Productivity Performance of Manufacturing Sector in India

The European Journal of Comparative Economics
Vol. 2, No. 1, May 2010 pp. 207-221

ISSN 1824-2979
Productivity Performance of Manufacturing Sector in

India
S.Nagendran1
Bharathiar University
Abstract
The structure of the Indian economy has undergone a remarkable change after its
independence in 1947. It has been transformed from an agriculture-based economy heavily
reliant on production of primary commodities for exports, to a manufacturing sector based
economy. In this paper the availability of data from the Annual Survey of industries report was
till 2004-05. Thus, this studyhas covered a period of 24 years from 1981-82 to 2004-05. Period I
(1981-82 to 1990-91) relates to the period before liberalisation and Period II (1991-92 to 2004-
05) relates to the period after liberalisation, i.e., the Period I was characterised by the controlled
regime and Period II was characterised by the liberalised regime. It is concludes that
manufacturing sector in India is a capital intensive industry. The growth of total factor
productivity was mainly because of growth in labour productivity. The performance of the
Northern zone was good as compared to the other zones. Efficient utilisation of labour and
capital was attributed in Indian manufacturing sector particularly after liberalisation.
JEL Classification: O14, C35, L60, D24
Keywords: Productivity Performance, Industrial Economics, Econometrics Model in Multiple
Linear Regressions
1. Introduction
The structure of the Indian economy has undergone a remarkable change after
its independence in 1947. It has been transformed from an agriculture-based economy
heavily reliant on production of primary commodities for exports, to a manufacturing
sector based economy. The share of the agriculture sector in the Gross Domestic
Product (GDP) dropped from 42 per cent in 1980’s to 32 per cent in 1990’s and
decreased to 26 per cent in 2005. On the other hand, the share of the manufacturing
sector jumped from 21 per cent in 1980’s 24 per cent in1990’s and increase to 26 per
cent in 2005.
The manufacturing sector has now become the main contributor to the Indian
Gross Domestic Product (GDP) superseding the agricultural sector. Accordingly, the
structure of employment has changed from concentration on agricultural activities to
manufacturing industries and from high labour intensive industries to highly capital-
intensive industries.
2. Statement of the Problem

In the process of economic development, industrial sector especially
manufacturing sector plays an important role. It has been recognized that the share of
manufacturing sector in Gross Domestic Product rises as the economy developed.
Further, it has been observed that the structural transformation in India has made the
industrial sector as remarkable growth over the years.
1 Research Scholar in Economics, Research and Development Centre, Bharathiar University, Coimbatore. E-mail:.
nagu252005@ gmail.com
Available online at http://eaces.liuc.it

208
EJCE, Vol. 2, No. 1, May 2010
The liberalisation process started in 1991 had given an opportunity to the Indian
industries to expand their operations beyond Indian boundaries establishing place of
business outside India. After a decade of reforms, the manufacturing sector is now
gearing up to meet challenges. Investment in Indian companies reached record levels
and many multinational decided to setup shop in India to take advantage of the
improved financial climate. In an effort to provide a further boost to the industrial
manufacturing sector, Foreign Direct Investment has been permitted through the
automatic route for almost all the industries with certain restrictions. Structural reforms
have been undertaken in the exercise duty regime with a view to introduce a single rate
and simplicity.
Companies in the manufacturing sector have consolidated around their area of
core competence by typing up with foreign companies to acquire new technology,
management expertise, and access to foreign markets. Exports can also act as motive
power growth for a rapidly developing Indian economy by promoting investment
including foreign direct investment, particularly in the manufacturing sector. Hence, to
identify the impact of reforms, an attempt was made in this paper to analyse the
productivity performance of manufacturing sector in India.
3. Need for the Study

Industrialisation of a developing economy provides the much needed break
through by providing productive employment to the work force that otherwise would
be either unemployed or under employed. Diversion of these people from agriculture to
other occupation can increase the productive use of labour skills and generate higher
levels of aggregate output. The sound reason for industrialisation is that it can stabilize
the income through diversification of the productive sectors of the economy. From an
initial stage of producing goods which will be import substituting in their nature to
sophisticated industrial manufactures which because of their high tech quality can serve
as potent source of realizing higher volume of export of manufactured goods. It thus
alters the nature of the economy in the export sector from being primary products
exporting to the export modern industrial manufactures.
Manufacturing industry plays a crucial role in the economic development of a
nation. In India also, manufacturing industries play an important role in promoting
national income and economic development. However, studies on the different
theoretical and empirical aspects of industrial growth in Indian context have been quite
limited. But significant of such studies are not only of academic interest but hold
promise to be useful in policy formulation to direct future industrial pattern of industrial
growth. Present study is a humble attempt in this direction.
4. Objectives of the Study

i. To analyse the growth trend of Indian manufacturing sector.
ii. To identify the productivity performance of Indian manufacturing sector.
iii. To give suggestions and recommendations for the improvement of Indian
Manufacturing Sector.

209
Productivity Performance of Manufacturing Sector in India
5. Hypothesis of the Study

• Indian manufacturing sector is experiencing a technological change partially
after liberalisation.
6. Methodology
6.1 Area of the Study
The present study analyses the manufacturing sector in India. The zone wise
analysis will help to identify the areas which performed well and take proper actions
towards planning and redeployment of resources to achieve better performance all over
India. It will also help for the formulation of policies and programmes pertaining to the
development of backward zones in India. So, the researcher is interested in studying the
Indian Manufacturing sector zone wise that is, manufacturing sector in the Southern,
Eastern, Northern and Western zones of India. The four zones covered under this
study are,
The Southern zone which consists of states namely
Andhra pradesh, Karnataka, Kerala, Tamil Nadu, Pondicherry and Andaman
Nicobar Island.
The Eastern zone which consists of states namely
Assam, Bihar, Orissa, West Bengal, Meghalaya, Tripura, Jharkant, Chatishger,
Manipur and Nagaland.
The Northern zone which consists of states namely
Hariyana, Himachal pradesh, Jammu & Kashmir, Punjab, Uttar pradesh, Delhi,
Uttranchal and Chandigarh.
The Western Zone which consists of states namely
Gujarat, Madhya Pradesh, Maharastra, Dadra & Nagar Haveli and Daman and
Diu, Rajasthan and Goa.
6.2 Period of Study

After independence, the manufacturing sector has witnessed different policy
setups in tune with the entire industrial establishment. In 1991, the Liberalisation policy
was introduced for dramatic changes and licensing for the domestic manufacture was
abolished for all except a few industries. Due to the liberalisation policy, Indian
industries were free to decide on what, howmuch, where and how to produce anything.
Also, the private sector was permitted to enter into areas hitherto reserved for the
public sector. The import tariff was reduced and main items were put on Open General
License (OGL), which required no import license at all. Moreover in 1991, the rupee
value was devalued significantly. So, from the controlled regime upto 1987,
manufacturing sector experienced deregulation after 1987 and further doses of
liberalisation in 1991 and afterwards. In addition with other factors, the government
policy towards the entire industry and industries specific policies influenced the various
parameters of the industry. So, in this analysis, a serious attempt has been made to
evaluate the trend of growth and productivity of manufacturing sector before and after
liberalisation.
The availability of data from the Annual Survey of industries report was till
2004-05. So the year 2004-05 was accepted as the closing year of the study period. Thus,
this study has covered a period of 24 years from 1981-82 to 2004-05. This period has

210
witnessed the different industrial policy implementations in India. To identify the effect
of liberalisation policy, the total study period of 24 years is divided into two sub-periods
and the overall period. So, the present study has made observation on the three
different periods of time, such as
Period I (1981-82 to 1990-91)
Period II (1991-92 to 2004-05) and
Overall Period (1981-82 to 2004-05)
Period I relates to the period before liberalisation and Period II relates to the
period after liberalisation, that is, the Period I was characterised by the controlled
regime and Period II was characterised by the liberalised regime.
6.3 Tools used in this Study

1) The first and the foremost objective of the present study is to analyse the
trend of growth of the manufacturing sector and to understand the performance of the
industry during the study period. The researcher has taken into consideration only eight
variables. They are number of factories, gross fixed capital, number of employees, total
emoluments, fuels consumed, materials consumed, gross output and gross value added.
Further, the researcher has used fundamental simple linear growth rate model. The
linear growth rate model is
Y = a + bT
Where,
Y Dependent Variable,
T Time
‘a’ and ‘b’ are the parameters
The linear growth rate is obtained from the ‘b’ value.
Linear growth rate = b / Y1× 100
Where,
Y1 the value of dependent variable in the starting year.
2) To analysis the second objective, total factor productivity, partial productivity
and capital intensity are calculated to analyse the operating performance of productivity
in Indian manufacturing sector. The changes in the total and partial productivity ratios
are commonly used as surrogates to measure the technological progress. The partial
factor productivities (labour productivity and capital productivity) measure the ratio of
output to one of the input, setting aside the interdependence of the use of other inputs.
The total factor productivity refers to a ratio of output to the weighted combination of
inputs.
In this study, the labour productivity has been measured as gross value added to
per labour (employee). The capital productivity has been measured as gross value added
to per gross fixed capital employed. The gross fixed capital to per labour (employee) has
been taken as to measure the capital intensity.
V
TFP = -------------------
αL + βK

211
where
TFP - Total Factor Productivity
V - Gross value added
L - Number of employees
K - Gross fixed capital
α share of labour (total emoluments) in gross value added
β (α-1) share of capital in gross value added
This index is based on the assumption of competitive equilibrium, constant
returns to scale and hicks – neutral technical change.
Mean and linear growth rate also used to identify the performance of the
productivity in Indian manufacturing sector.
7. Methods of Measurement of Selected Variables

7.1 Capital Measurement in the Present Study
Having described some of the problems and development in measuring the
capital, an attempt is made here to explain the capital measurement of the present study.
This study carefully follows the perpetual inventory method to measure the
gross fixed capital stock
T
KT = Ko + Σ It
t=1
Where It is the real (gross) investment during the year ‘t’

It = (Kt - Kt-1 + Dt) / Pt
Where
KT gross fixed capital Stock in the year T
Dt depreciation at the year ‘t’
Pt capital goods price deflator
Ko capital stock in the base year
Kt book value of fixed capital in the current year (t)
Kt-1 book value of fixed capital in the previous year (t-1)
7.2 Output Measurement in the Present Study
To measure the output, gross value added is taken for the present study. Gross
value added is measured as the gross value of output lesser than the value of fuels and
rawmaterials.
To calculate the gross value added deflated value of gross output, fuels and
materials consumed are used, which are deflated by Manufacturing price index, fuel and
lubricant index and all commodities price index respectively. The increment interns are
standardized by 1980-81 base price indexes.
8. Measurement of Labour: Some Insights

In the present study, the number of employees, total emoluments, and mandays
of employee are used. Number of employees and total emoluments, are directly
obtained from the Annual Survey Industries report. The total emoluments is
standardised by the consumer price index (base 1980-81=100) for the present study.

212
Table 1: Linear Growth Rate of Indian Manufacturing Sector during 1981-82 to 2004-05
(per cent per annum )
Over all
Sl. No. Variable I II
Period
1. Number of factories 1.16 0.95 1.84
2. Gross Fixed Capital 27.51 12.82 49.07.
3. Number of workers 0.11 -0.89 0.35
4. Total Emoluments 4.72 0.14 2.75
5. Fuels Consumed 13.83 -2.25 4.83
6. Materials Consumed 17.95 5.89 15.01
7. Gross output 8.92 7.67 16.85
8. Gross Value Added 2.90 7.86 22.06
Table 2: Variables of Indian Manufacturing Sector during 1981-82 to 2004 -05

Gross Gross
Total Fuels Materials Value of
Number Fixed Number Value
Emoluments Consumed Consumed Output
Year of Capital of added
(Rs. in (Rs. in (Rs. in (Rs. in
Factories (Rs. in Workers (Rs. in
Lakhs) Lakhs) Lakhs) Lakhs)
Lakhs) Lakhs)
1981-82 105037 3810970 6105622 599785 434730 3983614 6827849 2409505
1982-83 93166 4594094 6312673 664968 505751 4395526 7882786 2981509
1983-84 96698 5512358 6158679 682826 578151 4487778 8091354 3025425
1984-85 96947 6322813 6091409 745473 648636 4885517 8458749 2924596
1985-86 101016 7063493 5819169 724256 701810 5429052 8776874 2646012
1986-87 97957 7895131 5806866 740915 721114 5589699 8887344 2576531
1987-88 102596 9152018 6061786 777959 828507 5987445 9533936 2717984
1988-89 104077 10253807 6026328 794359 777478 6818909 10498222 2901836
1989-90 107992 11794975 6326541 876613 946963 7946024 12079674 3186687
1990-91 110179 13761966 6307143 879759 985373 8359700 13020382 3675309
1991-92 112286 15376565 6269039 791340 1001920 8160567 14509982 5347495
1992-93 119494 18435193 6649310 935610 1134041 8947742 17493296 7411512
1993-94 121594 20972033 6632323 923860 1065215 9406659 19048960 8577086
1994-95 123007 24447484 6970116 1027369 1167167 10218777 21107866 9721922
1995-96 134571 28220896 7632297 1190397 1338167 12454588 24050008 10257254
1996-97 134556 30755495 7405858 1139618 1361499 12086598 22870529 9422433
1997-98 135551 33544030 7604907 1161845 1291536 12764144 26312484 12256804
1998-99 131707 33472271 6364464 888961 983826 11660020 23564968 10921121
1999-00 131466 34755577 6280658 921841 1076194 13304403 25201750 10821154
2000-01 131270 35631918 6135235 942727 894946 13310781 24756993 10551265
2001-02 128450 37531784 5957848 910153 832067 13454490 24934110 10647553
2002-03 127957 38970642 6161495 944486 879005 15507247 27628571 11242320
2003-04 129044 40633431 6086907 962652 914777 16644674 29298589 11739137
2004-05 136352 42324976 6599299 1022317 967695 20184186 34874092 13722211

213
Table 3: Trend of Labour Productivity of Indian Manufacturing Sector during 1981-82 to 2004-05 at National
Level and Zonal Level
Period Year South East North West All India
1981-82 0.30 0.36 0.38 0.52 0.39

1982-83 0.37 0.47 0.43 0.59 0.47
1983-84 0.39 0.46 0.43 0.63 0.49
1984-85 0.40 0.42 0.41 0.64 0.48
1985-86 0.37 0.42 0.37 0.61 0.45
Period I
1986-87 0.35 0.39 0.39 0.59 0.44
1987-88 0.34 0.43 0.40 0.60 0.45
1988-89 0.38 0.45 0.40 0.65 0.48
1989-90 0.40 0.46 0.47 0.66 0.50
1990-91 0.45 0.56 0.52 0.78 0.58
Mean 0.38 0.44 0.42 0.63 0.47
1991-92 0.67 0.76 0.88 1.09 0.85

1992-93 0.83 0.90 1.08 1.58 1.11
1993-94 0.93 1.13 1.24 1.81 1.29
1994-95 1.01 1.05 1.46 2.01 1.39
1995-96 0.95 0.98 1.30 2.00 1.34
1996-97 0.84 1.02 1.28 1.78 1.27
1997-98 1.07 1.33 1.65 2.41 1.61
Period II
1998-99 1.17 1.35 1.67 2.61 1.72
1999-00 1.15 1.28 1.80 2.59 1.72
2000-01 1.19 1.31 1.75 2.59 1.72
2001-02 1.20 1.34 1.95 2.68 1.79
2002-03 1.18 1.58 1.92 2.74 1.82
2003-04 1.31 1.71 1.88 2.89 1.93
2004-05 1.29 2.06 1.76 3.34 2.08
Mean 1.06 1.27 1.54 2.29 1.55
Chart 1
Trend of Labour Productivity of Indian Manufacturing Sector

12
Labour ProductivityGrowth
10
All India
8 West
Rate
6 North
East
4
South
2
0
19 2
19 4
19 6
19 8
19 0
19 2
19 4
19 6
19 8
20 0
20 2
4
-8
-8
-8
-8
-9
-9
-9
-9
-9
-0
-0
-0
81
83
85
87
89
91
93
95
97
99
01
03
19
Year

214
Table 4: Trend of Capital Productivity of Indian Manufacturing Sector during 1981-82 to 2004-05 at National
1981-82 0.72 0.53 0.55 0.69 0.63

1982-83 0.76 0.59 0.53 0.69 0.65
1983-84 0.64 0.49 0.43 0.60 0.55
1984-85 0.56 0.39 0.36 0.50 0.46
1985-86 0.42 0.33 0.30 0.41 0.37
Period I
1986-87 0.36 0.28 0.27 0.35 0.33
1987-88 0.32 0.27 0.26 0.32 0.30
1988-89 0.30 0.25 0.24 0.31 0.28
1989-90 0.30 0.23 0.26 0.28 0.27
1990-91 0.27 0.26 0.25 0.28 0.27
Mean 0.47 0.36 0.35 0.44 0.41
1991-92 0.38 0.30 0.34 0.36 0.35

1992-93 0.43 0.31 0.39 0.44 0.40
1993-94 0.42 0.32 0.39 0.45 0.41
1994-95 0.43 0.27 0.40 0.44 0.40
1995-96 0.40 0.25 0.34 0.40 0.36
1996-97 0.34 0.22 0.31 0.32 0.31
1997-98 0.38 0.30 0.34 0.39 0.37
Period II
1998-99 0.32 0.29 0.29 0.36 0.33
1999-00 0.32 0.24 0.30 0.34 0.31
2000-01 0.32 0.22 0.28 0.31 0.30
2001-02 0.30 0.20 0.30 0.30 0.28
2002-03 0.30 0.23 0.30 0.30 0.29
2003-04 0.31 0.24 0.29 0.30 0.29
2004-05 0.32 0.30 0.29 0.35 0.32
Mean 0.36 0.26 0.33 0.36 0.34
Chart 2
Trend of Capital Productivity of Indian Manufacturing Sector

Capital ProductivityGrowth Rate
3.5
3
All India
2.5
West
2
North
1.5
East
1 South
0.5
0
19 2
19 4
19 6
19 8
19 0
19 2
19 4
19 6
19 8
20 0
20 2
4
-8
-8
-8
-8
-9
-9
-9
-9
-9
-0
-0
-0
81
83
85
87
89
91
93
95
97
99
01
03
19
Year

215
Table 5: Trend of Total Factor Productivity of Indian Manufacturing Sector during 1981-82 to 2004-05 at
National Level and Zonal Level
1981-82 0.54 0.46 0.50 0.64 0.55

1982-83 0.62 0.56 0.50 0.67 0.60
1983-84 0.57 0.48 0.43 0.61 0.53
1984-85 0.51 0.40 0.37 0.53 0.47
1985-86 0.40 0.35 0.32 0.45 0.39
Period I
1986-87 0.36 0.31 0.30 0.40 0.35
1987-88 0.33 0.30 0.29 0.36 0.33
1988-89 0.32 0.29 0.27 0.36 0.32
1989-90 0.32 0.27 0.29 0.33 0.31
1990-91 0.30 0.30 0.28 0.33 0.31
Mean 0.43 0.37 0.36 0.47 0.42
1991-92 0.40 0.33 0.37 0.40 0.38

1992-93 0.45 0.35 0.42 0.48 0.44
1993-94 0.44 0.36 0.42 0.49 0.44
1994-95 0.46 0.30 0.43 0.47 0.43
1995-96 0.43 0.28 0.38 0.43 0.40
1996-97 0.37 0.25 0.34 0.35 0.34
1997-98 0.41 0.33 0.37 0.42 0.39
Period II
1998-99 0.34 0.32 0.32 0.38 0.35
1999-00 0.34 0.27 0.32 0.36 0.33
2000-01 0.35 0.25 0.31 0.33 0.32
2001-02 0.33 0.23 0.32 0.32 0.31
2002-03 0.32 0.26 0.32 0.32 0.31
2003-04 0.33 0.26 0.32 0.32 0.31
2004-05 0.34 0.32 0.31 0.37 0.35
Mean 0.38 0.29 0.35 0.48 0.36
Chart 3
Trend of Total Factor Productivity of Indian Manufacturing Sector

Total Factor ProductivityGrowth
3.5
3
All India
2.5
West
2
Rate
North
1.5
East
1
South
0.5
0
19 2
19 4
19 6
19 8
19 0
19 2
19 4
19 6
19 8
20 0
20 2
4
-8
-8
-8
-8
-9
-9
-9
-9
-9
-0
-0
-0
81
83
85
87
89
91
93
95
97
99
01
03
19
Year

216
Table 6: Trend of Capital Intensity of Indian Manufacturing Sector during 1981-82 to 2004-05 at National
1981-82 0.42 0.68 0.69 0.74 0.62
1982-83 0.49 0.80 0.82 0.85 0.73
1983-84 0.61 0.94 1.01 1.06 0.90
1984-85 0.71 1.06 1.13 1.27 1.04
1985-86 0.87 1.26 1.25 1.48 1.21
Period I
1986-87 0.97 1.36 1.44 1.67 1.36
1987-88 1.06 1.62 1.50 1.89 1.51
1988-89 1.26 1.81 1.69 2.08 1.70
1989-90 1.32 2.02 1.84 2.35 1.86
1990-91 1.66 2.19 2.11 2.78 2.18
Mean 0.94 1.37 1.35 1.62 1.3
1991-92 1.79 2.56 2.59 3.03 2.45

1992-93 1.94 2.91 2.80 3.62 2.77
1993-94 2.23 3.48 3.17 4.00 3.16
1994-95 2.36 3.88 3.67 4.59 3.51
1995-96 2.38 3.94 3.78 5.02 3.70
1996-97 2.46 4.67 4.17 5.56 4.15
1997-98 2.80 4.46 4.83 6.15 4.41
Period II
1998-99 3.63 4.60 5.68 7.35 5.26
1999-00 3.63 5.24 5.99 7.71 5.53
2000-01 3.68 5.83 6.17 8.31 5.81
2001-02 3.95 6.64 6.51 9.05 6.30
2002-03 4.00 6.75 6.37 9.18 6.32
2003-04 4.28 7.17 6.41 9.78 6.68
2004-05 4.10 6.99 6.04 9.46 6.41
Mean 3.09 4.94 4.87 6.63 4.75
Chart 4
Trend of Capital Intensity of Indian Manufacturing Sector

40
Capital IntensityGrowth Rate
35
30 All India
25 West
20 North
15 East
10 South
5
0
19 2
19 4
19 6
19 8
19 0
19 2
19 4
19 6
19 8
20 0
20 2
4
-8
-8
-8
-8
-9
-9
-9
-9
-9
-0
-0
-0
81
83
85
87
89
91
93
95
97
99
01
03
19
Year

217
Table 7: Linear Growth Rate of Labour Productivity, Capital Productivity, Total Factor Productivity and
Capital Intensity of Indian Manufacturing Sector during 1981-82 to 2004-05 at National Level and Zonal
Level
Zonal and Labour Capital Total Factor Capital
Periods
All India Productivity Productivity Productivity Intensity
Period I
2.65 -8.21 -6.84 30.95
(1981-82 to 1990-91)
Period II
South 6.28 -2.67 -2.55 11.51
(1991-92 to 2004-05)
Overall Period
17.90 -1.80 -1.40 43.10
(1981-82 to 2004-05)
Period I
2.83 -7.50 -6.27 25.15
(1981-82 to 1990-91)
Period II
East 9.93 -1.59 -1.74 14.14
(1991-92 to 2004-05)
Overall Period
18.38 -1.85 -1.73 44.26
(1981-82 to 2004-05)
Period I
2.20 -6.47 -5.47 21.59
(1981-82 to 1990-91)
Period II
North 8.40 -2.35 -2.38 12.86
(1991-92 to 2004-05)
Overall Period
22.01 -0.97 -0.76 42.17
(1981-82 to 2004-05)
Period I
3.25 -7.56 -6.61 29.46
(1981-82 to 1990-91)
Period II
West 12.56 -2.70 -2.88 18.38
(1991-92 to 2004-05)
Overall period
25.00 -1.54 -1.59 58.24
(1981-82 to 2004-05)
Period I
2.75 -7.47 -6.28 26.94
(1981-82 to 1990-91)
Period II
All India 9.29 -2.42 -2.49 14.16
(1991-92 to 2004-05)
Overall Period
20.95 -1.52 -1.36 46.77
(1981-82 to 2004-05)
Chart 5
Linear Growth Rate of Labour Productivity, Capital Productivity, Total

Factor Productivity and Capital Intensity of Indian Manufacturing Sector
100
80
CI
Growth Rate
60
TFP
40
CP
20
LP
0
-20
Period
Period
Period
Period
Period
Period
Period
Period
Period
Period
Overall
Overall
Overall
Overall
Overall
Period
Period
Period
period
Period
II
II
II
II
II
I
South East North West All India
Periods and Zonal Level

218
Table 8: Technology of Indian Manufacturing Sector during Before and After Liberalisation
Before Liberalisation Period After Liberalisation Period
(1981-82 to 1990-91) (1991-92 to 2004-05)
Capital intensity Capital intensity
Year Year
(Technology) (Technology)
1981-82 0.62 1991-92 2.45
1982-83 0.73 1992-93 2.77

1983-84 0.90 1993-94 3.16
1984-85 1.04 1994-95 3.51
1985-86 1.21 1995-96 3.70
1986-87 1.36 1996-97 4.15
1987-88 1.51 1997-98 4.41

1988-89 1.70 1998-99 5.26
1989-90 1.86 1999-2000 5.53
1990-91 2.18 2000-01 5.81

2001-02 6.30
2002-03 6.32
2003-04 6.68
2004-05 6.41
Chart 6
Technology of Indian Manufacturing Sector during Before

and After Liberalisation
8
7
6
Capital Intensity
5
(Technology)
4
3
2
1
0
1981-
1982-
1983-
1984-
1985-
1986-
1987-
1988-
1989-
1990-
1991-
1992-
1993-
1994-
1995-
1996-
1997-
1998-
1999-
2000-
2001-
2002-
2003-
2004-
Before Liberalisation Period (1981-82 to After Liberalisation Period (1991-92 to 2004-05)

1990-91)
Classification of Liberalisation Periods
Capital intensity (Technology)

219
Table 9: Test Significance of the Hypothesis
t Value
Calculated Value Table Value
10.941 2.129
The calculated ‘t’ value is 10.941. The table ‘t’ value is 2.129 at five per cent
level. Since, the calculated value is greater than the table value at five per cent level of
significance, the hypothesis is accepted. It means, the Indian manufacturing sector had
been experiencing technological changes after liberalisation.
9. Summary and Findings

Industrial development accelerates economic growth and increases national
income. Industrial development is a key factor for rapid economic development of any
country. It is truer in the case of developing economies, as it would help in combating
many economic evils, which they have been facing. Manufacturing sector is the oldest
industry in India. In 1991, major reforms process started in India. The 1991
liberalisation policy provided free access of capital, technology and market in order to
induce greater industrial efficiency and international competitiveness. This position has
urged the researcher to study and analyse the Indian manufacturing sector. Indian
economy is characterised by the scarcity of resources particularly capital. So, India must
use the available resources as best as they can. Hence, the present study has focused
attention on productivity in manufacturing sector in India under the title Productivity
Performance of Manufacturing Sector in India .
The present study analysed the Indian manufacturing sector at All India level
and its four zonal level namely, the Southern zone (Andhra pradesh, Karnataka, Kerala,
Tamil Nadu, Pondicherry and Andaman Nicobar Island.), the Eastern zone (Assam,
Bihar, Orissa, West Bengal, Meghalaya, Tripura, Jharkant, Chatishger, Manipur and
Nagaland), the Northern zone (Hariyana, Himachal pradesh, Jammu & Kashmir,
Punjab, Uttar pradesh, Delhi, Uttranchal and Chandigarh) and the Western zone
(Gujarat, Madhya Pradesh, Maharastra, Dadra & Nagar Haveli and Daman and Diu,
Rajasthan and Goa). The zonal analysis would help to identify the region, which
performed well and take action towards planning and redeployment of resources to
achieve better performance in each zone. It also helps for the formulation of policies
and programmes pertaining to development of backward zone in India. The study
period has covered 24 years from 1981-82 to 2004-05. To identify the effect of
liberalisation policy, the total study period is divided into two sub-periods. So, the
present study is made on three different periods of time, namely, period I (1981-82 to
1990-91), period II (1991-92 to 2004-05) and overall period (1981-82 to 2004-05). To
analyse the manufacturing sector in the present study, eight characters about the
manufacturing sector were collected from Annual Survey of Industries, Factory Sector,
Central Statistical Organisation, and Government of India. The major characteristics are
number of factories, fixed capital, depreciation, number of workers, total emoluments,
fuels consumed, materials consumed and gross output. With the help of above
characters gross fixed capital (with the help of perpetual inventory method) and gross
value added were calculated. To standarise the value of the factors, all the value factors
are deflated by appropriate price index based on 1980-81 = 100.

220
With regard to the first objective namely, to analyse the growth trend of Indian
manufacturing sector during 1981-82 to 2004-05, eight important variables were used,
They were number of factories, gross fixed capital, number of workers, total
emoluments, fuels consumed, materials consumed, gross output and gross value added.
Mean and growth trend of the selected variables had been assessed. Linear growth rate
model was used to examine the first objective.
With regard to the second objective namely, to identify the productivity
performance of Indian manufacturing sector, partial productivity (labour productivity
and capital productivity), total factor productivity and capital intensity, its mean value
and linear growth have been assessed. The total factor productivity was measured with
the help of Kendrick index.
9.1 Suggestions for Indian Manufacturing Sector

Ø Manufacturing sector should increase the factory size through increase the
capital than number of factories in all zones and All India.
Ø The capital should be used efficiently to increase the gross value added
through efficient management in all zones and All India.
Ø The industry should enhance its technology through the capital than labour in
the Eastern zone and the Northern zone manufacturing sector.
Ø The factors that influence the productivity of the manufacturing sector vary.
To improve the productivity and reduce the variations in productivity in the
four zones, the Government should be framed separate policy for every zone.
Ø Government has to enhance research and development activities to increase
the gross value added in the Indian manufacturing sector.
From the foregoing summary and findings of the study, the following important
conclusions have emerged. Manufacturing sector in India is a capital intensive industry.
The growth of total factor productivity was mainly because of growth in labour
productivity. The performance of the Northern zone was good as compared to the
other zones. Efficient utilisation of labour and capital was attributed in Indian
manufacturing sector particularly after liberalisation. Hence, to develop the Indian
manufacturing sector, there is needed to increase the capital. Moreover, capital has to be
efficiently utilised to increase the gross value added. There is also need to strengthen
Research and Development to increase the gross value added in Indian manufacturing
sector.
References:
• Articles in Journals:
1. Burange, “Industrial Growth and Structure of Manufacturing Sector in
Maharashtra” Economic and Political Weekly, Vol. XXXIV, No 9, February 27
March 5, 1999, pp.M39-M48.
2. Chandrasekaran.M and Bhavani Sridharan, “ Productivity Trends in Cotton
Industry in India” The Indian Economics Trend, Vol. 41, No.2, October –
December 1993, pp.61-70.
3. Deepak Gupta, “Productivity Growth in Indian Capital Goods Industry”, Artha
Vijnana, No.2, June 1995, p.172.

221
4. Hina sidha, “Factor Productivity in the Manufacturing Sector in Gujarat”,

Productivity Vol.36, No.1, April-June, 2000, pp.20-25.
5. Lal Mrigender Singh Baghel and Neelkanth G. Pandse, “An Economic Analysis
of Productivity Growth and Technological Change in Total Manufacturing
Sector of India”, The Indian Economics journal, Vol.44, No.2, October –
6. Pandey.A.P., “Excess capacity in Indian Manufacturing Industries”, Indian
Journal of Economics, Vol. 78, No. 311, 1998, p. 474.
7. Prakash.B.S, “Productivity Trends in Indian manufacturing Sector”,
Productivity, Vol.42, No.3, October-December 2001, pp431-437.
8. Soumyendra Kishore Datta, “An Analysis of Productivity Trends in the Indian
Cotton Mill Industry”, The Indian Economic Journal, Vol.49, No.2, October-
9. Tarlok Singh, “Total Factor Productivity in the Manufacturing Industries of
India” The Indian Economic Journal, Vol.48, No.2, Oct-Dec, 2001, pp.108-117.
10. Thomas Mathew, “Improve All-Round Productivity to Gain Edge”, Industry
2.0, Vol.2, No.1, July 2002, p.87.
• Books:
11. Ahluwalia, Isher Judge, “Productivity and Growth in Indian Manufacturing –
Trends in productivity and growth”, Oxford University Press New York, New
Delhi, 1991.
12. Annual Survey of Industries 1999-2000 (Quick estimates), Central Statistical
Organisation (Industrial Statistics wing), Ministry of Statistics and Programme
Implementation, Government of India, Kolkata, 2001,p.2.
13. Chaudhuri.S, “Structural Changes and Fluctuation in Manufacturing Factor
Sector: A disaggregative Analysis 1959 to 1984-85”, Indian Institute of
Management, Calcutta, 1989.
14. Koutsoyiannis.A, Theory of Econometrics: An introductory Exposition of
Econometric Method, Second Edition, Low-priced Edition, 1977, p.233.
15. Mahadevan.R, “Is Output Growth of Korean Manufacturing Firms
Productivity Driven?”, East Asian Economic Association, November, 2002,
Kuala Lumpur.

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The European Journal of Comparative Economics

Vol. 2, No. 1, May 2010 pp. 207-221