Measuring and Decomposing Sources of Productivity Performance in India's Paper and Pulp Industry under Liberalized Regime: A Nonparametric Approach

The purpose of this study is to develop a methodology in measuring productivity growth by decomposing it into technical change and technical efficiency change in India's paper industry. The prime objective of this article is to assess the impact of liberalization on productivity growth of India's paper industry. Specifically, this study quantifies the level of technical efficiency and technical change in this particular manufacturing sector. The paper applies Malmquist Productivity Index method to different sub-sectors of India’s Paper and pulp industry at aggregate level in order to have trend in productivity growth covering a period of 28 years commencing from 1979-80 to 2006-07. Finally, regressing the log difference of the measured productivity growth on the log difference of the capacity utilization rate which is a proxy for business cycle, attempt has been made to find out capacity utilization adjusted TFP growth. The result of this study reveals decline in growth rate of TFP during post-reforms (1991-92 to 2006-07) period showing adverse impact of liberalization at aggregate level. Results also indicate that during the study period, industry also experienced regress in technological progress along with stagnation in technical efficiency. Non-responding technical efficiency change and the deteriorating technical change were the main ingredients responsible for declining productivity change in Indian paper and pulp industry. Moreover, removal of short run variations in capacity utilization from the estimated TFP growth hardly affects its overall movement but remarkably mitigates its variation because variations between sub-periods are lesser after adjusting capacity utilization as cyclical factor.