Looking beyond the methods: Productivity Estimates and Growth Trends in Indian Manufacturing

Studies on Indian manufacturing have been unable to provide consistent estimates of productivity and its growth rates. This paper performs detailed and exhaustive set of accounting exercises for the period 1970-2003 using production function, index number and envelopment analysis methods. TFP growth rate average is 1.1% for both gross output based and net value added based measures. In gross output production, share of materials is 0.6, much larger than the capital and labor shares. Share of capital is constantly increasing. For the period just after the reforms (1991-1997), input growth jumps but TFP growth is negative. But after 1998, the trend reverses and output grows slowly despite negative input growth due to large TFP growth. Aggregated TFP growth rates (Domar-weighted and Fisher index) also follow the same pattern; showing upward trends after mid- 1990s. There are no significant differences in TFP growth rates among different-sized firms. After the reforms, TFP growth increases substantially in the public corporations. Productivity transition seems to be random across different (3-digit NIC code) industries. Industries with focus towards services experienced higher productivity growth than others. These results show that the lack of productivity growth was the reason for unimpressive performance of Indian manufacturing earlier.