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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.

Suggested Citation

  • Gupta, Poonam & Hasan, Rana & Kumar, Utsav, 2009. "Big Reforms but Small Payoffs: Explaining the Weak Record of Growth and Employment in Indian Manufacturing," MPRA Paper 13496, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:13496
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    Cited by:

    1. Rahul Suresh Sapkal, 2016. "Labour law, enforcement and the rise of temporary contract workers: empirical evidence from India’s organised manufacturing sector," European Journal of Law and Economics, Springer, vol. 42(1), pages 157-182, August.
    2. Nihar Shembavnekar, 2019. "Economic Reforms, Labour Markets and Formal Sector Employment: Evidence from India," Economies, MDPI, Open Access Journal, vol. 7(2), pages 1-1, April.
    3. Nihar Shembavnekar, 2018. "Did India’s economic reforms generate jobs? Essays on economic liberalisation, labour market flexibility and employment in the Indian manufacturing sector (1990-2006)," Economics PhD Theses 0917, Department of Economics, University of Sussex Business School.
    4. Bhaskar Jyoti Neog & Bimal Kishore Sahoo, 2020. "Job Reallocation Dynamics in India: Evidence from Large Manufacturing Plants," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(4), pages 934-959, August.
    5. Pankaj Vashisht & Nisha Rani, 0. "Automation and the Future of Garment Sector Jobs in India," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 0, pages 1-22.
    6. Pankaj Vashisht & Nisha Rani, 2020. "Automation and the Future of Garment Sector Jobs in India," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 63(2), pages 225-246, June.
    7. Nihar Shembavnekar, 2015. "Tariff Liberalisation, Labour Market Flexibility and Employment: Evidence from India," Working Paper Series 8115, Department of Economics, University of Sussex Business School.
    8. Matthew Embrey & Guillaume R. Frechette & Sevgi Yuksel, 2016. "Cooperation in the Finitely Repeated Prisoner's Dilemma," Working Paper Series 8616, Department of Economics, University of Sussex.
    9. Felipe, Jesus & Kumar, Utsav & Abdon, Arnelyn, 2013. "Exports, capabilities, and industrial policy in India," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 939-956.
    10. Arun Jaitley, 2016. "Economic Survey 2015-16-Volume II," Working Papers id:9912, eSocialSciences.
    11. Hasan, Rana & Mitra, Devashish & Sundaram, Asha, 2013. "The Determinants of Capital Intensity in Manufacturing: The Role of Factor Market Imperfections," World Development, Elsevier, vol. 51(C), pages 91-103.
    12. Daniel Schwab, 2020. "Labor protection laws and the drain on productivity: Evidence from India," Review of Development Economics, Wiley Blackwell, vol. 24(2), pages 383-401, May.
    13. Hasan, Rana & Mitra, Devashish & Ranjan, Priya & Ahsan, Reshad N., 2012. "Trade liberalization and unemployment: Theory and evidence from India," Journal of Development Economics, Elsevier, vol. 97(2), pages 269-280.
    14. Sofi Irfan Ahmad & Khachoo Abdul Qayoom & Khan Mohd Imran & Kunroo Mohd Hussain, 2016. "Labour Market Regulations and In-formalisation of Migrant Worker: Evidence from Indian Manufacturing Sector," Asian Journal of Law and Economics, De Gruyter, vol. 7(2), pages 169-195, August.
    15. Arun Jaitley, 2016. "Economic Survey 2015-16-Volume I," Working Papers id:9911, eSocialSciences.
    16. Sonali Das & Sonali Jain-Chandra & Kalpana Kochhar & Naresh Kumar, 2015. "Women Workers in India; Why So Few Among So Many?," IMF Working Papers 15/55, International Monetary Fund.
    17. Ayyagari, Meghana & Beck, Thorsten & Hoseini, Mohammad, 2020. "Finance, law and poverty: Evidence from India," Journal of Corporate Finance, Elsevier, vol. 60(C).
    18. Purna Banerjee & C. Veeramani, 2019. "Export competitiveness, labour laws, and gender differences in job dynamics: Analysis of manufacturing industries across Indian States," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-035, Indira Gandhi Institute of Development Research, Mumbai, India.
    19. Chakraborty, Pavel & Raveh, Ohad, 2018. "Input-trade liberalization and the demand for managers: Evidence from India," Journal of International Economics, Elsevier, vol. 111(C), pages 159-176.
    20. Sofi Irfan Ahmad & Sharma Pritee, 2015. "Labour Laws and Informalisation of Employment: Panel Evidences from Indian Formal Manufacturing Sector," Asian Journal of Law and Economics, De Gruyter, vol. 6(1), pages 65-84, April.
    21. Arjun Jayadev & Amay Narayan, 2020. "The Evolution of India's Industrial Labour Share and its Correlates," Development and Change, International Institute of Social Studies, vol. 51(4), pages 998-1017, July.
    22. Chaurey, Ritam, 2015. "Labor regulations and contract labor use: Evidence from Indian firms," Journal of Development Economics, Elsevier, vol. 114(C), pages 224-232.
    23. Radhicka Kapoor & P. P. Krishnapriya, 2019. "Explaining the contractualisation of India’s workforce," Working Papers id:12998, eSocialSciences.

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    More about this item

    Keywords

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

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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