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Economic Liberalisation, Structural Change and Productivity Growth in Indian Organised Manufacturing Sector, 1991–2016

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Abstract

The present study examines the nature of structural change and productivity dynamics in the organised manufacturing of India since economic liberalisation in the early 1990s. We find significant changes in Indian manufacturing as the specialisation pattern moved towards technology-intensive segments with considerable improvement in output, productivity, wages, and capital intensity. However, a corresponding growth in employment is not observed across many industries. The decomposition of labour productivity at the sectoral level reveals the overwhelming presence of within-sectoral technological change component of growth across different industries. However, the detailed plant-level data show evidence of positive structural change, in terms of static and dynamic shifts, among the medium technology-intensive sectors during the 2000s. The findings point out the need to have comprehensive and strategic policy interventions to address the structural rigidities and institutional bottlenecks in the manufacturing sector.

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Fig. 1

Source: Authors compilation from National Account Statistics (CSO), various issues

Fig. 2

Source: Authors compilation from Annual Survey of Industries (CSO), various issues

Fig. 3

Source: Authors compilation from Annual Survey of Industries (CSO), various issues

Fig. 4

Source: Authors compilation from Annual Survey of Industries (CSO), various issues

Fig. 5

Source: Authors compilation from Annual Survey of Industries (CSO), various issues

Fig. 6

Source: Authors compilation from Annual Survey of Industries (CSO), various issues

Fig. 7

Source: Authors calculation from ASI published data, CSO

Fig. 8

Source: Authors calculation from ASI published data, CSO

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Notes

  1. See Syrquin, (1988); Weiss and Tribe (2016) for a detailed discussion.

  2. The role of manufacturing for potential productivity gains and income growth through production, investment, knowledge and income linkages has been well recognised in the development literature (see Kaldor 1966, UNCTAD 2016).

  3. The static-effect indicates whether workers are shifting towards industries with above-average productivity. The dynamic-effects captures whether labour productivity is higher in industries that expand their employment share (see Foster-McGregor & Verspagen, 2016).

  4. In case the interaction term is negative, this indicates that industries with higher productivity growth cannot maintain their level of employment. This can result in falling share of employment in faster productive industries which indicates the presence structural burden of structural change on aggregate labour productivity as envisaged by Baumol (Peneder 2003).

  5. For a comprehensive literature survey, see Goldar (2014).

  6. NAV measures aggregate shifts in sectoral shares and it is calculated as the one-half of the sum of the absolute value of sectoral share differences between the initial and final years. The MLI is the standard deviation of the sectoral growth rates of employment from initial and final period (see Dietrich 2012 for further details).

  7. It has to be noted that the above conclusion is based on data at current prices. A recent article by Goldar (2018) noted significant improvement in the share of manufacturing in aggregate GVA when double-deflated GVA is used. For instance, the manufacturing share is reported to have increased from 10 percent in 1980–81 to 22% in 2011–12 (see Goldar 2018).

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Acknowledgements

This paper is a revised and updated version of the ISID working paper No 225. We acknowledge the generous financial support and assistance by the Indian Council of Social Science Research (ICSSR). I am thankful to the anonymous referee for his useful and constructive comments and suggestions. The usual disclaimer applies.

Funding

This study is a part of the research project sponsored by the ICSSR, New Delhi, India.

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  1. Institute for Studies in Industrial Development (ISID), Institutional Area, Vasant Kunj, New Delhi, 110070, India

    R. Rijesh

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Rijesh, R. Economic Liberalisation, Structural Change and Productivity Growth in Indian Organised Manufacturing Sector, 1991–2016. Ind. J. Labour Econ. 66, 131–154 (2023). https://doi.org/10.1007/s41027-023-00430-z

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