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Performance of Indian Manufacturing in the Post Reform Period

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  • Gupta, Poonam
  • Kumar, Utsav

Abstract

Many emerging countries in recent decades have relied on a development strategy that focused primarily on promoting the manufacturing sector and the exports of manufactured goods. However, an acceleration of growth of output and employment in manufacturing has eluded India. This is despite the fact that the central focus of the reforms in the 1980s and 1990s was to unshackle the manufacturing sector. Instead it is the services sector which has grown rapidly, contributing about two-third of GDP growth in recent years. This paper discusses the reasons behind the modest performance of the manufacturing sector in India post reforms. It argues that there are many factors that have inhibited the growth of industrial sector in India. One major factor is the rigid and strict labor laws which have affected the industrial performance in a number of ways, by keeping the size of the establishments small, by not encouraging the production of labor intensive goods, by pushing activities to the unorganized sector, and by keeping the Indian industry uncompetitive. Besides the labor laws other factors that are responsible for the modest performance of the manufacturing sector include difficulty in the acquisition of land for industrial use, inadequate financing and infrastructure, and cumbersome business climate. The paper presents arguments and evidence which shows the importance of these factors.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24898.

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Date of creation: 10 Sep 2010
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Handle: RePEc:pra:mprapa:24898

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Keywords: Delicesning; employment; growth; India; infrastructure; labor market regulations; liberalization; manufacturing; reforms; services;

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References

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  1. Barry Eichengreen & Poonam Gupta, 2009. "The Two Waves of Service-Sector Growth," Development Economics Working Papers 22914, East Asian Bureau of Economic Research.
  2. Philippe Aghion & Robin Burgess & Stephen Redding & Fabrizio Zilibotti, 2006. "The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India," CEP Discussion Papers, Centre for Economic Performance, LSE dp0728, Centre for Economic Performance, LSE.
  3. Timothy Besley & Robin Burgess, 2002. "Can labour regulation hinder economic performance? Evidence from India," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 3779, London School of Economics and Political Science, LSE Library.
  4. Poonam Gupta, 2008. "What Constrains Indian Manufacturing," Working Papers id:1597, eSocialSciences.
  5. Garry Pursell & Nalin Kishor & Kanupriya Gupta, 2007. "Manufacturing Protection in India Since Independence," ASARC Working Papers, The Australian National University, Australia South Asia Research Centre 2007-07, The Australian National University, Australia South Asia Research Centre.
  6. Poonam Gupta & James P. F. Gordon, 2004. "Understanding India’s Services Revolution," IMF Working Papers 04/171, International Monetary Fund.
  7. Barry Bosworth & Susan M. Collins & Arvind Virmani, 2006. "Sources of Growth in the Indian Economy," India Policy Forum, Global Economy and Development Program, The Brookings Institution, Global Economy and Development Program, The Brookings Institution, vol. 3(1), pages 1-69.
  8. Kalpana Kochhar & Utsav Kumar & Raghuram Rajan & Arvind Subramanian, 2006. "India's Patterns of Development: What Happened, What Follows," NBER Working Papers 12023, National Bureau of Economic Research, Inc.
  9. Poonam Gupta & Rana Hasan & Utsav Kumar, 2008. "Big Reforms but Small Payoffs: Explaining the Weak Record of Growth in Indian Manufacturing," India Policy Forum, Global Economy and Development Program, The Brookings Institution, Global Economy and Development Program, The Brookings Institution, vol. 5(1), pages 59-123.
  10. Poonam Gupta & Kalpana Kochhar & Sanjaya Panth, 2011. "Bank Ownership and the Effects of Financial Liberalization," IMF Working Papers 11/50, International Monetary Fund.
  11. Abhijit V. Banerjee & Shawn Cole & Esther Duflo, 2004. "Banking Reform in India," India Policy Forum, Global Economy and Development Program, The Brookings Institution, Global Economy and Development Program, The Brookings Institution, vol. 1(1), pages 277-332.
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Cited by:
  1. Ghani, Ejaz & Goswami, Arti Grover & Kerr, William R., 2013. "Highway to success in India : the impact of the golden quadrilateral project for the location and performance of manufacturing," Policy Research Working Paper Series 6320, The World Bank.

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