manufacturing Agriculture Industry Services Medium LI-Manufacturing Non Market Services 5 Agriculture Non Manufacturing GVA Share (%):2011 Page 27

28 Contribution of factor inputs and TFP to GVA, sub periods non market services market services Services Non manufacturing to Low Labour Intensive Medium Labour Intensive High labour intensive Manufacturing non market services market services Services Non manufacturing Low Labour Intensive Medium Labour Intensive High labour intensive Manufacturing to non market services market services Non manufacturing Medium Labour Intensive to Services Low Labour Intensive High labour intensive Manufacturing Agriculture Agriculture Agriculture Total economy Labour person Labour quality capital stock capital quality TFP Total economy Labour person Labour quality capital stock capital quality TFP Total economy Labour person Labour quality capital stock capital quality TFP Page 28

29 Performance of 26 industries: Based on acceleration in TFPG Gross Output approach of TFP Growth estimation Acceleration in TFPG in 2000s over 1990s Wood & Wood Products Chemical & chemical products 2 1 Coke, Refined Petroleum 3 Manufacturing,nec Education Textile & leather Mining Hotel & Restaurents Post & Telecom Acceleration in TFPG in 1990s over 1980s 4 1 Good performer both in 1990s & 2000s 2 Good performer in 2000s but bad performer in 1990s 3 Worst Performer 4 Good performer only in 1990s Page 29

30 Contribution of intermediate inputs growth in Gross Output growth (intermediate input growth/gross Output growth) All Intermediate inputs 120% 100% 80% 60% 40% 20% Agriculture Mining Food Produtcs Textile & leather Paper & printing Coke, Refined Petroleum Chemicals and Products Rubber and Plastic Products Other Non-Metallic Basic Metals Machinery, nec. Electrical Eqp Transport Eqp Manufacturing, nec Utilities Construction Trade Hotels and Restaurants Transport and Storage Post and Telecom Financial Intermediation Public Administration and Education Health and Social Work Other Services 0% -20% Note: Wood and products of woods has been removed from the list as it was an outlier Page 30

31 Contribution of Energy growth in Gross Output growth (Energy growth/gross Output growth) 35% 30% 25% 20% 15% 10% 5% Agriculture Mining Food Produtcs Textile & leather Paper & printing Coke, Refined Petroleum Chemicals and Products Rubber and Plastic Products Other Non-Metallic Basic Metals Machinery, nec. Electrical Eqp Transport Eqp Manufacturing, nec Utilities Construction Trade Hotels and Restaurants Transport and Storage Post and Telecom Financial Intermediation Public Administration and Education Health and Social Work Other Services Energy 0% -5% -10% Note: Wood and products of woods has been removed from the list as it was an outlier Page 31

32 Contribution of Material growth in Gross Output growth (Material growth/gross Output growth) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% Agriculture Mining Food Produtcs Textile & leather Paper & printing Coke, Refined Petroleum Chemicals and Products Rubber and Plastic Products Other Non-Metallic Basic Metals Machinery, nec. Electrical Eqp Transport Eqp Manufacturing, nec Utilities Construction Trade Hotels and Restaurants Transport and Storage Post and Telecom Financial Intermediation Public Administration and Defence Education Health and Social Work Other Services Material Note: Wood and products of woods has been removed from the list as it was an outlier Page 32

33 Contribution of Services growth in Gross Output growth (Services growth/gross Output growth) 50% 40% 30% 20% 10% Agriculture Mining Food Produtcs Textile & leather Paper & printing Coke, Refined Petroleum Chemicals and Products Rubber and Plastic Products Other Non-Metallic Basic Metals Machinery, nec. Electrical Eqp Transport Eqp Manufacturing, nec Utilities Construction Trade Hotels and Restaurants Transport and Storage Post and Telecom Financial Intermediation Public Administration and Defence Education Health and Social Work Other Services Services 0% -10% Note: Wood and products of woods has been removed from the list as it was an outlier Page 33

34 Contribution of factor inputs and TFP to GVO growth 1980s Other Services Health and Social Work Education Public Administration and Defence Financial Intermediation Post and Telecom Transport and Storage Hotels and Restaurants Trade Construction Electricity, Gas and Water Supply Manufacturing, nec Transport Equipment Electrical and Optical Eqp Machinery, nec. Basic Metals and Fabricated Metal Products Other Non-Metallic Mineral Products Rubber and Plastic Products Chemicals and Products Coke, Refined Petroleum Pulp, Paper Wood and Products Textiles & Leather Products Food Products Mining and Quarrying Agriculture to Labour input Capital input Intermediate input TFP Page 34

35 Contribution of factor inputs and TFP to GVO growth 1990s Other Services Health and Social Work Education Public Administration and Defence Financial Intermediation Post and Telecom Transport and Storage Hotels and Restaurants Trade Construction Electricity, Gas and Water Supply Manufacturing, nec Transport Equipment Electrical and Optical Eqp Machinery, nec. Basic Metals and Fabricated Metal Products Other Non-Metallic Mineral Products Rubber and Plastic Products Chemicals and Products Coke, Refined Petroleum Pulp, Paper Wood and Products Textiles & Leather Products Food Products Mining and Quarrying Agriculture to Labour input Capital input Intermediate input TFP Page 35

36 Contribution of factor inputs and TFP to GVO growth 2000s Other Services Health and Social Work Education Public Administration and Defence Financial Intermediation Post and Telecom Transport and Storage Hotels and Restaurants Trade Construction Electricity, Gas and Water Supply Manufacturing, nec Transport Equipment Electrical and Optical Eqp Machinery, nec. Basic Metals and Fabricated Metal Products Other Non-Metallic Mineral Products Rubber and Plastic Products Chemicals and Products Coke, Refined Petroleum Pulp, Paper Wood and Products Textiles & Leather Products Food Products Mining and Quarrying Agriculture to Labour input Capital input Intermediate input TFP Page 36

37 Summing Up Increases in average GDP growth in 2000s is not accompanied by an increase in overall TFPG, rather growth has been primarily driven by capital accumulation While growth of manufacturing sector has been quite volatile, economic growth in India followed the pattern of services sector quite well Policy changes in the 1990s seems to have helped improve manufacturing productivity, though after a long period of intensive capital accumulation TFP growth in manufacturing sector has improved in 2000s, while in the 1990s following the liberal market reforms, manufacturing has seen substantial contribution from capital accumulation. TFPG in less labor intensive sectors picked up in 2000s, where capital services also grew quite substantially in the 1990s. However, TFPG in the services sector, in general, has decelerated in the 2000s, compared to 1990s. Market services, nevertheless, has shown an improvement in TFPG Post and Telecom, Textiles and Transport Equipment are among the best performers in 2000s. The liberal market reforms in the 1990s seem to have benefitted market services in expanding investment, productivity and growth in the post reform period, while it helped accumulation of capital in some segments of manufacturing immediately after the reforms, opening up to foreign technology and import of capital goods which might be translating into better productivity gain in the latter period. Yet, there are substantial challenges ahead, as infrastructure and labor market rigidities still remain as major constraint for manufacturing growth in India. Page 37

38 Page 38 APPENDIX

39 Average annual growth rates in Gross Value added, by Broad sector, ( % per annum) Sectors to to to to Total economy Agriculture Manufacturing High labour intensive Medium labour Intensive Low labour Intensive Non manufacturing Services Market services Non market services Page 39

40 Sectoral Shares (%) in nominal value added and employment in midpoint of each sub period Sector Value Value Value Employment Employment added added added Employment Agriculture Manufacturing High labour intensive Medium labour intensive Low labour intensive Non manufacturing Services Market services Non market services Total Economy Page 40

41 Industry origin of value added growth, input and TFP contribution to aggregate growth to to to to Value Added Industry Contribution Agriculture Manufacturing High labour intensive Medium labour Intensive Low labour Intensive Non manufacturing Services Market services Non market services Inputs and TFP growth contribution Labour person Labour quality Capital stock Capital quality TFP growth Page 41

42 Growth rates in GVA and contribution of factor inputs and TFP to GVA, by broad sectors, to Contribution Sectors GVA Labour person Labour Quality Capital stock Capital quality TFPG Total economy * Agriculture * Manufacturing High labour intensive Medium labour Intensive Low labour Intensive Non manufacturing Services Market services Non market services Note : *Contribution of land input is included in capital stock Page 42

43 Annual Average growth rates of labour productivity and total factor productivity, by industry ( % per annum) to to to to Industry RGVA/Person TFP RGVA/Person TFP RGVA/Person TFP RGVA/Person TFP Agriculture, Hunting, Forestry and Fishing^ Mining and Quarrying Food Products, Beverages and Tobacco Textiles, Textile Products, Leather and Footwear Wood and Products of Wood Pulp, Paper, Paper Products, Printing and Publish Coke, Refined Petroleum Products and Nuclear Fuel Chemicals and Chemical Products Rubber and Plastic Products Other Non-Metallic Mineral Products Basic Metals and Fabricated Metal Products Machinery, nec Electrical and Optical Equipment Transport Equipment Manufacturing, nec; recycling Electricity, Gas and Water Supply Construction Trade Hotels and Restaurants Transport and Storage Post and Telecommunication Financial Intermediation Public Administration and Defense; Compulsory Social Education Health and Social Work Note : TFPG computed using labour input, capital stock. TFPG of total economy and Agriculture includes land as an input Other Services Page 43

44 Contribution of factor inputs and TFP to GVO growth: to Industry Contribution of inputs and TFPG GVO growth Labour input Capital input Intermediate input TFPG Agriculture Mining and Quarrying Food Products and beverages Textiles & Leather Products Wood and Products Pulp, Paper, paper products Coke, Refined Petroleum Chemicals and Products Rubber and Plastic Products Other Non-Metallic Mineral Products Basic Metals and Fabricated Metal Machinery, nec Electrical and Optical Eqp Transport Equipment Manufacturing, nec Electricity, Gas and Water Supply Construction Trade Hotels and Restaurants Transport and Storage Post and Telecom Financial Intermediation Public Administration and Defense Education Health and Social Work Other Services Page 44

45 Relationship between TFP growth and Labour productivity growth Total Economy ( ) TFP growth(%) Labour Productvity growth (%) Total economy Agriculture Manufacturing Services Non-Manufacturing Page 45

46 Relationship between TFP growth and Labour productivity growth Manufacturing ( ) TFP growth (%) Labour Productivity growth(%) Total economy HLI-Manufacturing MLI-Manufacturing LLI-Manufacturing Page 46

47 Relationship between TFP growth and Labour productivity growth Services ( ) TFP growth (%) Labour Productivity growth(%) Total economy Services Market services Non Market Services Page 47

48 Acknowledgements The financial support from Reserve Bank of India is gratefully acknowledged The research team thanks Professor K L Krishna for his intellectual inputs and continued support to the India KLEMS research project. The research team is grateful to Professor B N Goldar for his advisory role in the India KLEMS research project We thank all the researchers associated at different stages of the creation of the India KLEMS dataset. The research team comprised of Deb Kusum Das, Abdul Azeez Erumban, Suresh Aggarwal and Sreerupa Sengupta All communications regarding the India KLEMS research work should be addressed at dkd_ramjas@yahoo.com Page 48