Determinants of Return on Capital in the Indian Industrial Sector: An Empirical State-Level Analysis

Gaganpreet Kaur Kaushal
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Gaganpreet Kaur Kaushal: PG Department of Economics, Sri Guru Gobind Singh College, Chandigarh, India.

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Abstract: Given the Indian population's overreliance on agriculture, the industrial sector is expected to play a substantial role in India's economic growth. Industry shares a very deep interface with the primary and tertiary sectors of an economy through its input-output linkages. Therefore, it becomes extremely important for the industry to keep growing in terms of return on capital and profitability. High returns on capital and profitability sustain the investors' momentum, leading to higher investment, employment and income growth in the economy. The present study examines the role of technological advancement, labour efficiency and capital productivity in determining the return on capital in the Indian industry. To achieve the set objectives, state-level data for 21 states, published in the Annual Survey of Industries 2023-24, has been analysed using multiple linear regression. T-statistic and p-value have been used to test the significance of regression coefficients. Adjusted R-squared has been used to assess the role of capital deepening, labour productivity and capital productivity in determining the return on capital in Indian industry. The F-statistic has been used to test the significance of the overall regression model. The results reveal that capital deepening, labour productivity and capital productivity together explain 87.38% (p < 0.05) of the variation in the industry's return on capital across Indian states.

Date: 2026-05-11
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Published in Journal of Economics, Management and Trade, 2026, 32 (5), pp.43-49

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05619564

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