Total Factor Productivity of Indian Industry

The New Industrial Policy introduced in 1991 is considered a watershed event for the Indian economy that shattered the old order. Trade liberalization and deregulation became the central elements. Here it should be noted that the pickup in India's industrial growth precedes the 1991 liberalization by a full decade. Even a cursory glance at the industrial growth record shows that India's rate more than doubled during the 1980s, with very little discernible change in trend after 1991. During the first half of the 1980s the government's attitude towards business went from being outright hostile to supportive, which was further reinforced, in a more explicit manner, in the second half of 1980s. Rodrik and Subramanian (2004) have characterized the policy changes of the 1980s and 1991 as probusiness and promarket reforms, respectively. The former focuses on raising the profitability of the established industrial and commercial establishments. It tends to favor the incumbents by erasing restrictions on capacity expansion, removing price controls, and reducing corporate taxes. A promarket orientation, in contrast, removes the bottlenecks to markets and aims to achieve this through economic liberalization by favoring new entrants and consumers.