Big Reforms but Small Payoffs: Explaining the Weak Record of Growth and Employment in Indian Manufacturing

Poonam Gupta (), Rana Hasan and Utsav Kumar

MPRA Paper from University Library of Munich, Germany

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.

Keywords: India; Manufacturing; Product Market Deregulation; Labor Laws; Infrastructure (search for similar items in EconPapers)
JEL-codes: H54 L51 O53 L52 P23 L50 L60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cwa and nep-dev
Date: 2009-02-18
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