Intermediate Input Technological Progress Translated into Neoclassical Terms—A Study with Reference to the Indian Economy

Abstract

While the demand-driven Leontief system leads to a reduction in total output when there is increased efficiency of intermediate inputs, in the neoclassical system technological progress must lead to higher output. This paper presents an explanation of technical progress that resolves the apparent paradox using India’s Input–Output table for 2011–12. The idea of technological improvements has been taken from two current programs of development, namely Pradhan Mantri Krishi Sinchai Yojana (PMKSY) and Pradhan Mantri Gram Sadak Yojana (PMGSY) that would lead to increased efficiency of irrigation and water resource usage and increased efficiency of road connectivity across the country in a multi-sector framework. This paper calculates elasticity of final demands with respect to intermediate inputs, as also price effects arising out of changes in Input–Output coefficients. Results indicate that in order to enhance efficiency of intermediate inputs used in the agricultural sectors, it is necessary to adopt similar efficiency augmenting programs in other sectors of the economy as well. This will lead to a balanced increase in productivity of all sectors and affect agriculture more favorably.

Revised version of the paper submitted for the IORA Conference 2017.

Appendices

Appendix 1: Construction of the 135 Sector Commodity × Commodity Input–Output Table

• i. Aggregation of supply table: The six sectors—trade (117) and railway/land/water/air/supportive transport (120–124)—were aggregated into one sector ‘trade and transport.’ Accordingly, the aggregated supply table contains 135 commodity sectors.

• ii. Construction of V matrix: The supply table has dimensions commodities × industries which is transposed to form the V matrix with dimensions industries × commodities. The column totals of the V matrix are total commodity domestically produced, at basic prices.

• iii. Construction of D matrix: D is computed as V * q(d)⁻¹ where q(d) is total commodity domestically produced, at basic prices.

• iv. Aggregation of use table: As in case of the supply table, in the use table also the six sectors—trade (117) and railway/land/water/air/supportive transport (120–124)—were aggregated into one sector ‘trade and transport.’ Accordingly, the aggregated use table contains 135 commodity sectors. However, the aggregated use table thus formed is at producers’ prices. It has to be converted into basic prices. This requires two matrices, namely the matrix of trade and transport margins (TTM) and the matrix of taxes less subsidies (TLS). The aggregated use table at basic prices is formed by subtracting the TTM and TLC from the aggregated use table at producers’ prices, with dimensions commodities × industries. It also contains final demand at basic prices.

• v. Construction of B matrix: B is computed as $U * \hat{x}^{ - 1}$ where x is industry output domestically produced, obtained from the supply table.

• vi. Construction of domestic IO table a basic prices: The domestic Input–Output coefficient matrix A is constructed as A = BD. This gives us the inter-industry domestic transactions matrix Z = Ax. Final use at basic prices was obtained from the aggregated use table at basic prices. Final demand is calculated by subtracting imports from final use.

• vii. Summary of workings:

  • 1. The supply table was adjusted for valuation in purchasers’ prices, to obtain domestic supply q(d).

  • 2. Accordingly, the domestic industry outputs ‘x’ were also changed.

  • 3. B = U * <q(d)> ^−1 was calculated.

  • 4. D = V * <x> ^−1 was computed.

  • 5. A = B * D was obtained.

  • 6. The balancing equation [q(d) = A * q(d) + e − m] was checked.

• viii. Sectors of India’s Input–Output table for 2011–12:

Sector No.	Name	Sector No.	Name
1	Paddy	31	Natural gas
2	Wheat	32	Crude petroleum
3	Coarse cereals	33	Iron ore
4	Gram	34	Manganese ore
5	Arhar	35	Bauxite
6	Other pulses	36	Copper ore
7	Groundnut	37	Other metallic minerals
8	Rapeseed and mustard	38	Limestone
9	Other oilseeds	39	Mica
10	Kapas	40	Other nonmetallic minerals
11	Jute, hemp, and mesta	41	Processed poultry meat and poultry meat products
12	Sugarcane	42	Processed other meat and meat products
13	Coconut	43	Processed fish and fish products
14	Tobacco	44	Processed fruits and processed vegetables
15	Tea	45	Dairy products
16	Coffee	46	Edible oils and fats
17	Rubber	47	Grain mill products, starch, and starch products
18	Fruits	48	Sugar
19	Vegetables	49	Bread and bakery products
20	Other food crops	50	Miscellaneous food products
21	Milk	51	Alcoholic beverages
22	Wool	52	Non-alcoholic beverages
23	Egg and poultry	53	Tea processed
24	Other livestock products	54	Coffee processed
25	Industry wood	55	Tobacco products
26	Firewood	56	Cotton yarn and cotton textiles
27	Other forestry products	57	Synthetic yarn and synthetic textiles
28	Inland fish	58	Wool yarn and woolen textiles
29	Marine fish	59	Silk yarn and silk textiles
30	Coal and lignite	60	Carpet weaving

Sector No.	Name	Sector No.	Name
61	Ready-made garments	91	Industrial machinery for food and textile industry
62	Misc. textile products	92	Industrial machinery (except food and textile)
63	Leather footwear	93	Machine tools
64	Leather and leather products except footwear	94	Other non-electrical machinery
65	Wood and wood products except furniture	95	Electrical industrial machinery
66	Paper, paper products, and newsprint	96	Electrical cables, wires
67	Publishing, printing, and allied activities	97	Batteries
68	Furniture and fixtures	98	Electrical appliances
69	Rubber products	99	Communication equipment
70	Plastic products	100	Other electrical machinery
71	Petroleum products	101	Electronic equipment including TV
72	Coal tar products	102	Medical precision, optical instrument
73	Inorganic chemicals	103	Watches and clocks
74	Organic chemicals	104	Ships and boats
75	Fertilizers	105	Rail equipment
76	Pesticides	106	Motor vehicles
77	Paints, varnishes, and lacquers	107	Motorcycles and scooters
78	Drugs and medicine	108	Bicycles, cycle-rickshaw
79	Soaps, cosmetics, and glycerin	109	Aircraft and spacecrafts
80	Synthetic fibers, resin	110	Other transport equipment
81	Other chemicals and chemical products	111	Gems and jewelry
82	Cement	112	Miscellaneous manufacturing
83	Nonmetallic mineral products	113	Construction and construction services
84	Iron and steel ferroalloys	114	Electricity
85	Iron and steel casting and forging	115	Gas
86	Iron and steel foundries	116	Water supply
87	Nonferrous basic metals (including alloys)	117	Trade and transport
88	Hand tools, hardware	118	Repair and maintenance of motor vehicle
89	Miscellaneous metal products	119	Hotels and restaurant
90	Tractors and other agricultural implements	120	Storage and warehousing

Sector No.	Name	Sector No.	Name
121	Communication services	129	Other business services
122	Financial services	130	Computer-related services
123	Insurance services	131	Public administration and defense
124	Ownership of dwellings	132	Education services
125	Real estate services	133	Human health and social care services
126	Renting of machinery and equipment	134	Community, social and personal services
127	Research and development services	135	Recreation, entertainment and radio and TV broadcasting, and other services
128	Legal services

This commodity × commodity Input–Output table was constructed from the supply and use tables of 2011–12 containing 141 commodity sectors. Trade and transport sector (117) in the above commodity × commodity Input–Output table was obtained by aggregating six commodity sectors of the supply and use tables, namely trade (117) and railway/land/water/air/supportive transport (120–124).

Appendix 2: Final Demand Effects of 1% Increase in Efficiency of Intermediate Inputs in All Sectors

(a) Sectors with more than 1% increase in final demand Agricultural sectors: paddy, sugarcane, wheat, other food crops, kapas, other oilseeds, vegetables Agriculture-based sectors: milk, other livestock products Non-agricultural sectors: crude petroleum, petroleum products, trade and transport, electricity, organic chemicals, inorganic chemicals, financial services, nonferrous basic metals, other chemicals and chemical products, iron and steel casting and forging, coal and lignite, construction and construction services, iron and steel foundries, miscellaneous metal products, plastic products, synthetic fibers and resin, communication services, rubber products, other business services, paper and paper products, iron and steel ferroalloys, fertilizers, gems and jewelry, other nonmetallic minerals, drugs and medicines, hotels and restaurants

(b) Sectors with increase in final demand between 0.9 and 1% Wood and wood products except furniture, iron ore, nonmetallic mineral products

(c) Sectors with increase in final demand between 0.6 and 0.9% Cotton yarn and cotton textiles, natural gas, other non-electrical machinery, edible oils and fats, electrical appliances, real estate services, industry wood, water supply, motor vehicles, synthetic yarn and synthetic textiles, copper ore, electrical industrial machinery, industrial machinery (except food and textiles), renting of machinery and equipment, hand tools hardware, insurance services, rapeseed and mustard

(d) Sectors with increase in final demand between 0.5 and 0.6% Machine tools, miscellaneous textile products, eggs, and poultry

1. Source Results obtained from the present study

Appendix 3: Price Effects of 1% Increase in Efficiency of Intermediate Inputs in All Sectors

(a) Sectors with more than 1% decrease in price Sensitivity of 1.4 and above: gems and jewelry, petroleum products, coal tar products, inorganic chemicals, paints, varnishes and lacquers, inorganic chemicals, communication equipments, fertilizers, pesticides, organic chemicals, gas, motorcycles and scooters, aircraft and spacecrafts, other electrical machinery, other transport equipment, motor vehicles, soaps cosmetics and glycerin, legal services Sensitivity between 1.30 and 1.39: nonferrous basic metals including alloys, iron and steel foundries, miscellaneous manufacturing, iron and steel casting and forging, iron and steel ferroalloys, electrical industrial machinery, electrical cables and wires, electrical appliances, electronic equipment including television, medical precision and optical instruments, paper, paper products and newsprint, ships and boats, coal and lignite Sensitivity between 1.15 and 1.29: rubber products, storage and warehousing, real estate services, communication services, legal services, construction and construction services, electricity, industrial machinery, tractors and other agricultural implements, publishing, printing and allied activities, miscellaneous metal products, machine tools, other chemicals and chemical products, other non-electrical machinery, hand tools, hardware, plastic products, synthetic fibers and resins, communication services Sensitivity between 1.01 and 1.07: ready-made garments, miscellaneous textile products, drugs and medicine, dairy products, processed other meat and meat products, processed fruits and processed vegetables, cotton yarn and cotton textiles, woolen yarn and woolen textiles, carpet weaving, silk yarn and silk textiles, edible oils and fats, processed poultry meat and poultry meat products, processed fish and fish products, watches and clocks, storage and warehousing, synthetic yarn and synthetic textiles

(b) Sectors with decrease in price between 0.5 and 1% Sensitivity between 0.45 and 0.72: human health and social care services, insurance services, public administration and defense, other business services, research and development services, financial services, computer-related services, education services Sensitivity between 0.74 and 1.00: alcoholic and non-alcoholic beverages, firewood, industry wood, other forestry products, crude petroleum and natural gas, sugar, leather and footwear, bread and bakery products, tea and coffee processing, repairs and maintenance of vehicles, recreation entertainment and radio, renting of machinery, manganese ore, bauxite, copper ore, iron ore and other metallic minerals, cement, wood and firewood products, miscellaneous food products, nonmetallic mineral products, furniture and fixtures, grain mill starch and starch products, community social and personal services, trade and transport sector, hotels and restaurants

(c) Sectors with less than 0.5% decrease in price Paddy, wheat, coarse cereals, gram, arhar, other pulses, groundnut, rapeseed and mustard, other oilseeds, coffee, rubber, tobacco, other food crops, sugarcane, vegetables, kapas, jute hemp and mesta, inland and marine fish sectors, milk, wool, eggs and poultry, other livestock products

1. Source Results obtained from the present study

Appendix 4: Sectors Showing Increase in the Ratio of Employees’ Compensation to Operating Surplus

Group (a)

Processed poultry meat and poultry meat products, processed other meat and meat products, processed fish and fish products, processed fruits and processed vegetables, dairy products, edible oils and fats, grain mill products, starch and starch products, sugar, bread and bakery products, miscellaneous food products, alcoholic beverages, non-alcoholic beverages, tea processed, coffee processed, tobacco products

Group (b)

Coal and lignite, natural gas, crude petroleum

Group (c)

Cotton yarn and cotton textiles, synthetic yarn and synthetic textiles, wool yarn and woolen textiles, silk yarn and silk textiles, carpet weaving, ready-made garments, miscellaneous textile products

Group (d)

Leather footwear, leather and leather products except footwear, wood and wood products except furniture, paper, paper products and newsprint, furniture and fixtures, rubber products, plastic products

Group (e)

Petroleum products, coal tar products, inorganic chemicals, organic chemicals, fertilizers, pesticides, paints, varnishes and lacquers, drugs and medicine, soaps, cosmetics and glycerin, synthetic fibers, resin

Group (f)

Iron and steel ferroalloys, electrical industrial machinery, electrical cables, wires, batteries, communication equipment, watches and clocks

Group (g)

Construction and construction services, electricity, gas, water supply, storage and warehousing, communication services

Group (h)

Public administration and defense, education services, human health and social care services, community, social and personal services, recreation, entertainment and radio and TV broadcasting, other services

1. Source Results from the present study

Appendix 5: Ranking of Agricultural Sectors by Power and Sensitivity of Dispersion

S. No.	Name	Ranking out of 135 sectors by power of dispersion	Ranking out of 135 sectors by sensitivity of dispersion
1	Paddy	128	18
2	Wheat	121	25
3	Coarse cereals	113	60
4	Gram	114	75
5	Arhar	122	107
6	Other pulses	118	82
7	Groundnut	126	93
8	Rapeseed and mustard	119	55
9	Other oilseeds	120	33
10	Kapas	129	23
11	Jute, hemp, and mesta	116	99
12	Sugarcane	115	19
13	Coconut	123	85
14	Tobacco	131	78
15	Tea	130	87
16	Coffee	124	83
17	Rubber	127	59
18	Fruits	117	76
19	Vegetables	132	34
20	Other food crops	125	32

1. Notes (i) Power of dispersion of each of the agricultural sectors is less than unity
2. (ii) Sensitivity of dispersion of agricultural sectors with ranks above 34 is less than unity
3. Source Results from the present study