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Performance of Indian Manufacturing in the Post Reform Period

  • Gupta, Poonam
  • Kumar, Utsav

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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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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  1. Philippe Aghion & Robin Burgess & Stephen Redding & Fabrizio Zilibotti, 2006. "The unequal effects of liberalization: evidence from dismantling the License Raj in India," LSE Research Online Documents on Economics 3773, London School of Economics and Political Science, LSE Library.
  2. Barry Eichengreen & Poonam Gupta, 2013. "The two waves of service-sector growth," Oxford Economic Papers, Oxford University Press, vol. 65(1), pages 96-123, January.
  3. Poonam Gupta, 2008. "What Constrains Indian Manufacturing," Working Papers id:1597, eSocialSciences.
  4. Poonam Gupta & James P. F. Gordon, 2004. "Understanding India’s Services Revolution," IMF Working Papers 04/171, International Monetary Fund.
  5. 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.
  6. 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, vol. 3(1), pages 1-69.
  7. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 91-134, February.
  8. Garry Pursell & Nalin Kishor & Kanupriya Gupta, 2007. "Manufacturing Protection in India Since Independence," ASARC Working Papers 2007-07, The Australian National University, Australia South Asia Research Centre.
  9. Abhijit V. Banerjee & Shawn Cole & Esther Duflo, 2004. "Banking Reform in India," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 1(1), pages 277-332.
  10. 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, vol. 5(1), pages 59-123.
  11. Poonam Gupta & Kalpana Kochhar & Sanjaya Panth, 2011. "Bank Ownership and the Effects of Financial Liberalization; Evidence From India," IMF Working Papers 11/50, International Monetary Fund.
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