146 PRODUCTIVITY AND GROWTH IN INDIAN MANUFACTURING SECTOR SINCE 1984-85 TO 2004-05S: AN ANALYSIS OF SOUTHERN REGION STATES ABSTRACT 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. 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 prereform 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 gross value 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. It s implying that industrial 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 the beginning 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 some production units can be used more efficiently, the net addition to the total national product will be 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 socioeconomic process of economic development. Since the objective purpose both of productivity increment 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
147 barometer of a nation s progressive prosperity, the real roots of which til in the productivity growth. 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. The share 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 1990-91 and 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 economic reforms 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, 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 improve industrial productivity, it would be appropriate to probe how far the reforms have contributed to the productivity performance of the Indian manufacturing sector. Over the past three decades, several studies have attempted to study the productivity performance 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 measurement of 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 the relationship 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 of determining 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 studies mentioned above. In order to examine the impact of economic reform on productivity over the
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 measures as 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 South region state of India since 1984-85 to 2004-05. (2) To estimate the industrial CAGR of Indian manufacturing sector in major industrial South 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 of empirical 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 structural transformation 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 for production. 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 aggregated output 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 data requirements 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 manufacturing sector. The general formula of Kendrick index is given below;
149 KENDRICK INDEX Kendrick index (1961) of total factor productivity is an arithmetic measure of rate of technological 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 (arithmetic mean) 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+ β K Where, Y = Value of output in real terns. L = Labor in real terns K = Capital in real terns & β = are +ve constants The India is the ratio of output to weighted average of the two factors of production, where base year rates of reward are taken as weight. TFP index of Kendrick is given by Where, A t W L y t r K 0 t 0 6 A t = productivity index at time t y t = actual output at time t. L t = Labour used at time t. K t = Capital stock used at time it. W 0 = share of labor in the base year r 0 = share of capital in the base year.
150 The Kendrick index compares the actual output (y t ) with the output that would have resulted from resources, working at their base year efficiency. The expression W 0 L t + r 0 K t 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. W 0 + r 0 represent the efficiency with which factors operated in the base year. Under the assumption of constant returns to scale-perfect computation and payment to factors according 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 factor productivity, 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: Where, Y = ab t 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 p 1] x 100. MEASUREMENT OF VARIABLES OUTPUT (Q): The Annual Survey of Industries provides data on both the output and the value added 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 value added, 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, so number 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 of capital 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
151 equipments and others. For constructing the capital stock for the sector, CSO s data on fixed capital 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 between gross 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 This means that K t K t 1 0.02 K t 1 I t K1 K0 I1 0.02 K 0 K2 K1 0.02 K1 I 2, and so on The investment figures were obtained using the formula: I t FCt FCt 1 Dt 100 WPICt 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 been converted 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 value added 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 Survey of Industries, a publication of Central Statistical Organization (CSO), Government of India, New Delhi., Reports of Currency and Finance, RBI, Economic Survey, Hand Book of Statistics on Indian Economy, RBI and National Account Statistics.
152 SECTION III: RESULTS AND DISCUSSION (A) Total Factor Productivity and Partial Factor Productivity Measures in Southern Region States of Indian Manufacturing Sector The present study aims to analyze inter temporal and Southern region states comparisons of Total actor Productivity (TFP) and Partial Factor Productivity (PFP) in Indian manufacturing sector by using an integrated growth accounting framework. In the present analysis labour productivity 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 subperiod: (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.
153 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
154 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 prereform period and less fluctuation in post-reform period.
155 TABLE 1.2: ANNUAL TOTAL FACTOR PRODUCTIVITY OF SOUTHERN REGION STATES IN INDIAN MANUFACTURING SECTOR STATES YEARS Andhra Pradesh Karnataka 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
156 Total factor Productivity Where in Kerela labour productivity and capital productivity shows more fluctuation in prereform 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 shows more 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 in Andhra 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 250 Andhra Pradesh Karnataka Kerela 200 Tamil Nadu All States 150 100 50 0
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. Total factor 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 FACTOR PRODUCTIVITY IN INDIAN MANUFACTURING SECTOR This section presents an analysis and explaining of inter temporal comparison of compound annual 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 question arises 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
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 attained positive 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 has been 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 (from 9.10% 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 (1995-96 to 2004-05) by the figure 1.2.
159 TOI TII TFPI TOI TII TFPI TOI TII TFPI TOI TII TFPI TOI TII TFPI % of Index FIGURE 1.2: CAGR OF TOTAL OUTPUT, TOTAL INPUT & TOTAL FACTOR PRODUCTIVITY INDEX OF SOUTH REGION STATES IN INDIAN MANUFACTURING SECTOR CAGR of TFPI, TOI & TII in Southern Region 15 10 5 0-5 Andhra Karnataka Kerela Tamil All Index and State All Period (1984-85to2004-05) Pre-Period (1984-85to1994-95) Post-Period (1995-96to2004-05) The empirical results suggest that it is imperative to fine turn the ongoing programme of macroeconomic 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 the light 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 among various sectors of the economy. For a predominantly agricultural country like India, development of industries is a must. In recent times, beginning from the early 1990 s the Indian economy is opening 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 market while 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
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. The extent 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 it s went up to a little more than 6 % during 1990s. While the contribution of agriculture to GDP decreased from 31.3 % 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 marginal improvement 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. India s 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 fast growing 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 trade openness 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 improved competitiveness 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. The justification 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 improve industrial 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.
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