Indian Manufacturing Productivity: What Caused the Growth Stagnation before the 1990s?

Abhay Gupta ()

International Productivity Monitor, 2010, vol. 20, 85-102

Abstract: This article addresses the question of why productivity growth in Indian manufacturing was slow in the pre-reform period and analyzes how economic reforms in the 1990s accelerated productivity growth. The answer lies in two subtle but important distortion-inefficiency mechanisms, which affected productivity growth by distorting intermediate input allocation. The interaction of quantitative restriction policies and inflexible labour laws resulted in lower than optimal materials per worker usage. The combination of high inflation and unavailability of credit exacerbated this factor distortion and lowered productivity growth further. Using a panel dataset on Indian industries, this article finds widespread underutilization of materials compared to labour until recently, and this sub-optimal materials per worker usage lowered productivity growth.

Keywords: productivity; growth; materials; labour; quotas; labour laws; public policy; India (search for similar items in EconPapers)
JEL-codes: D24 E65 F16 J24 J58 O47 (search for similar items in EconPapers)
Date: 2010
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