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Indian Manufacturing Productivity: What Caused the Growth Stagnation before the 1990s?

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  • Abhay Gupta

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Abstract

This article addresses the question of why productivity growth in Indian manufacturing was slow in the pre-reform period and analyzes how economic reforms in the 1990s accelerated productivity growth. The answer lies in two subtle but important distortion-inefficiency mechanisms, which affected productivity growth by distorting intermediate input allocation. The interaction of quantitative restriction policies and inflexible labour laws resulted in lower than optimal materials per worker usage. The combination of high inflation and unavailability of credit exacerbated this factor distortion and lowered productivity growth further. Using a panel dataset on Indian industries, this article finds widespread underutilization of materials compared to labour until recently, and this sub-optimal materials per worker usage lowered productivity growth.

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File URL: http://www.csls.ca/ipm/20/IPM-20-Gupta.pdf
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Bibliographic Info

Article provided by Centre for the Study of Living Standards in its journal International Productivity Monitor.

Volume (Year): 20 (2010)
Issue (Month): (Fall)
Pages: 85-102

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Handle: RePEc:sls:ipmsls:v:20:y:2010:5

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Related research

Keywords: productivity; growth; materials; labour; quotas; labour laws; public policy; India;

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  1. Chang-Tai Hsieh & Peter J Klenow, 2008. "Misallocation and Manufacturing TFP in China and India," 2008 Meeting Papers 121, Society for Economic Dynamics.
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