Productivity trends in Indian manufacturing in the pre- and post- reform periods

Abstract

Contradicting the findings of several earlier studies, a recent study on productivity trends in Indian manufacturing by Unel (2003) has concluded that total factor productivity (TFP) growth in Indian manufacturing accelerated after the 1991 economic reforms.A relatively faster growth in TFP in Indian manufacturing in the post-reform period as compared to the pre-reform period has been reported also in a study undertaken recently by the Tata Services Limited (TSL) (2003).A close look at the methodology adopted in these two studies, however, reveals certain shortcomings, raising doubts about the reliability of findings.The paper presents an alternative set of estimates of TFP growth in Indian manufacturing in the last two decades, which have been made following by and large the methodology of input and output measurement adopted in the studies of Unel and TSL, but avoiding the methodological inadequacies noticed in these studies.The estimates indicate a slowdown in TFP growth in Indian manufacturing in the postreform period, and thus do not bear out the findings of the studies by Unel and TSL.To supplement the analysis of productivity trends in the pre-and post-reform periods, the paper takes a close look at growth in employment and output in India's organized manufacturing sector in the period since the mid-1990s.The analysis reveals that the trend rate of growth in employment in the period 1997-98 to 2001-02 was significantly negative, at about -3.3 per cent per annum.The trend growth rate in real value added in the period 1996-97 to 2001-02 was very low at about 0.5 per cent per annum.This was much lower than the trend growth rates in real value of output and the Index Number of Industrial Production (manufacturing) in this period, both exceeding 5 per cent per annum.

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