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Big Reforms but Small Payoffs: Explaining the Weak Record of Growth and Employment in Indian Manufacturing

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  • Gupta, Poonam
  • Hasan, Rana
  • Kumar, Utsav

Abstract

India has undertaken extensive reforms in its manufacturing sector over the last two decades. However, an acceleration of growth in manufacturing, and a corresponding increase in employment, has eluded India. Why have the reforms not produced the intended results? Using Annual Survey of Industries data at the three digit level for major Indian states, for 1980-2004, we analyze the effects of the reforms that liberalized India’s industrial licensing regime on the performance of registered manufacturing. We find that the performance of the manufacturing sector is heterogeneous across states, as well as across industries. In particular, labor intensive industries and industries dependent on infrastructure have not benefited much from reforms. Industrial performance appears to be contingent on the state specific policy and economic environment. States with relatively inflexible labor regulations have experienced slower growth of labor-intensive industries and slower employment growth overall. Additionally, states with relatively competitive product market regulations and with better infrastructure have experienced larger benefits from reforms.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13496.

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Date of creation: 18 Feb 2009
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Handle: RePEc:pra:mprapa:13496

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Keywords: India; Manufacturing; Product Market Deregulation; Labor Laws; Infrastructure;

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  1. Philippe Aghion & Robin Burgess & Stephen Redding & F Zilibotti, 2005. "The Unequal Effects of Liberalization: Evidence fromDismantling the License Raj in India," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 45, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  2. Petia Topalova, 2007. "Trade Liberalization, Poverty and Inequality: Evidence from Indian Districts," NBER Chapters, in: Globalization and Poverty, pages 291-336 National Bureau of Economic Research, Inc.
  3. Robin Burgess & Rohini Pande, 2005. "Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment," American Economic Review, American Economic Association, vol. 95(3), pages 780-795, June.
  4. Aditya Bhattacharjea, 2006. "Labour Market Regulation and Industrial Performance in India--A Critical Review of the Empirical Evidence," Working papers 141, Centre for Development Economics, Delhi School of Economics.
  5. Panagariya, Arvind, 2008. "India: The Emerging Giant," OUP Catalogue, Oxford University Press, number 9780195315035, July.
  6. Timothy Besley & Robin Burgess, 2002. "Can Labour Regulation Hinder Economic Performance? Evidence from India," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 33, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  7. T. Ravi Kumar, 2002. "The Impact of Regional Infrastructure Investment in India," Regional Studies, Taylor and Francis Journals, vol. 36(2), pages 194-200.
  8. Paul Conway & Richard Herd, 2008. "Improving Product Market Regulation in India: An International and Cross-State comparison," OECD Economics Department Working Papers 599, OECD Publishing.
  9. Arvind Subramanian & Raghuram Rajan & Ioannis Tokatlidis & Kalpana Kochhar & Utsav Kumar, 2006. "India's Pattern of Development: What Happened, What Follows?," IMF Working Papers 06/22, International Monetary Fund.
  10. Poonam Gupta, 2008. "What Constrains Indian Manufacturing," Working Papers id:1597, eSocialSciences.
  11. Paul Conway & Richard Herd & Thomas Chalaux, 2008. "Product Market Regulation and Economic Performance across Indian States," OECD Economics Department Working Papers 600, OECD Publishing.
  12. Ratna Sahay & Deepak Mishra & Poonam Gupta, 2003. "Output Response to Currency Crises," IMF Working Papers 03/230, International Monetary Fund.
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