PRODUCTIVITY PERFORMANCE OF MANUFACTURING

SECTOR IN INDIA

Dissertation submitted to the

AYYA NADAR JANAKI AMMAL COLLEGE (Autonomous), SIVAKASI

affiliated to the Madurai Kamaraj University, Madurai,

in partial fulfilment of the requirement for the

DEGREE OF

MASTER OF PHILOSOPHY

IN

ECONOMICS

BY

S. NAGENDRAN

Reg. No: 07ME03

POST GRADUATE DEPARTMENT OF ECONOMICS

AYYA NADAR JANAKI AMMAL COLLEGE

(Autonomous, Re-accredited with A+ Grade by the NAAC and

College with Potential for Excellence by the UGC)

SIVAKASI – 626 124

MAY 2008

1

CONTENTS

CHAPTER

NO.

TITLE PAGE

NO.LIST OF TABLES

I INTRODUCTION 1 – 9

II REVIEW OF LITERATURE 10 – 22

III METHODOLOGY 23 – 37

IV GROWTH TREND OF MANUFACTURING SECTOR

38 – 46

V PRODUCTIVITY ANALYSIS 47 – 70

VI DETERMINANTS OF LABOUR PRODUCTIVITY

71 – 93

VII SUMMARY AND FINDINGS 94 – 103

BIBLIOGRAPHY i – iv

ANNEXURE I v-x

LIST OF TABLES

TABLE

NO.

TITLE PAGE

NO.4.1 Variables of Indian Manufacturing Sector during 1981-82 to

2004-05 40

2

4.2 Linear Growth Rate of Indian Manufacturing Sector during 1981-82 to 2004-05

43

5.1 Trend of Labour Productivity of Indian Manufacturing Sector during 1981-82 to 2004-05 at National Level and Zonal Level

49

5.2 Trend of Capital Productivity of Indian Manufacturing Sector during 1981-82 to 2004-05 at National Level and Zonal Level

51

5.3 Trend of Total Factor Productivity of Indian Manufacturing Sector during 1981-82 to 2004-05 at National Level and Zonal Level

53

5.4 Trend of Capital Intensity of Indian Manufacturing Sector during 1981-82 to 2004-05 at National Level and Zonal Level

55

5.5 Linear Growth Rate of Labour Productivity, Capital Productivity, Total Factor Productivity and Capital Intensity of Indian Manufacturing Sector during 1981-82 to 2004-05 at National Level and Zonal Level

57

5.6 Technology of Indian Manufacturing Sector during before and after Liberalisation

69

5.7 Test Significance of Hypothesis 70

6.1 Labour Productivity (Y) and its Four Independent Variables (X1

to X4) of Indian Manufacturing Sector during 1981-82 to 2004-05

74

6.2 Labour Productivity (Y) and its Four Independent Variables (X1

to X4) of the Southern Manufacturing Sector during 1981-82 to 2004-05

75

6.3 Labour Productivity (Y) and its Four Independent Variables (X1

to X4) of the Eastern Manufacturing Sector during 1981-82 to 2004-05

76

6.4 Labour Productivity (Y) and its Four Independent Variables (X1

to X4) of the Northern Manufacturing Sector during 1981-82 to 2004-05

77

3

6.5 Labour Productivity (Y) and its Four Independent Variables (X1

to X4) of the Western Manufacturing Sector during 1981-82 to 2004-05

78

6.6 Determinants of Labour Productivity in India Manufacturing Sector during 1981-82 to 2004-05 at National Level and Zonal Level

79

6.7 Stepwise Regression: Determinants of Labour Productivity in Indian Manufacturing Sector during 1981-82 to 2004-05 at National Level and Zonal Level

81

6.8 Determinants of Labour Productivity at All India Level Manufacturing Sector during 1981-82 to 2004-05

85

6.9 Determinants of Labour Productivity at the Southern Zone Manufacturing Sector during 1981-82 to 2004-05

87

6.10 Determinants of Labour Productivity at the Eastern Zone Manufacturing Sector during 1981-82 to 2004-05

88

6.11 Determinants of Labour Productivity at the Northern Zone Manufacturing Sector during 1981-82 to 2004-05

90

6.12 Determinants of Labour Productivity at the Western Zone Manufacturing Sector during 1981-82 to 2004-05

92

CHAPTER – I

INTRODUCTION

1.1. INTRODUCTION

The structure of the Indian economy has undergone a remarkable change after its

independence in 1947. It has been transformed from an agriculture-based economy

heavily reliant on production of primary commodities for exports, to a manufacturing

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sector based economy. The share of the agriculture sector in the Gross Domestic Product

(GDP) dropped from 42 per cent in 1980’s to 32 per cent in 1990’s and decreased to 26

per cent in 2005. On the other hand, the share of the manufacturing sector jumped from

21 per cent in 1980’s 24 per cent in1990’s and increase to 26 per cent in 2005.

The manufacturing sector has now become the main contributor to the Indian

Gross Domestic Product (GDP) superseding the agricultural sector. Accordingly, the

structure of employment has changed from concentration on agricultural activities to

manufacturing industries and from high labour intensive industries to highly capital-

intensive industries.

1.2. INDUSTRIAL GROWTH DURING PLANNING ERA IN INDIA

The progress of industrialisation since 1951 has been the most striking feature of

the Indian Economic development. The industrial structure has been widely covering

broadly the entire range of consumer, capital, basic and intermediate goods. The progress

of industrialisation in India has also reflected in the commodity composition of India’s

foreign trade in which the share of manufactured imports had declined and on the other

hand export of industrial manufactures have witnessed a growing trend.

Before the First Five Year Plan the industrial output was only 6.6 per cent of the

total national income. During the first Plan, industrial production has recorded an

increase of 39 per cent. The progress in cotton textiles in the growth of output by 28 per

cent and 21 per cent. The first plan also witnessed the establishment of Sindri fertilizers

factory, the Chittaranjan locomotive factory and the Telephone Industries etc

The Second Five Year Plan accorded high priority to rapid industrialisation, with

particular emphasis on the development of basic and heavy industries. The aim of rapid

industrialisation has witnessed an increase in the industrial production at an average

annual growth rate of 11 per cent. Three steel plants in the public sector at Bhilai,

Rourkela and Durgapur marked the efforts made during plan period.

Third Five Year Plan’s main objective was to expand basic industries like steel,

fuel, power and other machine building industries. In 1965-66 industrial output has

increased at the rate of 7.6 per cent. In order to bring the self-sustaining country in

producing steel and machine building, various programmes were implemented. So that,

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the production of steel has increased to 6.2 million tones in 1965-66. During the plan

period Textiles and Sugar Industries has witnessed a growth rate of 13 per cent.

The Fourth Five Year Plan emphasized growth in food and textile industries as a

consequence of drought of 1966-68. The rate of increase in output was 0.21 per cent in

1966-67 and 0.5 per cent in 1967-68. The progress of many industries was slower and

experienced short falls. As a result, industrial production has increased only by four per

cent.

The Fifth Five Year plan assigned a very high and important pace to the

development of industries with an aim of achieving self-reliance and growth with social

justice. The actual annual growth rate was 2.5 per cent in 1974-75 and 5.7 per cent during

1975-76. Plan performance of traditional industries was much lower than the targets.

During the Sixth Five Year Plan, the growth realized only around 5.5 per cent. But

Sixth plan envisaged an average annual rate of eight per cent in industrial production. The

sixth plan highlighted the weakness of infrastructural facilities such as steel, jute, sugar,

cement etc. A notable feature of industrial development during the period was the unique

role assigned to the public sector to establish basic industries.

The Seventh Five Year Plan was based on the principles of growth, equality,

social justice and improving productivity. The plan envisages a growth rate of seven per

cent in industrial output. Also emphasis was given to increase the production of

fertilizers, pesticides and essential agricultural machinery like pumpset, power tillers and

others. The seventh plan tried to increase industrial production, removing infrastructural

difficulties and liberalizing industrial policy of 1985-86. Several new projects were

commissioned during this plan period. Like the Vizarg Steel Plant and HBJ (Hazira

Bijapur Jagdishpur) Gas pipe line along with fertilizer plants emerged.

The Eighth Five Year Plan’s main objective was strengthening the infrastructure

facilities such as energy, transport, irrigation in order to support the growth process on a

sustainable basis. The output of mining and manufacturing sector was estimated to grow

at the rate of 8.12 per cent per annum during the Eight plan. Increasing the generation of

electricity by 7.6 per cent per annum has reduced the shortage of electricity supply, which

has been the major constraint for the industrial production in India.

6

The Ninth Five Year Plan has been development in the content of four important

dimension viz., Quality of life, generation of productive employment, regional balance

and self-reliance. The Ninth Five Year Plan fixed a growth rate of 6.5 per cent. Then, in

order to realize a growth rate of 6.5 per cent, Basic Industries and Infrastructural facilities

have been concentrated for the growth rate. But actual achievement of the Ninth Plan was

only 5.4 per cent. In the manufacturing sector, the achievement was 3.9 per cent per

annum as against the growth target 8.2 per cent. Thus, Ninth Plan has failed to achieve

the GDP growth target.

The Tenth Five Year Plan targeted at a GDP growth rate of eight per cent per

annum. Taking note of the inabilities of the earlier Five Years Plans, especially that of the

Ninth Five Year Plan, the Tenth Five Year Plan decides to take up a resolution for

immediate implementation of all the policies formulated in the past. This amounts to

making appeals to the higher government authorities, for successful completion of their

campaigns associated with the rapid implementation of all past policies. The primary aim

of the Tenth Five Year Plan was to renovate the nation extensively, making it competent

enough with some of the fastest growing economies across the globe. It also intends to

initiate an economic growth of 10 per cent on an annual basis. In fact, this decision was

taken only after the nation recorded a consistent seven per cent GDP growth, through out

the past decade. The seven per cent growth in the Indian GDP is considered to be

considerably higher than the average growth rate of GDP in the world. This enabled the

Planning Commission of India to extend the GDP limit further and set goals, which will

drive India to become one of the best industrial countries in the world, to be clubbed and

recognized with the world’s best industrialized nations.

1.3. STATEMENT OF THE PROBLEM

In the process of economic development, industrial sector especially

manufacturing sector plays an important role. It has been recognized that the share of

manufacturing sector in Gross Domestic Product rises as the economy developed.

Further, it has been observed that the structural transformation in India has made the

industrial sector as remarkable growth over the years.

7

The liberalisation process started in 1991 had given an opportunity to the Indian

industries to expand their operations beyond Indian boundaries establishing place of

business outside India. After a decade of reforms, the manufacturing sector is now

gearing up to meet challenges. Investment in Indian companies reached record levels and

many multinational decided to setup shop in India to take advantage of the improved

financial climate. In an effort to provide a further boost to the industrial manufacturing

sector, Foreign Direct Investment has been permitted through the automatic route for

almost all the industries with certain restrictions. Structural reforms have been undertaken

in the exercise duty regime with a view to introduce a single rate and simplicity.

Companies in the manufacturing sector have consolidated around their area of

core competence by typing up with foreign companies to acquire new technology,

management expertise, and access to foreign markets. Exports can also act as motive

power growth for a rapidly developing Indian economy by promoting investment

including foreign direct investment, particularly in the manufacturing sector. Hence, to

identify the impact of reforms, an attempt was made in this paper to analyse the

productivity performance of manufacturing sector in India.

1.4. NEED FOR THE STUDY

Industrialisation of a developing economy provides the much needed break

through by providing productive employment to the work force that otherwise would be

either unemployed or under employed. Diversion of these people from agriculture to

other occupation can increase the productive use of labour skills and generate higher

levels of aggregate output. The sound reason for industrialisation is that it can stabilize

the income through diversification of the productive sectors of the economy. From an

initial stage of producing goods which will be import substituting in their nature to

sophisticated industrial manufactures which because of their high tech quality can serve

as potent source of realizing higher volume of export of manufactured goods. It thus

alters the nature of the economy in the export sector from being primary products

exporting to the export modern industrial manufactures.

Manufacturing industry plays a crucial role in the economic development of a

nation. In India also, manufacturing industries play an important role in promoting

8

national income and economic development. However, studies on the different theoretical

and empirical aspects of industrial growth in Indian context have been quite limited. But

significant of such studies are not only of academic interest but hold promise to be useful

in policy formulation to direct future industrial pattern of industrial growth. Present study

is a humble attempt in this direction.

1.5. OBJECTIVES OF THE STUDY

The general objective is to evaluate the following specific objectives:

i. To analyse the growth trend of Indian manufacturing sector.

ii. To identify the productivity performance of Indian manufacturing sector.

iii. To identify the factors determining the labour productivity in Indian

manufacturing sector.

iv. To give suggestions and recommendations for the improvement of Indian

Manufacturing Sector.

1.6. HYPOTHESIS OF THE STUDY

Hypothesis is a statement of generalisation and assumption that has to be

tested implicitly. The present hypotheses are framed on the basis on the objectives of the

study.

i. Indian manufacturing sector is experiencing a technological change partially after

liberalisation.

1.7. CHAPTERISATION

This study is divided into six chapters.

Chapter I : Which is introductory, relates to the industrial growth during

planning era in India, statement of the problem, need for the study, objectives,

hypothesis, chapterisation and limitations.

Chapter II : an attempt has been made to review the earlier studies.

9

Chapter III : deals with the methodology of the present study. This chapter deals

with the area of the study, period of the study, sources of the data, tool used for the

study and variables used and its measurement.

Chapter IV : deals with the growth trend of the Indian manufacturing sector. The

growth of the Indian manufacturing sector has been studied both at national level and

zonal level in different study period.

Chapter V : deals with the productivity performance of the Indian manufacturing

sector and identify the impacts of the liberalisation on productivity with the help of

labour productivity, capital productivity, total factor productivity and capital intensity

both at the national and zonal level.

Chapter VI : relates to the factor determining the labour productivity of the

manufacturing sector both at national level and zonal level. In this chapter, an

assessment has been made various factors which help to improve the labour

productivity of the Indian manufacturing sector.

Chapter VII : this devoted to the summary, main finding and final conclusion of

the study.

1.8. LIMITATIONS OF THE STUDY

i. The main limitation of this study is that the analysis is done on the basis of the

secondary data only.

ii. This study takes into consider the period of twenty four years from 1981-82 to

2004-05.

iii. This study is only confirmed to the supply side of the manufacturing sector.

CHAPTER – II

REVIEW OF LITERATURE

This chapter deals with the review of earlier studies on manufacturing sector in

particular.

10

Bain1 in his study on “Industralisation Differences in Industrial Countries: Eight

Nations in 1950’s” analysed the structural composition of the manufacturing industries in

the eight nations viz., the United States, the U.K,(United Kingdom) Canada, Sweden,

France, Italy, Japan and India during the early 1950’s. He observed that United States has

attained a fairly well balanced diversification in manufacturing activities. The U.K was

heavily skewed on the transport equipments, non-electrical manufacturing and textile

industries. Sweden revealed disproportionate emphasis in the manufacturing of non-

electrical machinery and paper products. Canada has a similer heavy development in the

non-ferrous metals, wood, paper and food products. France had a well developed base in

the textiles and fabricated metal products manufacturing. The study also found that Japan,

Italy and especially India have a heavy concentration in the manufacture of textiles.

Chaudhuri2 in his study on “Structural Changes and Fluctuation in Manufacturing

Sector: A disaggregative Analysis 1959-60 to 1984-85” attempted to examine the

structural changes and fluctuations in manufacturing factor sector industries of India. For

the purpose of analysis he used the Annual Survey of Industries data published by the

Central Statistical Organisation (CSO). He Categorised the manufacturing value added

using industrial classification at two-digit, three-digit and use-based classification, it

approached from two and three digit level industrial classification reveled increasing

share in the aggregate net value added in the economy. The results at three-digit level

have revealed the Electrical machinery registering the highest rate of growth at 14.08 per

cent per annum. In the two digit level, the chemical products category was found

registering the highest growth (19 per cent). From the use based classification, he

concluded that the contribution of capital goods was lower compared to consumer and

intermediate goods.

1 Bain,J.s, Industralisation Differences in Industrial Countries: Eight Nations in 1950’s, Yale University Press, New Delhi, 1966.

2 Chaudhuri,S, “Structural Changes and Fluctuation in Manufacturing Factor Sector: A disaggregative Analysis 1959 to 1984-85”, Indian Institute of Management, Calcutta, 1989.

11

Ahluwalia3 attempts to analyses the long-term trends in total productivity and

partial productivities in the organised manufacturing sector in India over the period from

1959-60 to 1985-86. The role of factor input growth and total factor productivity growth

in accounting for the growth in value added is also explored. The analysis conducted at a

detailed level of disaggregation for 63 constituent industry groups at the three-digit level

of as well as for the four use-based sectors of manufacturing, i.e., intermediate goods,

consumer non-durables, consumer durables and capital goods. For as many as 36

industries accounting for over 50 per cent of the total value added in manufacturing in

1970-71, however, the contribution of total factor productivity growth was negative. The

more important among these industries were food manufacturing except sugar, iron and

steel and non-ferious metals. For almost all of the 63 industries, capital intensity showed

a strong and significant positive growth for fewer industries accounting for 64 per cent of

the valued added in manufacturing. There were a few industries which even experienced

a decline in labour productivity. The trend in capital productivity was dominantly

downward.

M. Chandrasekaran and Bahavani Sridharan4 studied the productivity trends in

cotton industry in India. The data were obtained from the Annual Survey of Industries.

This study was done during the period from 1973-74 to 1986-87, that is 14 years. It was

noticed that the productivity indices deflated value of net value added, the total

emoluments and the net fixed assets were used. The partial productivity and total factor

productivity and Cobb-Douglas production functions were applied in this study. The total

factor productivity was calculated by using Kendrick’s index. The productivity measures

were used in index forms so as to facilitate the comparison over the time. Rate of growth

of the aforesaid partial and total factor productivities and capital intensity was planned

out to capture the trends in those measures. The growth rate was arrived at by using a

semi-log linear equation with regard to the time. For the purpose of finding out the

estimates o input elasticity, natural technical progress and returns to scale, the Cobb-

3 Ahluwalia, Isher Judge, “Productivity and Growth in Indian Manufacturing – Trends in productivity and growth”, Oxford University Press New York, New Delhi, 1991.

4 M. Chandrasekaran and Bhavani Sridharan, “ Productivity Trends in Cotton Industry in India” The Indian Economics Trend, Vol. 41, No.2, October – December 1993, pp.61-70.

12

Douglas (CD) production function in log linear form, Constant Elasticity Substitution

(CES) production function and Variable Elasticity Substitution (VES) production

functions were followed in this study. Results of the estimates revealed that the labour

productivity in the cotton industry had increased at a higher rate than the capital

productivity and contributed to the growth of output and efficiency achievement. There

was no technical process in the industry during the study period. The industry was

operating under the increasing returns. At last, the author concluded that, lower capital

productivity found out in this study could be due to the managerial factors. Further the

organisational factors like managerial skill, commitments, morale and motivation of the

workforce and systems etc., contribute for better utilisation of capital and labour.

Sudarshan Sabo5 studied the extent and direction of factors influencing the labour

productivity in Orissa. The study was based on a cross-section data pertaining to 13

districts which was measured ion two points of time, that is 1973-74 and 1984-85. The

data were collected from Annual Survey of industries published by the Directorate of

Economics and statistics Government of India and were analysed with the help of

regression analysis. A multivariate regression model specifically hypothesized a

functional relationship between the inter-district productivity relationship between the

inter-district productivity disparities in labour and its various determinants. A functional

relationship was theoretically assumed to exist between the dependent variables (labour

productivity) and seven explanatory variables. The selected explanatory variables were

the capital output ratio, capital intensity, average labour hour spent per employee, ratio of

number of persons employed to total workers (skilled man power), ratio of fixed capital

to number of units (factory size), gross value of output to productive capital (Technology)

and emoluments per employee (wage rate). Two varieties of the model were tried in this

study, that is, by taking all the variables into account and by taking a subset of variables

on the basis of stepwise regression for identifying the forced variables and to assesses the

degree of multicollinearity existing among the independent variables. The estimated

5 Sudarshan Sahoo, “Determinants of Regional Productivity Disparities in Organised factory Sector in Orissa: An Econometric Analysis”, Indian Journal of Regional Science, Vol. XXVII, No. 1. 2, 1995, pp. 171-181.

13

results concluded that the capital output ratio, skilled man power and wage rate were the

most significant subset of variables defining the regional productivity disparities in 1973-

74. But wage rate, skilled man power, factory size and technology were the best

contributing variables in the order of the priority in the year 1984-85. The wage rate was

found to be the most essential factor for augmenting the regional labour productivity.

However, it was only a technology factor that has maximum contribution in 1984-85.

While concluding the author noted that wage rate and technology were the two important

factors to remove the inter-regional productivity disparities in the organized factory

sector.

Lal Mrigendra Singh Baghel and Neelkanth G.Pandse6 have studied the

productivity trends and statistical estimation of production functions and technical

changes in the total estimating manufacturing sector of India. For the estimation purpose

two types of single factor productivity indices namely, Kendrick and Solow and single

factor productivity ratio namely labour, capital, raw materials productivity along with

capital intensity were calculated. Different types of production function namely, leontief,

Cobb-Douglas, Constant Elasticity Substitution, and Variable Elasticity Substitution

production functions had been estimated for the total manufacturing sector on a whole for

all India. Growth rate was worked out to capture the trend of the measures. Growth rate

was at by using linear equation to time. The study covered the period from 1973-74 to

1989-90. The data were collected from Annual Survey of Industries (ASI) related to the

factory sector covering the total manufacturing sector of India. For the sake of estimation,

gross value added at constant prices had been made as a measure of output, the total

emoluments considered as labour input and the value of gross fixed capital at constant

prices were used as a tool of capital input. While summing up, the author has concluded

that labour was the major source of output growth irrespective of any specification. The

time trend coefficient was found to be significant in most of the cases and has suggested

influences in favour of technological retrogression. Cobb-Douglas from a well as

Variable Elasticity Substitution form of production function had best fir than other

6 Lal Mrigender Singh Baghel and Neelkanth G. Pandse, “An Economic Analysis of Productivity Groth and Technological Change in Total Manufacturing Sector of India”, The Indian Economics journal, Vol.44, No.2, October – December 1996, pp.39-57.

14

function. The author has finally stated that the manufacturing sector had not undergone

nay technological change, which was evident from the total factor productivity growth

indices as well as parameters of time variables in the production. The excessive dose of

capital had not resulted in technological progress as the capital intensity was increasing

all the time.

Burange7 examined Industrial Growth and Structure of Manufacturing Sector in

Maharashtra for the Period 1979-80 to 1994-95. The main data source was the Annual

Survey of Industries for factory sector. The other required data were obtained from

Economic Survey of Maharashtra, and monthly bulletin of Index Number of wholesale

prices in India. To study the concentration of Industries in the state, the Hirschman

Herfindahl Index (HHI) was estimated for manufacturing sector. ‘Kinked Exponential

Model’ was used to estimate the growth rate for pre and post-liberalisation period. His

study revealed that the manufacturing sector of the state certainly revived in terms of

growth of output, employment, fixed capital and value added during the post-

liberalisation period. However, this general tendency has some exceptions viz: overall

performance of cotton textiles, non-metallic mineral products and leather and leather

products determined further during the post-liberalisation period. He concluded that the

industrial recovery is clearly seen by the state during the post-liberalisation period.

Hina sidha8 examined the application of verdoon’s law in Indian Small Scale

Sector. To examine the relation between factor productivity and output growth, the factor

productivity was estimated through direct method. Direct method of factor productivity

was the geometric average of the partial factor productivity indices. The partial factor

productivity is obtained by dividing value added by the respective factors of production.

This study suggests that factor productivity was critical for the survival of units, the

7 Burange, “Industrial Growth and Structure of Manufacturing Sector in Maharashtra” Economic and Political Weekly, Vol. XXXIV, No 9, February 27 March 5, 1999, pp.M39-M48.

8 Hina sidha, “Factor Productivity in the Manufacturing Sector in Gujarat”, Productivity Vol.36, No.1, April-June, 2000, pp.20-25.

15

verdoorn’s law can be used as an alternate measure to test overall performance of the

industrial sector.

Tarlok Singh9 made an attempt to study “Total Factor Productivity in the

Manufacturing Industries of India”. In his study, total factor productivity has been

computed for a sample set of ten product groups for the period 1973-94. The results

showed that the total factor productivity record indicate improvements in all the sample

industries, except for basic metals industries in which the total factor productivity

witnessed a declining trend during 1973-94. The highest growth in total factor

productivity was observed in the case of food products industry followed by transport

equipment, non-metallic products, electrical machinery, non-electrical machinery, the

wool and silk textiles, chemicals and jute textiles.

B.S. Prakash10 attempts to analyse the data from the ASI reports of CSO for the

period 1979-98, the paper draws a comparative profile of structural change and

productivity trends in the two constitutions of organised manufacturing sector (OMS) viz.

the ‘All Industries’ segment and the food products sector’ group. In particular, making a

comparison of growth between the rural and the urban sections of the units, the paper

found that the industrial climate toward promoting a balanced and productivity-linked

employment growth.

Soumyendra Kishore Datta11 studied the productivity trend in the cotton mill

industry in terms of partial and total productivity measures. The study was operated

during 1966-1990 and the relevant data were collected from the Annual Survey of

Industries and Reverse Bank of India Bulletin. To make an in depth analysis, the data

relating to total employees, gross value added, total emoluments, value of output were

9 Tarlok Singh, “Total Factor Productivity in the Manufacturing Industries of India” The Indian Economic Journal, Vol.48, No.2, Oct-Dec, 2001, pp.108-117.

10 B.S.Prakash, “Productivity Trends in Indian manufacturing Sector”, Productivity, Vol.42, No.3, October-December 2001, pp431-437.

11 Soumyendra Kishore Datta, “An Analysis of Productivity Trends in the Indian Cotton Mill Industry”, The Indian Economic Journal, Vol.49, No.2, October-December 2002, pp.25-71.

16

collected and deflated which appropriate price index (base 1970-71 price index). Single

factor productivity namely, capital productivity, labour productivity and capital intensity

and total factor productivity were calculated in this study. To estimate the total factor

productivity on per capita emoluments and capital industry were calculated. Moreover,

the linear growth rate was calculated with respect to time to capture the trend. The

outcome of this analysis indicated that there were higher growth in the labour

productivity and capital productivity. But a very low growth in capital productivity which

was due to the under utilisation of capital in the cotton mill industry. The regression

results clearly indicated that changes in capital intensity have a significant positive

impact on influencing the labour productivity whereas the rise in per capita emoluments,

although had a positive influence on changes in the labour productivity, but, it could not

make any significant impact on labour productivity. On the basis of the results of total

productivity, the author come the conclusion that the total factor productivity, increases

were largely due to the increment in labour productivity. The author clearly pointed out

an important point as the highest correlation coefficient (above .994) between the

Kendrick and Translog, Translog and Solow and Solow and Kendrick indices. The

instability of the productivity movement can largely be attributed to a haphazard

movement of capital productivity indices despite the hike in capital intensity. The

increasing under utilisation of the installed capacity had weakened the tempo of

production in the industry.

Rakesh Kumar12 studied the efficiency and technology in Indian textile industry.

The study was conducted during 1973-1994. The data were collected from Annual Survey

of industries, Factor sector, Summary Results. Value of output, value added, employment,

capital stock and emoluments were taken for the industry. To make an analysis of these

data, capital stock figures had been adjusted by using the perpetual inventory method. In

addition, the relevant variables such as gross output, value added, emoluments and capital

stock had been deflated by using appropriate price indices with the base year 1981-82. To

capture the growth, efficiency and technology in the textile industry, compound growth

rate of different variables, partial productivity, total factor productivity (Solow Index and

12 Rakesh Kumar, “Efficiency and Technology Under Current in Indian Textile Industry”, The Indian Economic Journal, Vol.49, No.2, October-December 2002, pp.73-81.

17

Translog Index) and production function (Cobb-Douglas and Constant Elasticity

Substitution production Function) were estimated. The final results revealed that the

textile industry had witnessed a positive growth during 1973-94 in capital stocks, output

and capital output ratio. The capital efficiency in the industry had been deteriorating

overtime as was reflected by the increasing capital output ratio. However, when the

declining emolument to the output ratio was super imposed on it, the rising capital output

ratio also implied substitution of labour by capital despite the state patronage joyed by the

industry. The author finally concluded that the textile industry continues to bear the pains

encountered during the adjustment process which calls for the restriction of product mix

as well as organisation in the wake of changing demand and supply markets in general.

Mahadevan13 using the South Korean manufacturing industry data for the period

1980-1994, estimated the TFP growth in four industries, namely food, textile, chemical

and fabricated metal using the stochastic frontier approach. He found that output growth

in these four industries were increasing productivity-driven. The export-oriented

industries experienced higher TFP growth. Further, his study stated that in light industries

likes food and textile, technical efficiency changes was negative, but in heavy industries,

i.e., chemical and fabricated metal, it was positive.

Amit K.Bhandari and Shyamal Paul14 examined the relationship between wage

and labour productivity in Indian organised manufacturing industries. It tries to examine a

series of unit root rest and causality tests to detect the causality between wage and labour

productivity employing Hsiao’s version of Granger causality method for the period 1973-

74 to 2001-02. There was an evidence of causality between these two variables for

majority of the manufacturing industries. The results detect causality running one way for

most of the industries. The unidirectional causality from wage to productivity is found

13 Mahadevan R, “Is Output Growth of Korean Manufacturing Firms Productivity Driven?”, East Asian Economic Association, November, 2002, Kuala Lumpur.

14 Amit K.Bhandari and Shyamal Paul, “Relationship between Wage and Labour Productivity in Indian Manufacturing Industries: Evidence from Granger Causality Analysis”, Labour and Development, Vol.12, No.2 and Vol.13, No.1, June 2007, pp.14-33.

18

labour intensive industries. In contrast, the unidirectional causality running from

productivity to wage is observed capital intensive category.

It is seen from the above cited earlier studies on Indian manufacturing sector that

several authors have used partial productivity (labour productivity, capital productivity),

total factor productivity and capital intensity to analyse the productivity performance of

the industry. To measure the total factor productivity, Kenrick, Slow and Translog

productivity indices were used. But, Kendrick index have been used in most of the

studies. On the basis of the earlier studies, Labour productivity is the important factor

influencing the investment decision of the investor. Technology, factory size, managerial

skill and wage rate were the important variables to determine the labour productivity in

the industry.

CHAPTER III

METHODOLOGY

The present chapter describes the framework of analysis and consists of two

sections. The first section deals with the methodology adopted by the researcher. Several

steps have been initiated in the methodology as shown below:

i. Area of the study

ii. Period of study

iii. Sources of data

iv. Tools used for the study

19

The second section deals with variables used in this study and method of

measurement of the selected variables.

3.1. AREA OF THE STUDY

The present study analyses the manufacturing sector in India. The zone wise

analysis will help to identify the areas which performed well and take proper actions

towards planning and redeployment of resources to achieve better performance all over

India. It will also help for the formulation of policies and programmes pertaining to the

development of backward zones in India. So, the researcher is interested in studying the

Indian Manufacturing sector zone wise, that is, manufacturing sector in the Southern,

Eastern, Northern and Western zones of India.

The four zones covered under this study are

The Southern zone which consists of states namely

Andhra pradesh, Karnataka, Kerala, Tamil Nadu, Pondicherry and Andaman Nicobar

Island.

The Eastern zone which consists of states namely

Assam, Bihar, Orissa, West Bengal, Meghalaya, Tripura, Jharkant, Chatishger,

Manipur and Nagaland.

The Northern zone which consists of states namely

Hariyana, Himachal pradesh, Jammu & Kashmir, Punjab, Uttar pradesh, Delhi,

Uttranchal and Chandigarh.

The Western Zone which consists of states namely

Gujarat, Madhya Pradesh, Maharastra, Dadra & Nagar Haveli and Daman and

Diu, Rajasthan and Goa.

3.2. PERIOD OF STUDY

After independence, the manufacturing sector has witnessed different policy

setups in tune with the entire industrial establishment.

In 1991, the Liberalisation policy was introduced for dramatic changes and

licensing for the domestic manufacture was abolished for all except a few industries. Due

to the liberalisation policy, Indian industries were free to decide on what, how much,

20

where and how to produce anything. Also, the private sector was permitted to enter into

areas hitherto reserved for the public sector. The import tariff was reduced and main

items were put on Open General License (OGL), which required no import license at all.

Moreover in 1991, the rupee value was devalued significantly.15 So, from the controlled

regime upto 1987, manufacturing sector experienced deregulation after 1987 and further

doses of liberalisation in 1991 and afterwards. In addition with other factors, the

government policy towards the entire industry and industries specific policies influenced

the various parameters of the industry. So, in this analysis, a serious attempt has been

made to evaluate the trend of growth and productivity of manufacturing sector before and

after liberalisation.

The availability of data from the Annual Survey of industries report was till 2004-

05. So the year 2004-05 was accepted as the closing year of the study period. Thus, this

study has covered a period of 24 years from 1981-82 to 2004-05. This period has

witnessed the different industrial policy implementations in India. To identify the effect

of liberalisation policy, the total study period of 24 years is divided into two sub-periods

and the overall period. So, the present study has made observation on the three different

periods of time, such as

Period I (1981-82 to 1990-91)

Period II (1991-92 to 2004-05) and

Overall Period (1981-82 to 2004-05)

Period I relates to the period before liberalisation and Period II relates to the

period after liberalisation, that is, the Period I was characterised by the controlled regime

and Period II was characterised by the liberalised regime.

3.3. SOURCES OF DATA

The present study is based entirely on the secondary data and the study period is

from 1981-82 to 2004-05. The data were collected from the Annual Survey of Industries

report (ASI), factory sector, published by Central statistical Organisation, New Delhi.

15 Kirit S.Parikh, “Overview Ten years of Reforms, what next?”, India Development Report, Oxford University Press, Indira Gandhi institute of Development Research, 2002, p.1.

21

The Annual Survey of Industries report has provided information about Indian

manufacturing sector in 30 items. For the present study, the researcher has chosen only

eight major items (characteristics) about the manufacturing sector for the study period of

24 years. The selected nine major variables are

1. Number of factories,

2. Fixed capital,

3. Depreciation,

4. Number of employees,

5. Total emoluments,

6. Fuels consumed,

7. Materials consumed and

8. Gross output.

At last, the collected state-wise data from Annual Survey of Industries report were

summed up for every zone of manufacturing sector.

3.4. TOOLS USED IN THIS STUDY

1) The first and the foremost objective of the present study is to analyse the trend

of growth of the manufacturing sector and to understand the performance of the industry

during the study period. The researcher has taken into consideration only eight variables.

They are number of factories, gross fixed capital, number of employees, total

emoluments, fuels consumed, materials consumed, gross output and gross value added.

Further, the researcher has used fundamental simple linear growth rate model. The

linear growth rate model is

Y = a + bT

Where,

Y Dependent Variable,

T Time

‘a’ and ‘b’ are the parameters

The linear growth rate is obtained from the ‘b’ value.

Linear growth rate = b / Y1× 100

22

Where,

Y1 the value of dependent variable in the starting year.

2) To analysis the second objective, total factor productivity, partial productivity

and capital intensity are calculated to analyse the operating performance of productivity

in Indian manufacturing sector. The changes in the total and partial productivity ratios

are commonly used as surrogates to measure the technological progress. The partial

factor productivities (labour productivity and capital productivity) measure the ratio of

output to one of the input, setting aside the interdependence of the use of other inputs.

The total factor productivity refers to a ratio of output to the weighted combination of

inputs.

In this study, the labour productivity has been measured as gross value added to

per labour (employee). The capital productivity has been measured as gross value added

to per gross fixed capital employed. The gross fixed capital to per labour (employee) has

been taken as to measure the capital intensity.

V

TFP = -------------------

αL + βK

where

TFP - Total Factor Productivity

V - Gross value added

L - Number of employees

K - Gross fixed capital

α share of labour (total emoluments) in gross value added

β (α-1) share of capital in gross value added

This index is based on the assumption of competitive equilibrium, constant

returns to scale and hicks – neutral technical change.

Mean and linear growth rate also used to identify the performance of the

productivity in Indian manufacturing sector.

23

3) The third objective is identify the main determinants of labour productivity in

the manufacturing sector. Labour productivity is one of the important factors influencing

the investment decision of the investors. It can also be regarded as the factor responsible

for inter-regional disparities in the process of industrialisation. In view of this, the

regional productivity disparities in the organised industries are considered as one of the

major determinants of overall labour productivity differentials among different regions.16

Thus, the analysis on the determinants of labour productivity has been assessed. This

analysis will be helpful in two ways, firstly, it will assess the contribution of various

factors to the observed inter-zonal variations in industrial productivity and thereby helps

in identifying those variables which are responsible for higher labour productivity in each

zone. The labour productivity may be influenced by a number of variables of which some

are qualitative in nature. The earlier researchers in their studies have related to the labour

productivity and have had identified five major factors, such as, technology, factory size,

managerial skill and wage rate. Therefore, in the present study too the researcher has

made use of these four factors to discuss the determinants of labour productivity in the

manufacturing sector in India. The four variables were hypothesised to have a functional

relationship with their dependent variables (Labour Productivity) under consideration.

They are,

i) Capital intensity (technology),

ii) Ratio of capital to number of factories (factory size),

iii) Ratio of gross value added to capital (managerial skill) and

iv) Total emoluments per employee (wage rate).

The theoretical model in its mathematical form is expressed as under

Y= f (X1, X2, X3, X4, )------------------------- (1)

Where,

Y Labour productivity

X1 Capital intensity (Technology)

X2 Ratio of capital to number of factories (Factory size)

16 Ibid.,p.5.

24

X3 Ratio of gross value added to capital (Managerial Skill)

X4 Total emoluments per employee (Wage rate)

The variable Y stands for labour productivity and it is measured by dividing

the gross value added by the number of employees.

The variable X1 stands for capital intensity (Technology) which is measured by

gross fixed capital divided by the number of employees. Labour productivity is expected

to be higher when the amount of capital employed per labour is greater. Higher growth

in labour productivity may be due to the faster growth in capital labour ratio. It is further

expected that the availability of more capital per labour (Capital intensity) will raise the

efficiency of labour. Adequate and improved equipments of production and technology

will offer better working facilities and hence labour productivity is expected to record an

increase.

The Variable X2 stands for factory size measured as gross fixed capital divided

by number of factories. It is true that large scale production brings about economies of

scale. It also results in the creation of external economies, which ultimately reduces the

labour input. Thus, large factory size is assumed to build a positive relationship with

productivity of labour.

The variable X3 is used for Managerial skill. It is essential for enhancing the

productive efficiency of the factory and reduces the cost of production and increases the

capacity utilisation. It is measured as gross value added divided by the gorss fixed

capital. A careful study of output to the fixed capital seems to be fair to infer that

relatively better management and skill have been maintained.

The variable X4 stands for wage rate measured as the total emoluments divided

by the number of employees. The increase in wage rate will increase the labour

productivity. The rate of wages prevailing in a particular zone is considered to be the

most significant variable to influencing the labour productivity.

A regression model is specified by hypothesising a functional relationship between

the labour productivity and its various determinants as mentioned above. The functional

relationship is theoretically assumed to exist between the dependent variable (Y) and the

four independent variables.

25

These variables are assumed to have linear relationship among themselves for

which a regression model is specified as follows.

Y = B0 + B1X1 + B2X2 + B3X3 + B4X4 + U--------------(2)

Where

B0+B1+………….B4 are coefficient of variation

U error term

The following estimation of model is specified for determining the values of

coefficient of explanatory power

Y = a + b1X1 + b2X2 + b3X3 + b4X4 ----------------(3)

The value of the linear model specified in equation (3) is estimated by using

Ordinary Least Square (OLS) method.

In the estimation part, firstly, the researcher took all the five independent variables

into account. If the entire selected variables significantly influence the dependent variable

either at one per cent or five per cent level of significance, high R2 Value, R value, low

standard error of the estimates and Durbin-Watson is significant. The result will be used

to analyse the labour productivity straightly by taking all the variables into account. If the

results had not been favourable on the basis of test of significance, then the researcher

would have taken up the next appropriate form by taking subset of variables.

The reason is that if there are only few variables (one or two variables) significant

with higher level of R2 and R value, it would be revealed that there is multicollinearity

problem in this model. The term multicollinearity is used to denote the presence of

linear relationship or near linear relationship among the explanatory variables of the

regression model. On the one hand, if the explanatory variables are perfectly linearly

correlated, it can be said that there is perfect multicollinearity. The word multicollinearity

means that there is high degree of collinearity between the explanatory variables.

Moreover, when the explanatory variables are perfectly correlated, then the method of

least square also breaks down and the parameters become indeterminate. It is impossible

here to obtain numerical value for each parameter separately. On the other hand, the

variables are said to be orthogonal, if they are uncorrelated (that is, if the correlation

coefficient for the variables is equal to zero). It is the case of absence of

26

multicollinearity. In practice, neither of these extreme cases are often met. But, in most

cases, there is some degree of intercorrelation that prevails among the explanatory

variables due to the interdependence of many economic variables over the time17.

Autocorrelation is a special case of correlation. It refers to the relationship, not

between the two (or more) different variables, but between the successive values of the

same variable. In other words, if the value of random variable (U) in any particular period

is correlated with its own preceding value (or values). It can be said that there is

autocorrelation or serial correlation of the random variable. If there is autocorrelation, the

OLS procedure may not be efficient in time series analysis. As such, it is very essential

to examine the existence of autocorrelation before applying the OLS procedure. The

traditionally applied test for autocorrelation is the Durbin-Watson Test. In the present

analysis, Durbin–Watson test is used to assess the autocorrelation. So, the researcher has

taken up a subset of variables on the basis of stepwise forward regression by taking the

significantly influencing independent variables one be one without multicollinearty and

autocorrelation problems. This result is considered to be best fitting model. Finally, this

model would have been selected by the researcher to identify the determinants of the

labour productivity.

3.4.1. HYPOTHESES TESTING

To test the hypotheses, ‘t’ test (because numbers of observations are less than 30)

has been applied.

(1) To test the hypothesis, that is, the Indian manufacturing sector is experiencing

a technological change particularly after liberalisation, the testing difference between the

means of two independent samples formula is used.

X1 - X2 n1 n2

t = ------------ x ----------

S n1+ n2

Where

X1 Mean of the first sample17 A. Koutsoyiannis, Theory of Econometrics: An introductory Exposition of Econometric Method,

Second Edition , Low-priced Edition, 1977, p.233.

27

X2 Mean of the second sample

n1 Number of observations in the first sample

n2 Number of observations in the second sample

S Combined standard deviation

The value of ‘S’ is calculated by the following formula

Σ(X1 –X1)2 + Σ(X2 –X2)2

S = ---------------------------------------

n1 + n2 - 2

Here ‘t’ is based on the (n1+n2-2) degrees of freedom.

3.5. METHODS OF MEASUREMENT OF SELECTED VARIABLES

3.5.1 CAPITAL MEASUREMENT IN THE PRESENT STUDY

Having described some of the problems and development in measuring the

capital, an attempt is made here to explain the capital measurement of the present study.

This study carefully follows the perpetual inventory method to measure the gross

fixed capital stock

T

KT = Ko + Σ It

t=1

Where It is the real (gross) investment during the year ‘t’

It = (Kt - Kt-1 + Dt) / Pt

Where

KT gross fixed capital Stock in the year T

28

Dt depreciation at the year ‘t’

Pt capital goods price deflator

Ko capital stock in the base year

Kt book value of fixed capital in the current year (t)

Kt-1 book value of fixed capital in the previous year (t-1)

3.5.2. OUTPUT MEASUREMENT IN THE PRESENT STUDY

To measure the output, gross value added is taken for the present study. Gross

value added is measured as the gross value of output lesser than the value of fuels and

raw materials.

To calculate the gross value added deflated value of gross output, fuels and

materials consumed are used, which are deflated by Manufacturing price index, fuel and

lubricant index and all commodities price index respectively. The increment interns are

standardized by 1980-81 base price index.

3.5.3. MEASUREMENT OF LABOUR: SOME INSIGHTS

In the present study, the number of employees, total emoluments, mandays of

employee are used. Number of employees and total emoluments, are directly obtained

from the Annual Survey Industries report. The total emoluments is standardised by the

consumer price index (base 1980-81=100) for the present study.

3.5.4. NUMBER OF FACTORIES

India’s manufacturing units are classified into registered and unregistered sectors.

All the factories employ ten or more workers with the aid of power or more than twenty

workers without the aid of power are classified under the registered manufacturing.

Then, all other manufacturing activities are classified under the unregistered

manufacturing. The Annual Survey of Industries report covers only the registered

29

manufacturing activities18. In the present study, the registered factories of manufacturing

sector are directly collected through Annual Survey of Industries report.

CHAPTER – IV

ANALYSIS OF DATA

GROWTH TREND OF INDIAN MANUFACTURING SECTOR

There are many contributing factors in the performance improvement in any

industry. Before entering into analysing the efficiency of the input in the production

process of an industry, it would be worthwhile to analyse certain things that happened in

the past in relation to the input and output and their general trend. In this chapter, an

attempt has been made to discuss the first objective of the present study namely,

analysing the growth trend of manufacturing sector in India, in which eight variables are

used for analysing the growth trend such as, number of factories, gross fixed capital,

number of workers, total emoluments, fuels consumed, materials consumed, gross output

18 Annual Survey of Industries 1999-2000 (Quick estimates), Central Statistical Organisation (Industrial Statistics wing), Ministry of Statistics and Programme Implementation, Government of India, Kolkata, 2001,p.2.

30

and gross value added. Among the above selected variables, all the value factors are

deflated by the appropriate price index based on 1980-81 = 100. The data were collected

from Annual Survey of industries, Factory sector, central statistical organisation,

Government of India, New Delhi. The study period is the 24 years from 1981- 82 to

2004-05. The study period is divided into two sub-periods such as, period I

(1981-82 to 1990-91) and period II (1991-92 to 2004-05). The growth rate has also been

estimated for the total study period (1981-82 to 2004-05).The present study analysed the

Indian manufacturing sector in All India level and its four zonal levels namely, the

southern zone (Andra Pradesh, Karnataka, Kerala, Tamil Nadu, Pondicherry and

Andaman Nicobar Island), the Eastern Zone (Assam, Bihar, Orissa, West Bengal,

Meghalaya, Tripura, Jarkant, Chatishger, Manipur and Nagaland) the Northern Zone

(Hariyana, Himachal Pradesh, Jammu and Kashmir, Punjab, Chandigarh, Uttar Pradesh,

Uttaranchal and Delhi) and the Western Zone (Gujarat, Madya Pradesh, Maharastra,

Dadra and Nagar Haveli, Daman and Diu, Rajasthan and Goa). To find the growth rate,

the simple linear regression model is used. The model is

Y = a + bT

where

Y dependent variable

‘T’ time

‘a’ and ‘b’ are parameters

Linear growth rate = 1001

XY

b

where

Y1 value of dependent variable in the starting year

4.1 PERFORMANCE OF INDIAN MANUFACTURING SECTOR

Table 4.1 illustrates data related to selected variables of Indian Manufacturing

sector for the period 1981-82 to 2004-05.

31

TABLE 4.1

VARIABLES OF INDIAN MANUFACTURING SECTOR DURING 1981-82 TO 2004 -05

YearNumber of Factories

Gross Fixed Capital

(Rs. in Lakhs)

Number of

Workers

Total Emoluments

(Rs. in Lakhs)

Fuels Consumed

(Rs. in Lakhs)

Materials Consumed

(Rs. in Lakhs)

Value of Output(Rs. in Lakhs)

Gross Value added

(Rs. in Lakhs)

1981-82 105037 3810970 6105622 599785 434730 3983614 6827849 24095051982-83 93166 4594094 6312673 664968 505751 4395526 7882786 29815091983-84 96698 5512358 6158679 682826 578151 4487778 8091354 30254251984-85 96947 6322813 6091409 745473 648636 4885517 8458749 29245961985-86 101016 7063493 5819169 724256 701810 5429052 8776874 26460121986-87 97957 7895131 5806866 740915 721114 5589699 8887344 25765311987-88 102596 9152018 6061786 777959 828507 5987445 9533936 27179841988-89 104077 10253807 6026328 794359 777478 6818909 10498222 29018361989-90 107992 11794975 6326541 876613 946963 7946024 12079674 31866871990-91 110179 13761966 6307143 879759 985373 8359700 13020382 36753091991-92 112286 15376565 6269039 791340 1001920 8160567 14509982 53474951992-93 119494 18435193 6649310 935610 1134041 8947742 17493296 74115121993-94 121594 20972033 6632323 923860 1065215 9406659 19048960 85770861994-95 123007 24447484 6970116 1027369 1167167 10218777 21107866 97219221995-96 134571 28220896 7632297 1190397 1338167 12454588 24050008 102572541996-97 134556 30755495 7405858 1139618 1361499 12086598 22870529 94224331997-98 135551 33544030 7604907 1161845 1291536 12764144 26312484 122568041998-99 131707 33472271 6364464 888961 983826 11660020 23564968 109211211999-00 131466 34755577 6280658 921841 1076194 13304403 25201750 108211542000-01 131270 35631918 6135235 942727 894946 13310781 24756993 105512652001-02 128450 37531784 5957848 910153 832067 13454490 24934110 106475532002-03 127957 38970642 6161495 944486 879005 15507247 27628571 112423202003-04 129044 40633431 6086907 962652 914777 16644674 29298589 117391372004-05 136352 42324976 6599299 1022317 967695 20184186 34874092 13722211

32

Table 4.1 confirms that number of factories increased from 105037 to

136352 during 1981-82 to 2004 – 05. It was 29 per cent increase during the study

period. In period I, the number of factories of Indian manufacturing sector got

increased from 105037 to 110179 with an increase of five per cent. During the

period II, it rose from 112286 to 136352 by getting an increase of 21 per cent.

Gross fixed capital accelerated from 3810970 lakh rupees in 1981-82 to

42324976 lakh rupees in 2004-05. It was more than 10 times increase during the

study period. For a developing country like India, a growth rate of this tone for

any industry is reasonably good. In period I, gross fixed capital got increased from

3810970 lakh rupees to 13761966 lakh rupees with an increase of more than two

fold. In period II, it increased from 15376565 lakh rupees to 42324976 lakh

rupees, which was more than one and half fold increase.

Number of workers in Indian Manufacturing sector rose from 6105622 to

6599299 workers during 1981 – 82 to 2004-05, with eight per cent increase during

the study period. In period I, the number of workers got promoted from 6105622

to 6307143 workers which was three per cent growth during this period. In period

II, the number of workers rose from 6269039 to 6599299, an increase of five per

cent.

Total emoluments accelerated from 599785 lakh rupees to 1022317 lakh

rupees during the study period which was 70 per cent increase. In period I, Indian

manufacturing sector total emoluments increased from 599785 lakh rupees to

879759 lakh rupees an increase of 47 per cent. In period II, it increased from

791340 lakh rupees to 1022317 lakh rupees an increase of 27 per cent. This

indicated that there was lower growth in total emoluments in Indian

Manufacturing sector.

Fuels consumed increased from 434730 lakh rupees in 1981-82 to 967695

lakh rupees in 2004-05 an increased of more than one fold during the study period.

In period I, it increased from 434730 lakh rupees to 985373 lakh rupees an

increase of more than one fold. In period II, it decreased from 1001920 to 967695

33

lakh rupees decrease of three per cent. Hence, the growth rate of fuels consumed

heavily reduce in period II when compared to period I.

All India level manufacturing sector materials consumed increased from

3983614 lakh rupees to 20184186 lakh rupees during the study period, it was more

then four fold increase in the period. In period I, it increased from 3983614 to

8359700 lakh rupees an increase of more than one fold. In period II, it increased

from 8160567 to 20184186 lakh rupees. It is also an increase of more than one

fold.

Gross output of Indian Manufacturing sector risen from 6827849 lakh

rupees to 34874092 lakh rupees during the study period, it was four fold increase

in this period. In period I, it increased from 6827849 lakh rupees to 13020382 lakh

rupees an increase of nearly one fold. In period II, it increased from 14509982

lakh rupees to 34874092 lakh rupees an increase of more then one fold. The

growth was more or less same during this two periods.

Gross value added of manufacturing sector increased from 2409505 lakh

rupees in 1981-82 to 13722211 lakh rupees in 2004-05 an increase of nearly five

fold during the study period. In period I, it increased from 2409505 lakh rupees to

3675309 lakh rupees, an increase of nearly one fold. In period II, it increased from

5347495 lakh rupees to 13722211 lakh rupees, an increase of more than one fold.

This reveal that there is considerable increase in the gross value added of Indian

Manufacturing sector.

34

4.2. GROWTH TREND OF INDIAN MANUFACTURING SECTOR

Table 4.2 illustrates the linear growth rate of selected eight variable of

Indian manufacturing sector.

TABLE 4.2

LINEAR GROWTH RATE OF INDIAN MANUFACTURING SECTOR

DURING 1981-82 TO 2004-05 (per cent per annum )

Sl.

No.Variable I II

Over all

Period1. Number of factories 1.16 0.95 1.84

2. Gross Fixed Capital 27.51 12.82 49.07.

3. Number of workers 0.11 -0.89 0.35

4. Total Emoluments 4.72 0.14 2.75

5. Fuels Consumed 13.83 -2.25 4.83

6. Materials Consumed 17.95 5.89 15.01

7. Gross output 8.92 7.67 16.85

8. Gross Value Added 2.90 7.86 22.06

Table 4.2 unfolds the following inferences about the Indian manufacturing

sector.

All India Level factories increased at the rate of 1.84 per cent per annum

during the overall study period. It had increased at the rate of 1.16 per

cent and 0.95 per cent per annum is period I and period II respectively.

This indicates that there was no significant increase in the number of

factories after liberalisation compared to the pre liberalisation period.

The growth rate of gross fixed capital was 49.07 per cent per annum

during the overall study period. There was a higher growth rate in

period I (27.51 per cent per annum) compared to the period II (12.82 per

cent per annum). The growth rate of fixed capital is higher than the

35

number of factories during the study period. This implies that the

factory size increased during the period.

The growth rate of number of workers was 0.35 per cent per annum

during 1981-82 to 2004-05. There was a low growth at 0.11 per cent per

annum in period I. But, it recorded decreasing trend to -0.89 per cent per

annum in period II. When compared the growth rate gross fixed capital

and number of workers during the two sub periods and overall, periods,

the growth rate of number of workers was very low in relation to gross

fixed capital. This indicates that Indian manufacturing sector was

continuing a capital intensive industry during the entire study period.

The total emoluments have recorded an overall growth rate of 2.75 per

cent per annum during the overall study period. For the break up period,

the rate was 4.72 per cent per annum in period I and 0.14 per cent per

annum in period II. So, it shows that there was considerable decrease in

the total emoluments after liberalisation. As compared to the total

emoluments and number of workers in All India level manufacturing

sector during the overall period and two sub periods, total emoluments

is increased as compared to the number of worked during the period.

This indicated that there was increasing trend in the emoluments per

worker (wage) in overall study period and two sub periods.

The growth rate of fuels consumed was 4.83 per cent per annum during

the overall study period. For the break up period, it has growth rate of

13.83 per cent per annum in period I and -2.25 per cent per annum in

period II. This implies that the fuels consumed decreased particularly

after liberalisation as compared to the pre liberalisation period.

The growth rate of materials consumed was 15.01 per cent per annum

during the overall study period. It recorded the growth rate of 17.95 per

cent per annum in period I and period II respectively. This implies that

36

materials consumed also did not increase impressively after

liberalisation as compared to the pre liberalisation period.

The growth rate of gross output was 16.85 per cent during the study

period. The growth rate was 8.92 per cent per annum and 7.67 per cent

per annum in period I and period II respectively. This indicated that the

gross output did not impressively increase after liberalisation.

The growth rate of gross value added was 22.06 per cent per annum

during the overall study period. It had increased at the rate of 2.90 per

cent per annum in period I and impressively increased to 7.86 per cent

per annum in period II. There was remarkable growth in gross output

and gross value added during the study period. This indicate that the

growth in past is guarantee for the healthy situation for the future

perspective of the Indian manufacturing sector.

37

CHAPTER – V

ANALYSIS OF DATA

PRODUCTIVITY ANALYSIS

Unless the quality, productivity and service level of Indian manufacturers

improve, they will never be able to match their global counterparts. It is against

this context that an attempt is being made in this chapter to analyse the

productivity performance of manufacturing sector in terms of several aspects such

as labour productivity, capital productivity, capital intensity and total factor

productivity during the period 1981-82 to 2004-05 and identify the impact of

liberalisation policy on productivity in Indian manufacturing sector. The term

‘Productivity’ is defined as the ratio of output to the corresponding input.

Increased productivity means “more products into a product” - that is producing

more of something with the same amount of materials and resources, or an equal

production with lesser input factors.

Gross value added per employee has been taken to measure labour

productivity. Further, the gross value added per gross fixed capital has been taken

to measure capital productivity. The gross fixed capital per employee has been

applied to measure capital intensity. All the value factors were deflated by 1980-

81 base price index. The total factor productivity has been calculated by using

Kendrick’s index. Where ‘V’ is the gross value added of two factors of production,

‘K’ is capital and ‘L’ is labour and ‘α’ is share of labour in gross value added, ‘β’

is share of capital in gross value added. The Kendrick’s ratio is

KL

VTFP

βα +=

38

Mean and rate of growth of the aforesaid partial and total factor

productivity and capital intensity and been worked out to acquire the trends in

manufacturing sector during the study period both at national and zonal level.

Growth rates are computed by using simple linear regression model for

different time periods such as period I (1981-82 to 1990-91), Period II

(1991-92 to 2004-05) and overall period (1981-82 to 2004-05).

5.1 LABAR PRODUCTIVITY

Table 5.1 illustrates the trend of Labour productivity of Indian

manufacturing sector for the period from 1981-82 to 2004-05 both at national level

and zone level.

39

TABLE –5.1

TREND OF LABOUR PRODUCTIVITY OF INDIAN MANUFACTURING

SECTOR DURING 1981-82 TO 2004-05 AT NATIONAL LEVEL AND

ZONAL LEVEL(Rupees in lakhs)

Period Year South East North West All India

Period I

1981-82 0.30 0.36 0.38 0.52 0.39

1982-83 0.37 0.47 0.43 0.59 0.47

1983-84 0.39 0.46 0.43 0.63 0.49

1984-85 0.40 0.42 0.41 0.64 0.48

1985-86 0.37 0.42 0.37 0.61 0.45

1986-87 0.35 0.39 0.39 0.59 0.44

1987-88 0.34 0.43 0.40 0.60 0.45

1988-89 0.38 0.45 0.40 0.65 0.48

1989-90 0.40 0.46 0.47 0.66 0.50

1990-91 0.45 0.56 0.52 0.78 0.58

Mean 0.38 0.44 0.42 0.63 0.47

40

Period II

1991-92 0.67 0.76 0.88 1.09 0.85

1992-93 0.83 0.90 1.08 1.58 1.11

1993-94 0.93 1.13 1.24 1.81 1.29

1994-95 1.01 1.05 1.46 2.01 1.39

1995-96 0.95 0.98 1.30 2.00 1.34

1996-97 0.84 1.02 1.28 1.78 1.27

1997-98 1.07 1.33 1.65 2.41 1.61

1998-99 1.17 1.35 1.67 2.61 1.72

1999-00 1.15 1.28 1.80 2.59 1.72

2000-01 1.19 1.31 1.75 2.59 1.72

2001-02 1.20 1.34 1.95 2.68 1.79

2002-03 1.18 1.58 1.92 2.74 1.82

2003-04 1.31 1.71 1.88 2.89 1.93

2004-05 1.29 2.06 1.76 3.34 2.08

Mean 1.06 1.27 1.54 2.29 1.55Table 5.1 reveals that labour productivity of Indian manufacturing sector

got increased from 0.39 lakh rupees in 1981-82 to 2.08 lakh rupees in 2004-05, an

increase of more than four fold during the study period. In period I, it got raised

from 0.39 to 0.58 lakh rupees by an increase of 49 per cent. During period II, it

increased from 0.85 lakh rupees to 2.08 lakh rupees with an increase of one and

half fold. The mean labour productivity recorded increase impressively after

liberalisation in All India and all zones manufacturing sector. The Western zone

recorded the highest mean value during the entire study period. But, the Southern

zone recorder lowest mean value during the entire study period as compared to the

other zones.

5.2 CAPITAL PRODUCTIVITY

Table 5.2 clearly illustrates the trend of capital productivity of Indian

manufacturing sector for the period from 1981-82 to 2004-05 both at All India and

zonal level.

41

TABLE 5.2

TREND OF CAPITAL PRODUCTIVITY OF INDIAN MANUFACTURING

SECTOR DURING 1981-82 TO 2004-05 AT NATIONAL LEVEL AND

ZONAL LEVEL

(Rupees in lakhs)Period Year South East North West All India

Period I

1981-82 0.72 0.53 0.55 0.69 0.63

1982-83 0.76 0.59 0.53 0.69 0.65

1983-84 0.64 0.49 0.43 0.60 0.55

1984-85 0.56 0.39 0.36 0.50 0.46

1985-86 0.42 0.33 0.30 0.41 0.37

1986-87 0.36 0.28 0.27 0.35 0.33

1987-88 0.32 0.27 0.26 0.32 0.30

1988-89 0.30 0.25 0.24 0.31 0.28

1989-90 0.30 0.23 0.26 0.28 0.27

1990-91 0.27 0.26 0.25 0.28 0.27

Mean 0.47 0.36 0.35 0.44 0.41

42

Period II

1991-92 0.38 0.30 0.34 0.36 0.35

1992-93 0.43 0.31 0.39 0.44 0.40

1993-94 0.42 0.32 0.39 0.45 0.41

1994-95 0.43 0.27 0.40 0.44 0.40

1995-96 0.40 0.25 0.34 0.40 0.36

1996-97 0.34 0.22 0.31 0.32 0.31

1997-98 0.38 0.30 0.34 0.39 0.37

1998-99 0.32 0.29 0.29 0.36 0.33

1999-00 0.32 0.24 0.30 0.34 0.31

2000-01 0.32 0.22 0.28 0.31 0.30

2001-02 0.30 0.20 0.30 0.30 0.28

2002-03 0.30 0.23 0.30 0.30 0.29

2003-04 0.31 0.24 0.29 0.30 0.29

2004-05 0.32 0.30 0.29 0.35 0.32

Mean 0.36 0.26 0.33 0.36 0.34Table 5.2 shows that All India level capital productivity of Indian

manufacturing sector declined from 0.63 lakh rupees to 0.32 lakh rupees during

the study period by making a decreasing point of 49 per cent. In period I, capital

productivity declined from 0.63 lakh rupees to 0.27 lakh rupees by having a

decrease of 57 per cent. During period II, it decreased from 0.35 to 0.32 lakh

rupees by making a decrease of nine per cent. The mean value of capital

productivity decreased after liberalisation at the All India level and zonal level.

There was highest mean value of capital productivity in the Southern zone and the

Western zone as compound to the Eastern zone and Northern zone during the two

sub periods.

5.3 TOTAL FACTOR PRODUCTIVITY

Table 5.3 conveys the tread of total factor productivity of Indian

manufacturing sector for the period 1981-82 to 2004-05 at All India and zonal

level.

43

TABLE 5.3

TREND OF TOTAL FACTOR PRODUCTIVITY OF INDIAN

MANUFACTURING SECTOR DURING 1981-82 TO 2004-05 AT

NATIONAL LEVEL AND ZONAL LEVEL(Rupees in lakhs)

Period Year South East North West All India

Period I

1981-82 0.54 0.46 0.50 0.64 0.55

1982-83 0.62 0.56 0.50 0.67 0.60

1983-84 0.57 0.48 0.43 0.61 0.53

1984-85 0.51 0.40 0.37 0.53 0.47

1985-86 0.40 0.35 0.32 0.45 0.39

1986-87 0.36 0.31 0.30 0.40 0.35

1987-88 0.33 0.30 0.29 0.36 0.33

1988-89 0.32 0.29 0.27 0.36 0.32

1989-90 0.32 0.27 0.29 0.33 0.31

1990-91 0.30 0.30 0.28 0.33 0.31

Mean 0.43 0.37 0.36 0.47 0.42

44

Period II

1991-92 0.40 0.33 0.37 0.40 0.38

1992-93 0.45 0.35 0.42 0.48 0.44

1993-94 0.44 0.36 0.42 0.49 0.44

1994-95 0.46 0.30 0.43 0.47 0.43

1995-96 0.43 0.28 0.38 0.43 0.40

1996-97 0.37 0.25 0.34 0.35 0.34

1997-98 0.41 0.33 0.37 0.42 0.39

1998-99 0.34 0.32 0.32 0.38 0.35

1999-00 0.34 0.27 0.32 0.36 0.33

2000-01 0.35 0.25 0.31 0.33 0.32

2001-02 0.33 0.23 0.32 0.32 0.31

2002-03 0.32 0.26 0.32 0.32 0.31

2003-04 0.33 0.26 0.32 0.32 0.31

Mean 0.38 0.29 0.35 0.48 0.36

Table 5.3 enumerates the total factor productivity of Indian manufacturing

sector that declined from 0.55 lakh rupees in 1981-82 to 0.35 lakh rupees in

2004-05 by recording a decrease of 36 per cent. It reached its peak value of total

factor productivity of 0.60 lakh rupees in 1982-83. During period I, All India level

total factor productivity was decreased from 0.55 lakh rupees to 0.31 lakh rupees

with an decrease of 44 per cent. In period II, declined from 0.38 lakh rupees to

0.35 lakh rupees with an decrease of eight per cent. The mean value of total factor

productivity decreased after liberalisation when compared to the pre-liberalisation

period in All India and all zones. Both the Southern and the Western zones

recorded the highest average total factor productivity in period I and period II. The

lowest growth was recorded by the Northern zone in period I and the Eastern zone

in period II. The total factor productivity of Indian manufacturing sector heavily

reduced during period II mainly on account of the lowest average of the total

factor productivity in all the zones in period II except the Western zone.

5.4 CAPITAL INTENSITY

45

Table 5.4 explains the trend of capital intensity.

TABLE 5.4

TREND OF CAPITAL INTENSITY OF INDIAN MANUFACTURING

SECTOR DURING 1981-82 TO 2004-05 AT NATIONAL LEVEL AND

ZONAL LEVEL(Rupees in lakhs)

Period Year South East North West All India

Period I

1981-82 0.42 0.68 0.69 0.74 0.62

1982-83 0.49 0.80 0.82 0.85 0.73

1983-84 0.61 0.94 1.01 1.06 0.90

1984-85 0.71 1.06 1.13 1.27 1.04

1985-86 0.87 1.26 1.25 1.48 1.21

1986-87 0.97 1.36 1.44 1.67 1.36

1987-88 1.06 1.62 1.50 1.89 1.51

1988-89 1.26 1.81 1.69 2.08 1.70

1989-90 1.32 2.02 1.84 2.35 1.86

1990-91 1.66 2.19 2.11 2.78 2.18

Mean 0.94 1.37 1.35 1.62 1.3

46

Period II

1991-92 1.79 2.56 2.59 3.03 2.45

1992-93 1.94 2.91 2.80 3.62 2.77

1993-94 2.23 3.48 3.17 4.00 3.16

1994-95 2.36 3.88 3.67 4.59 3.51

1995-96 2.38 3.94 3.78 5.02 3.70

1996-97 2.46 4.67 4.17 5.56 4.15

1997-98 2.80 4.46 4.83 6.15 4.41

1998-99 3.63 4.60 5.68 7.35 5.26

1999-00 3.63 5.24 5.99 7.71 5.53

2000-01 3.68 5.83 6.17 8.31 5.81

2001-02 3.95 6.64 6.51 9.05 6.30

2002-03 4.00 6.75 6.37 9.18 6.32

2003-04 4.28 7.17 6.41 9.78 6.68

2004-05 4.10 6.99 6.04 9.46 6.41

Mean 3.09 4.94 4.87 6.63 4.75Table 5.4 reveals that capital intensity of Indian manufacturing sector

increased from 0.62 lakh rupees to 6.41 lakh rupees during the study period with

an increase of more than nine fold. During period I, capital intensity of Indian

manufacturing sector went on rising from 0.62 to 2.18 lakh rupees by having an

increase of more than two fold. In the period II, increased from 2.45 to 6.41 lakh

rupees with an increase of more than one fold. The mean value of capital intensity

impressively increased in period II when compared to the period I in all India and

in all zones. The Western zone registered highest capital intensity during the entire

study period. The Southern zone registered the lowest capital intensity during the

study period. The Eastern zone and the Northern zone registered more or less same

mean value during the study period.

5.5. PRODUCTIVITY PERFORMANCE OF INDIAN MANUFACTURING

SECTOR DURING 1981-82 TO 2004-05

Both total and partial factor productivity indices are used to analyse the

operating performance of an industry in number of studies. The changes in total

47

and partial productivity ratios are commonly used as surrogates to measure the

technologies progress.

Table 5.5 illustrates the labour productivity, capital productivity, total factor

productivity and capital intensity of Indian manufacturing sector during the study

period at All India level and Zonal level.

TABLE 5.5

LINEAR GROWTH RATE OF LABOUR PRODUCTIVITY, CAPITAL

PRODUCTIVITY, TOTAL FACTOR PRODUCTIVITY AND CAPITAL

INTENSITY OF INDIAN MANUFACTURING SECTOR DURING 1981-82

TO 2004-05 AT NATIONAL LEVEL AND ZONAL LEVEL

(per cent per annum)Zonal

and All India

Periods Labour Productivity

Capital Productivity

Total Factor Productivity

Capital Intensity

South

Period I(1981-82 to 1990-91)

2.65 -8.21 -6.84 30.95

Period II(1991-92 to 2004-05)

6.28 -2.67 -2.55 11.51

Overall Period(1981-82 to 2004-05)

17.90 -1.80 -1.40 43.10

East

Period I(1981-82 to 1990-91)

2.83 -7.50 -6.27 25.15

Period II(1991-92 to 2004-05)

9.93 -1.59 -1.74 14.14

Overall Period (1981-82 to 2004-05)

18.38 -1.85 -1.73 44.26

48

North

Period I(1981-82 to 1990-91)

2.20 -6.47 -5.47 21.59

Period II(1991-92 to 2004-05)

8.40 -2.35 -2.38 12.86

Overall Period(1981-82 to 2004-05)

22.01 -0.97 -0.76 42.17

West

Period I(1981-82 to 1990-91)

3.25 -7.56 -6.61 29.46

Period II(1991-92 to 2004-05)

12.56 -2.70 -2.88 18.38

Overall period(1981-82 to 2004-05)

25.00 -1.54 -1.59 58.24

All India

Period I(1981-82 to 1990-91)

2.75 -7.47 -6.28 26.94

Period II(1991-92 to 2004-05)

9.29 -2.42 -2.49 14.16

Overall Period(1981-82 to 2004-05)

20.95 -1.52 -1.36 46.77

5.5.1. PRODUCTIVITY PERFORMANCE OF ALL INDIA LEVEL

MANUFACTURING SECTOR

The partial productivity, total factor productivity and capital intensity for

the Indian manufacturing sector are presented in Table 5.5

During the study period (1981-82 to 2004-05) at All India level, labour

productivity and capital intensity grow at the rate of 20.95 per cent per annum and

46.77 per cent per annum respectively. During the same period there was negative

growth rate in capital productivity and total factor productivity at -1.52 per cent

per annum and -1.36 per cent per annum respectively. Among the two sub periods,

the growth rate of labour productivity rose from 2.75 per cent per annum to 9.29

per cent per annum. The decreasing trend of productivity reduced from -7.47 to

-2.42 per cent per annum in period I and period II respectively. At the same time,

capital intensity growth rate reduced from 26.94 per cent per annum to 14.16 per

cent per annum.

The total factor productivity indicates the overall efficiency of the

utilisation of inputs. It has decreased at -1.36 per cent per annum during the

49

overall study period. The decreasing trend of total factor productivity had reduced

at -6.28 per cent per annum to -2.49 per cent per annum in period I and II

respectively.

The overall picture that emerges that there was an increasing trend in labour

productivity and capital intensity and decreasing trend in capital productivity and

total factor productivity during the study period. In other words, the labour factor

had shown greater efficiency to increase the gross value added than capital. The

increase of capital intensity was not accompanied by the significant increase of

capital productivity, because the growth of capital productivity had negative trend.

This clearly indicates that the growth of total factor productivity in Indian

manufacturing sector mainly depend upon the efficient use of labour than capital.

It also reveals that capital depending alone did not lead to increase the capital

efficiency.

Estimates for the two sub-periods highlight an increasing trend in labour

productivity and capital intensity and decreasing trend in capital productivity and

total factor productivity in period I and II. A notable observation was that the

increasing trend of labour productivity was high and the decreasing trend of

capital productivity and total factor productivity was low in period II as compared

to the period I. Their indicated that rise in labour productivity and slight

improvement in capital productivity and total factor productivity may accordingly

be attributed in the main for falling in capital intensity. In other words, capital

deepening did not help to increase the capital efficiency. This concludes that the is

efficient use capital during the entire period seemed to be the main features for the

growth of Indian manufacturing sector.

The above analysis unfolds the following main finding.

• Labour productivity and capital intensity grow at the rate of 20.95 per

cent per annum and 46.77 per cent per annum respectively. Capital

productivity and total factor productivity declined at the rate of -1.52

per cent per annum and -1.36 per cent per annum respectively.

50

• The growth rate of total factor productivity was mainly because of

efficient utilisation of labour than capital.

• There was important in the total factor productivity particularly after

liberalisation.

• Increase in capital was not efficiently utilised during the entire study

period.

• Capital deepening did not help to increase the capital efficiency.

5.5.2. PRODUCTIVITY PERFORMANCE OF THE SOUTHERN ZONE

MANUFACTURING SECTOR

Table 5.5 explains that the labour productivity and capital intensity grow at

the rate of 17.90 per cent per annum, 43.10 per cent per annum respectively,

Capital productivity and Total factor productivity fell at the rate of -1.80 per cent

per annum and -1.40 per cent per annum respectively during the study period.

Among the two sub periods, the growth rate of labour productivity increased from

2.65 per cent per annum to 6.28 per cent per annum and capital intensity from

30.95 per cent per annum to 11.51 per cent per annum. The decreasing rate of

capital productivity reduced from -8.21 per cent per annum to -2.67 per cent per

annum and total factor productivity from -6.84 per cent per annum to -2.55 per

cent per annum.

The overall figures indicates that these labour factors had shown greater

efficiency as compound to the capital during the entire study period. The increase

in capital intensity did not bring out significant increase of capital productivity.

51

The positive growth of total factor productivity was mainly due to the efficient

utilisation of labour than capital.

Estimates of the two sub period speak of an increasing trend of labour

productivity was higher and the decreasing trend of the capital productivity and

total factor productivity was lower in period II as compared to the period I. At the

same time, the increasing trend of capital intensity is lower in period II. It

confirms that the technological increase (capital intensity) may not helpful to

significant increase in capital productivity.

The above inferences show the following main finding

• Labour productivity accelerated at the rate of 17.90 per cent per annum,

capital intensity at 43.10 per cent per annum during the study period.

• Capital productivity decreased at the rate of -1.80 per cent per annum

and total factor productivity at -1.40 per cent per annum during the

study period.

• The growth rate of total factor productivity was mainly on account of

the efficient utilisation of labour than capital.

• Increasing capital and labour was not efficiently utilised particularly

before liberalisation period.

• Total factor productivity recorded decreasing trend during the study

period.

• There was improvement in the total factor productivity particularly after

liberalisation.

5.5.3. PRODUCTIVITY PERFORMANCE OF THE EASTERN ZONE

MANUFACTURING SECTOR

Table 5.5 conveys that the Eastern zone labour productivity and capital

intensity grew at the rate of 18.38 per cent per annum and 44.26 per cent per

annum respectively during the study period. But, during the same period, capital

52

productivity and total factor productivity declined at -1.85 per cent per annum and

-1.73 per cent per annum respectively. Among the two sub-periods, the growth rate

of labour productivity increased from 2.83 per cent per annum in period I to 9.93

per cent per annum in period II. But, the growth rate of capital productivity, Total

factor productivity and capital intensity had fallen from -7.50 per cent per annum

to -1.59 per cent per annum, -6.27 per cent per annum to -1.74 per cent per annum,

25.15 per cent per annum to 14.14 per cent per annum in period I and period II

respectively.

The overall figures confirm that the growth rate of capital intensity was

much higher than the growth rate of labour productivity and decreasing trend in

capital productivity. This indicated that the increasing application of capital was

not contributed to increase the capital productivity. The total performance of the

Eastern zone has been sluggish in terms of total factor productivity. The growth of

total factor productivity achieved through labour productivity during the entire

study period.

Estimates for the two sub periods conform an increasing trend of labour

productivity and capital intensity and decreasing trend in capital productivity and

total factor productivity in period I and period II. An important point is that, the

increasing trend in labour productivity was higher and the decreasing trend in

capital productivity and total factor productivity was lower in period II as

compared to the period I. At the same time, increasing trend of capital intensity

had fall in period II as compared to the period I. It proves that improvement in

labour productivity, capital productivity and total factor productivity may

accordingly attributed in main to the decrease in capital intensity. In other wards,

labour and capital were efficiently utilised after the liberalisation period.

The above analysis throws the following main findings.

• Labour productivity and capital intensity increased at the rate of 18.38

per cent per annum and 44.26 per cent per annum respectively. But

53

capital productivity and total factor productivity decreased at the rate of

-1.85 per cent per annum and -1.73 per cent per annum respectively.

• The growth rate of total factor productivity achieved solely through

labour productivity.

• There was decreasing trend in the capital productivity during the entire

study period.

• Increase in labour and capital was efficiently utilised particularly after

liberalisation as compared to the pre liberalisation.

5.5.4. PRODUCTIVITY PERFORMANCE OF THE NORTHERN ZONE

MANUFACTURING SECTOR

Table 5.5 illustrates that the Northern zone’s labour productivity growth

rate was 22.01 per cent per annum, capital productivity at -0.97 per cent per

annum, total factor productivity at -0.76 per cent per annum and capital intensity

at 42.17 per cent per annum during the study period. During the two sub periods,

the growth rate of labour productivity increased from 2.20 per cent per annum to

8.40 per cent per annum, the negative growth rate of capital productivity reduced

from -6.47 per cent per annum to -2.35 per cent per annum, total factor

productivity from -5.47 per cent per annum to -2.38 per cent per annum in period I

and period II respectively. But capital intensity had fallen from 21.59 per cent per

annum in period I to 12.86 per cent per annum in period II.

The results of overall period prove that the positive growth of total factor

productivity was mainly because of labour productivity than capital productivity.

The negative growth rate of total factor productivity was the lowest (-0.76 per cent

per annum) among the four zones. So, the performance of the Northern zone was

encouraging in terms of total factor productivity. Moreover, capital deepening in

did not lead to increase the capital efficiency.

Estimation for the two sub-periods declare an increasing trend in labour

productivity, and decreasing trend in capital productivity and total factor

54

productivity in period I and period II. But the increasing trend in labour

productivity was much higher and decreasing trend in capital productivity and

total factor productivity was much lower in period II as compared to the period I.

Moreover, it is noted here that the growth rate of capital intensity was lower in

period II than period I. This also indicated the capital and labour productivity was

better after liberalisation period as compound to the pre-liberalisation period and

capital deepening did not lead to increase the labour and capital efficiency.

The productivity performance analysis of the Northern zone describes the

following findings.

• Labour productivity increased at the rate of 22.01 per cent per annum,

capital intensity at 42.17 per cent per annum. But, capital productivity

decreased at the rate of -0.97 per cent per annum and -0.76 per cent per

annum during the overall study period.

• The performance of the Northern zone is encouraging in terms of total

factor productivity during the study period.

• The growth rate of total factor productivity was mainly due to labour

productivity rather than capital productivity.

• Increase in labour and capital was efficiently utilised to gross value

added particularly after liberalisation.

• Increase in capital was not help to increase the capital productivity.

5.5.5. PRODUCTIVITY PERFORMANCE OF THE WESTERN ZONE

MANUFACTURING SECTOR

Table 5.5 demonstrates that the Western zone’s labour productivity grew at

25.00 per cent per annum, capital intensity at 58.24 per cent per annum during the

study period. Capital productivity fall at –1.54 per cent per annum, total factor

productivity at –1.59 per cent per annum during the entire study period. During the

two sub periods, the growth rate of the labour productivity increased from 3.25 per

55

cent per annum to 12.56 per cent per annum, falling trend of capital productivity

and total factor productivity reduced from – 7.56 per cent per annum to – 2.70 per

cent per annum and – 6.61 per cent per annum to – 2.28 per cent per annum in

period I and period II respectively. But increasing trend of capital intensity fall

from 29.46 per cent per annum to 18.38 per cent per annum in period I and

period II respectively.

The results of overall period reveal that capital intensity was higher than the

labour productivity and that capital productivity. This indicated that the labour

productivity was achieved through capital deepening and the increase in capital

was not significantly helpful to increase the capital productivity. The growth rate

of total factor productivity was due to efficient use of labour than capital.

Estimates of the two sub-periods confirm an increasing trend or labour

productivity was higher and the decreasing trend of the capital productivity and

total factor productivity was lower in period II as compared to the period I. At the

same time, capital intensity the increasing trend of capital intensity reduced in

period II as compared to period I. The indicates that the increase in labour and

capital efficiently utilised particularly after liberalisation and capital deepening did

not help to increase the efficiency of the Western zone manufacturing sector.

The above analysis throws light on the following main findings.

• Labour productivity increased at 25.00 per cent per annum, capital

intensity at 58.24 per cent per annum during the study period. But,

capital productivity decreased at -1.54 per cent per annum and total

factor productivity at –1.59 per cent per annum during the entire study

period.

• The growth rate of total factor productivity was mainly due to labour

productivity.

• Capital and labour was efficiently utilised particularly after

liberalisation period.

56

• Capital intensity was not help to increase the capital productivity

significantly.

5.6. TESTING OF HYPOTHESIS

India’s New Industrial Policy, tabled in both the houses of parliament on 24

July, 1991, established a dynamic relationship between the domestic and foreign

industry in terms of both technology and investment. Foreign investment was

viewed from the positive angle of benefits accruing from technology transfer,

marketing expertise introduction of modern managerial techniques and promotion

of exports. So, in order to test the technological change the present hypothesis was

framed. This hypothesis has been evolved from the second objective of the study

namely productivity performance of Indian manufacturing sector and the impact of

liberalisation policy on productivity.

HYPOTHESIS

Indian manufacturing sector experiencing a technological change

particularly after liberalisation.

Table 5.6 depicts the technology of Indian manufacturing sector during

before and after liberalisation.

TABLE: 5.6

TECHNOLOGY OF INDIAN MANUFACTURING SECTOR DURING

BEFORE AND AFTER LIBERALISATION

Before Liberalisation Period

(1981-82 to 1990-91)

After Liberalisation Period

(1991-92 to 2004-05)Year Capital intensity

(Technology)

Year Capital intensity

(Technology)1981-82 0.62 1991-92 2.451982-83 0.73 1992-93 2.77

57

1983-84 0.90 1993-94 3.161984-85 1.04 1994-95 3.511985-86 1.21 1995-96 3.701986-87 1.36 1996-97 4.151987-88 1.51 1997-98 4.411988-89 1.70 1998-99 5.261989-90 1.86 1999-2000 5.531990-91 2.18 2000-01 5.81

2001-02 6.302002-03 6.322003-04 6.682004-05 6.41

TABLE: 5.7

TEST SIGNIFICANCE OF THE HYPOTHESIS.

‘t’ ValueCalculated Value Table Value

10.941 2.129

The calculated ‘t’ value is 10.941. The table ‘t’ value is 2.129 at five per

cent level. Since, the calculated value is greater than the table value at five per cent

level of significance, the hypothesis is accepted. It means, the Indian

manufacturing sector had been experiencing technological changes after

liberalisation.

58

CHAPTER VI

ANALYSIS OF DATA

DETERMINANTS OF LABOUR PRODUCTIVITY

As the process of liberalisation and globalisation is taking deeper roots in

the macro economic fabric of Indian economy, the need to identify the major

factors that affect industrial productivity in general and sectoral trends in particular

as well as the task of chalking out corrective policy stances to enhance the

productive capacity of the economy become imminent19. It is against this context

an attempt is made to find out the main factors influencing the All India Level and

zonal level productivity of manufacturing sector. This analysis would help in two

ways, firstly, it would assess the influence of various factors to the observed inter-

zonal variation in productivity and there by help to identifying those variables that

are responsible for increasing the productivity of industry in particular zone. This

type of analysis would help to identify area where corrective actions to be taken

towards better performance. Secondly, it has helped to the formulation of policies

and programmes pertaining to the development of backward zones. On the basis of

19 Deepak Gupta, “Productivity Growth in Indian Capital Goods Industry”, Artha Vijnana, No.2, June 1995, p.172.

59

the main findings of the previous chapter V, it was observed that labour

productivity highly contributed to the growth of total factor productivity than

capital productivity in India Manufacturing sector during the study period. Hence,

the main question that arises is what are the basic factors, which led to increase the

labour productivity in Indian manufacturing sector? According to Thomas

Mathew20 (Director of National Institute of Industrial Engineering, Mumbai), the

productivity of Chinese workers is twice that of an Indian worker, that is, the time

taken by the Indian worker, that is, the time taken by the Chinese worker to

produce a particular item is half of that taken by Indian counterpart for the same

task. Labour productivity in India is abysmal, both in the public as well as private

sectors. B.H. Dolakia and R.H. Dholaia21 also stressed that higher labour

productivity is one of the important factors influencing the investment decision of

the investors interested in starting industrial venutes. In view of this also the study

about the labour productivity of Indian manufacturing sector was important for the

industrial productivity. In the present study, the influence of number of

determinants on labour productivity had been estimated for the Indian

manufacturing sector during the period 1981-82 to 2004-05. The analysis was

carried out at national level as well as four zonal levels of India namely, the

Southern, the Eastern, the Northern and the Western zones.

Labour productivity of any manufacturing sector was influenced by a

number of factors, some of which are qualitative in nature. In the present study,

four variables were hypothesized to have a functional relationship with the

dependent variable (Labour Productivity). The selected four variables are

X1 Capital intensity (Technology)

X2 Ratio of capital to number of factories (Factory Size)

20 Thomas Mathew, “Improve All-Round Productivity to Gain Edge”, Industry 2.0, Vol.2, No.1, July 2002, p.87.

21 B.H. Dolakia and R.H. Dholaia , “Regional Productivity Disparity in Organised Sector”, The Economics Times, August 12, 1997, p.5.

60

X3 Ratio of gross value added to capital (Managerial Skill)

X4 Total emoluments per employee (Wage Rate)

Y Labour productivity.

Table fro 6.1 to 6.5 illustrate the dependent variable (Y) and their four

independent variables (X1 to X4) for the period from 1981-82 to 2004-05 both at

national level and zonal level.

TABLE 6.1

LABOUR PRODUCTIVITY (Y) AND ITS FOUR INDEPENDENT

VARIABLES (X1 TO X4) OF INDIAN MANUFACTURING SECTOR

DURING 1981-82 TO 2004-05

Year Labour productivity

Capital intensity

(Technology)

Ratio of Capital to Number of factories(Factory

size)

Ratio of Gross value

added to capital

(Management Skill)

Total emoluments

per employee

(Wage rate)

(Y) (X1) (X2) (X3) (X4)1981-82 0.39 0.62 36.28 0.63 0.101982-83 0.47 0.73 49.31 0.65 0.111983-84 0.49 0.90 57.01 0.55 0.111984-85 0.48 1.04 65.22 0.46 0.121985-86 0.45 1.21 69.92 0.37 0.121986-87 0.44 1.36 80.60 0.33 0.131987-88 0.45 1.51 89.20 0.30 0.131988-89 0.48 1.70 98.52 0.28 0.131989-90 0.50 1.86 109.22 0.27 0.141990-91 0.58 2.18 124.91 0.27 0.141991-92 0.85 2.45 136.94 0.35 0.13

61

1992-93 1.11 2.77 154.28 0.40 0.141993-94 1.29 3.16 172.48 0.41 0.141994-95 1.39 3.51 198.75 0.40 0.151995-96 1.34 3.70 209.71 0.36 0.161996-97 1.27 4.15 228.57 0.31 0.151997-98 1.61 4.41 247.46 0.37 0.151998-99 1.72 5.26 254.14 0.33 0.141999-00 1.72 5.53 264.37 0.31 0.152000-01 1.72 5.81 271.44 0.30 0.152001-02 1.79 6.30 292.19 0.28 0.152002-03 1.82 6.32 304.56 0.29 0.152003-04 1.93 6.68 314.88 0.29 0.162004-05 2.08 6.41 310.41 0.32 0.15

TABLE 6.2

LABOUR PRODUCTIVITY (Y) AND ITS FOUR INDEPENDENT

VARIABLES (X1 TO X4) OF THE SOUTHERN MANUFACTURING

SECTOR DURING 1981-82 TO 2004-05

Year Labour productivity

Capital intensity

(Technology)

Ratio of Capital to Number of factories(Factory

size)

Ratio of Gross value

added to capital

(Management Skill)

Total emoluments

per employee

(Wage rate)

Y X1 X2 X3 X4

1981-82 0.30 0.42 23.98 0.72 0.071982-83 0.37 0.49 29.80 0.76 0.081983-84 0.39 0.61 33.98 0.64 0.091984-85 0.40 0.71 39.68 0.56 0.101985-86 0.37 0.87 44.45 0.42 0.101986-87 0.35 0.97 50.11 0.36 0.101987-88 0.34 1.06 53.38 0.32 0.101988-89 0.38 1.26 63.88 0.30 0.101989-90 0.40 1.32 66.70 0.30 0.111990-91 0.45 1.66 85.10 0.27 0.111991-92 0.67 1.79 89.78 0.38 0.10

62

1992-93 0.83 1.94 95.42 0.43 0.101993-94 0.93 2.23 112.08 0.42 0.101994-95 1.01 2.36 126.72 0.43 0.111995-96 0.95 2.38 127.83 0.40 0.121996-97 0.84 2.46 132.33 0.34 0.111997-98 1.07 2.80 156.63 0.38 0.111998-99 1.17 3.63 179.81 0.32 0.101999-00 1.15 3.63 184.25 0.32 0.112000-01 1.19 3.68 183.46 0.32 0.112001-02 1.20 3.95 199.93 0.30 0.112002-03 1.18 4.00 208.07 0.30 0.112003-04 1.31 4.28 209.83 0.31 0.122004-05 1.29 4.10 209.39 0.32 0.12

TABLE 6.3

LABOUR PRODUCTIVITY (Y) AND ITS FOUR INDEPENDENT

VARIABLES (X1 TO X4) OF THE EASTERN MANUFACTURING SECTOR

DURING 1981-82 TO 2004-05

Year Labour productivity

Capital intensity

(Technology)

Ratio of Capital to Number of factories(Factory

size)

Ratio of Gross value

added to capital

(Management Skill)

Total emoluments

per employee

(Wage rate)

Y X1 X2 X3 X4

1981-82 0.36 0.68 51.65 0.53 0.121982-83 0.47 0.80 77.99 0.59 0.121983-84 0.46 0.94 85.63 0.49 0.121984-85 0.42 1.06 97.26 0.39 0.131985-86 0.42 1.26 99.45 0.33 0.131986-87 0.39 1.36 120.37 0.28 0.141987-88 0.43 1.62 144.37 0.27 0.141988-89 0.45 1.81 165.58 0.25 0.141989-90 0.46 2.02 180.93 0.23 0.151990-91 0.56 2.19 191.04 0.26 0.151991-92 0.76 2.56 216.63 0.30 0.13

63

1992-93 0.90 2.91 246.60 0.31 0.151993-94 1.13 3.48 288.81 0.32 0.161994-95 1.05 3.88 335.03 0.27 0.151995-96 0.98 3.94 335.97 0.25 0.161996-97 1.02 4.67 368.49 0.22 0.171997-98 1.33 4.46 359.02 0.30 0.161998-99 1.35 4.60 350.82 0.29 0.161999-00 1.28 5.24 350.39 0.24 0.162000-01 1.31 5.83 379.43 0.22 0.182001-02 1.34 6.64 411.09 0.20 0.182002-03 1.58 6.75 419.76 0.23 0.182003-04 1.71 7.17 440.17 0.24 0.192004-05 2.06 6.99 429.46 0.30 0.16

TABLE 6.4

LABOUR PRODUCTIVITY (Y) AND ITS FOUR INDEPENDENT

VARIABLES (X1 TO X4) OF THE NORTHERN MANUFACTURING

SECTOR DURING 1981-82 TO 2004-05

Year Labour productivity

Capital intensity

(Technology)

Ratio of Capital to Number of factories(Factory

size)

Ratio of Gross value

added to capital

(Management Skill)

Total emoluments

per employee

(Wage rate)

Y X1 X2 X3 X4

1981-82 0.38 0.69 37.90 0.55 0.081982-83 0.43 0.82 51.34 0.53 0.091983-84 0.43 1.01 58.34 0.43 0.101984-85 0.41 1.13 66.95 0.36 0.101985-86 0.37 1.25 69.22 0.30 0.101986-87 0.39 1.44 81.88 0.27 0.111987-88 0.40 1.50 87.25 0.26 0.111988-89 0.40 1.69 93.61 0.24 0.121989-90 0.47 1.84 101.70 0.26 0.131990-91 0.52 2.11 112.40 0.25 0.131991-92 0.88 2.59 135.62 0.34 0.11

64

1992-93 1.08 2.80 146.89 0.39 0.141993-94 1.24 3.17 164.09 0.39 0.121994-95 1.46 3.67 194.51 0.40 0.151995-96 1.30 3.78 202.17 0.34 0.151996-97 1.28 4.17 225.62 0.31 0.151997-98 1.65 4.83 246.45 0.34 0.161998-99 1.67 5.68 246.22 0.29 0.141999-00 1.80 5.99 241.10 0.30 0.142000-01 1.75 6.17 246.56 0.28 0.152001-02 1.95 6.51 255.64 0.30 0.152002-03 1.92 6.37 266.45 0.30 0.152003-04 1.88 6.41 278.42 0.29 0.162004-05 1.76 6.04 273.54 0.29 0.15

TABLE 6.5

LABOUR PRODUCTIVITY (Y) AND ITS FOUR INDEPENDENT

VARIABLES (X1 TO X4) OF THE WESTERN MANUFACTURING

SECTOR DURING 1981-82 TO 2004-05

Year Labour productivity

Capital intensity

(Technology)

Ratio of Capital to Number of factories(Factory

size)

Ratio of Gross value

added to capital

(Management Skill)

Total emoluments

per employee

(Wage rate)

Y X1 X2 X3 X4

1981-82 0.52 0.74 39.28 0.69 0.121982-83 0.59 0.85 55.62 0.69 0.121983-84 0.63 1.06 68.20 0.60 0.131984-85 0.64 1.27 76.36 0.50 0.151985-86 0.61 1.48 83.99 0.41 0.151986-87 0.59 1.67 96.52 0.35 0.161987-88 0.60 1.89 109.67 0.32 0.161988-89 0.65 2.08 114.85 0.31 0.161989-90 0.66 2.35 137.99 0.28 0.171990-91 0.78 2.78 155.61 0.28 0.171991-92 1.09 3.03 164.42 0.36 0.16

65

1992-93 1.58 3.62 199.17 0.44 0.181993-94 1.81 4.00 207.20 0.45 0.191994-95 2.01 4.59 241.85 0.44 0.191995-96 2.00 5.02 265.88 0.40 0.201996-97 1.78 5.56 289.20 0.32 0.191997-98 2.41 6.15 315.66 0.39 0.201998-99 2.61 7.35 306.01 0.36 0.181999-00 2.59 7.71 332.25 0.34 0.192000-01 2.59 8.31 346.33 0.31 0.202001-02 2.68 9.05 372.76 0.30 0.192002-03 2.74 9.18 396.02 0.30 0.192003-04 2.89 9.78 416.52 0.30 0.202004-05 3.34 9.46 406.96 0.35 0.21

66

Table 6.6 showed the results of regression model by taking all independent variable into consideration.

TABLE 6.6

DETERMINANTS OF LABOUR PRODUCTIVITY IN INDIA MANUFACTURING SECTOR DURING

1981-82 TO 2004-05 AT NATIONAL LEVEL AND ZONAL LEVEL

Number of observation: 24 (Number of years) Dependent Variable: Labour Productivity (Y)

All India

&Zones A X1 X2 X3 X4 R2DW SEE

All India -0.583 0.001

(0.013)

0.007*

(2.687)

1.146*

(4.202)

0.529

(0.137)

0.982 1.105@ 0.080

South -0.585 0.120

(0.606)

0.004

(0.909)

0.721*

(3.317)

3.871

(1.396)

0.958 0.607# 0.077

East -0.550 0.189*

(3.919)

0.002**

(2.524)

0.920*

(2.581)

-7.048**

(-2.121)

0.957 1.44# 0.103

North -7.08 0.186*

(4.333)

0.003

(1.957)

1.444*

(6.562)

1.752

(0.888)

0.987 1.099@ 0.070

West -2.881 0.285*

(3.848)

-0.001

(-0.428)

2.316*

(8.025)

14.298*

(4.438)

0.987 1.757 0.111

( ) Figures in brakets are ‘t’ value # no auto correlation at one per cent level* Significant at one per cent level @ inconclusive at one per cent level** Significant at five per cent level

67

From Table 6.6 most of the coefficients of independent variables do not

significantly influence the dependent variable in All India Level, and the southern

and the Northern zone level. The adjusted coefficient of determination (R2) was

more than 0.95 in All India and four zones, which indicated that more than 95 per

cent of variation in dependent variables is explained by the variation in the

selected independent variables. The Durbin-Watson statistics showed that negative

autocorrelation and inconclusive position in the all zones and All India Level. The

Standard Error of Estimates (SEE) was below 0.11 in All India and all zones.

Overall pictures of the regression results indicated that all variables are

significantly influence the dependent variable influenced in the Eastern zone only.

Only three variables influenced in the Western zone but, two variables in the All

India Level and Northern zones and only one variable in the Southern zone. At the

same time, it had high R2 value in All India and all zones. This indicated that there

are multicollinearity problems in these regression results in some zones. So, the

researcher would go to the next appropriate from by taking subset of variables on

the basis of stepwise forward regression to identify the significantly influencing

variable without multicolinearity and auto-correlation problems.

Table 6.7 Shows the results of regression model by taking subset of

variables on the basis of stepwise forward regression.

68

TABLE 6.7

STEPWISE REGRESSION: DETERMINANTS OF LABOUR PRODUCTIVITY IN INDIAN MANUFACTURING

SECTOR DURING 1981-82 TO 2004-05 AT NATIONAL LEVEL AND ZONAL LEVEL

Number of observation: 24 (number of years) Dependent variable: labour productivity (y)

Step Regression R2 SEE DW

I

II

All IndiaY= 0.024 + 0.006x2* (22.547)

Y= 0.510 + 0.007x2* + 1.117x3* (34.031) (6.195)

0.957

0.984

0.125

0.076 1.830

I

II

SouthY= 0.146 + 0.006x2*

(18.615)

Y= -0.128 + 0.007x2* +0.503x3* (19.992) (3.379)

0.938

0.958

0.940

0.210 1.671

69

Step Regression R2 SEE DW

I

II

III

IV

EastY= 0.172 + 0.218x1* (15.537)

Y= -0.255 + 0.249x1* + 1.060x3* (16.885) (3.332)

Y= -0.468 + 0.149x1*+1.341x3*+ 0.002x2* (3.096) (4.181) (2.165)

Y= 0.550 + 0.189x1* + 0.920x3* + 0.002x2* - 0.705x4* (3.919) (2.581) (2.524) (-2.121)

0.913

0.940

0.949

0.957

0.145

0.120

0.111

0.102 1.540

70

Step Regression R2 SEE DW

I

II

III

NorthY= 0.0948 + 0.288x1* (21.625)

Y= -0.408 + 0.307x1*+ 1.311x3*(31.238) (5.118)

Y= -0.533 + 0.165x1* + 1.352x3* + 0.004x2* (4.653) (6.998) (4.125)

0.953

0.978

0.988

0.134

0.091

0.069 1.781

I

II

WestY= -0.021 + 0.007x2* (20.078)

Y= -0.869 + 0.0084x2* + 1.653x3* (26.929) (5.067)

0.946

0.974

0.221

0.1525 1.565

( ) Figures in brakets are ‘t’ value

* Significant at one per cent level

71

The Table 6.7 indicated that all the selected variable significantly

influenced the dependent variable. The values of R2 improved at each stage.

Standard Error of Estimates have a decreasing trend when the number of

independent variables are increasing. The above inferences indicated that there

was no severe multicollinearity problems in these regressions. Durbin-watson test

was also significant at one per cent level at All India level and all zones in the final

step of the estimation.

6.1 DETERMINANTS OF LABOUR PRODUCTIVITY IN INDIAN

MANUFACTURING SECTOR

On the basis of stepwise regression, the main determinants of labour

productivity in Manufacturing sector during 1981-82 to 2004-05 had been

analysed at All India level and zonal level.

6.1.1 DETERMINANTS OF LABOUR PRODUCTIVITY AT ALL INDIA

LEVEL MANUFACTURING SECTOR

The results of main determinants of labour productivity for All India level

manufacturing sector during 1981-82 to 2004-05 were given in Table 6.8

72

TABLE 6.8

DETERMINANTS OF LABOUR PRODUCTIVITY AT ALL INDIA LEVEL

MANUFACTURING SECTOR DURING 1981-82 TO 2004-05

Regression Results

R2

DW

Y= 0.024 + 0.006x2*

(22.547)

0.957

Y=-0.510 + 0.007x2* + 1.117x3*

(34.031) (6.195) 0.984 1.830( ) Figures in brakets are ‘t’ value

* Significant at one per cent level

It was observed from the Table 6.8 that the adjusted coefficient of

determination (R2) was 0.98, which indicated that 98 per cent of the labour

productivity was explained by the selected independent variables in Indian

Manufacturing Sector during 1981-82 to 2004-05. Durbin-Watson statistic showed

that there was no auto correlation at one per cent level significant. Factory Size

and managerial skill were the significant variables influencing the labour

productivity. Among these variable, factory size had highly influenced the labour

productivity during the study period. It only explained 96 per cent of the variations

in the labour productivity. Both the variables, factory size and managerial skill

explained 98 per cent of variables in labour productivity. Even though the factory

size was found to be the most influencing variables for labour productivity,

managerial skill influenced more in absolute terms for augmenting labour

productivity. A 10 per cent increase in managerial skill helps to contribute 11.17

per cent increase in labour productivity. While 10 per cent increase in factory size

would increase the labour productivity by 0.06 per cent. In the year under study,

73

All India level manufacturing sector seemed to be independent of their capital

intensity and wage rate.

A.P. Pandey22 had also inferred that managerial skill and technology were

important as crucial explanatory variables of the growth of labour productivity in

censes manufacturing sector in India during 1965-66 to 1989-90.

Thomas mathew23 (Director of National Institute of Industrial Engineering,

Mumbai) also spoke of the importance of managerial skill that “Unless managerial

productivity improves, cannot expect material productivity, labour productivity or

equipment productivity to improve” in Indian industry.

6.1.2 DETERMINANTS OF LABOUR PRODUCTIVITY IN THE

SOUTHERN ZONE MANUFACTURING SECTOR

The results of main determinants of labour productivity of the southern

zone during 1981-82 to 2004-05 were given in Table 6.9.

TABLE 6.9

DETERMINANTS OF LABOUR PRODUCTIVITY AT THE SOUTHERN

ZONE MANUFACTURING SECTOR DURING 1981-82 TO 2004-05

Regression Results

R2

DW

Y= 0.146 + 0.006x2*

(18.615)

0.938

Y= -0.128 + 0.007x2* + 0.503x3*

(19.992) (3.379) 0.958 1.671( ) Figures in brakets are ‘t’ value

* Significant at one per cent level

22 Pandey, A.P., “Excess capacity in Indian Manufacturing Industries”, Indian Journal of Economics, Vol. 78, No. 311, 1998, p. 474.

23 Thomas mathew, op.cit., p.67.

74

Table 6.9 clearly showed that factory size and managerial skill were the

significant variables influencing the labour productivity during the study period in

the southern manufacturing sector. Further, the adjusted coefficient of

determination (R2) was 0.96, which indicated that 96 per cent of the variation in

labour productivity was explained by the variation in above selected variables.

Durbin-watson statistic showed that there was no autocorrelation. Factory size has

come out to be the most significant variables to determine the labour productivity

and explained 94 per cent of the variations in labour productivity. Both factory

size and managerial skill were the most significant subset of variables influencing

the labour productivity in order of their priority. But managerial skill influences

more in absolute terms to increase the labour productivity. A 10 per cent increase

in managerial skill would increase labour productivity by 5.03 per cent, while 10

per cent increase in factory size would increase labour productivity at 0.07 per

cent. At the same time, technology and wage rate were not significantly

influencing the labour productivity of the southern zone manufacturing sector

during the study period.

6.1.3 DETERMINANTS OF LABOUR PRODUCTIVITY AT THE

EASTERN ZONE MANUFACTURING SECTOR

The results of the main determinants of labour productivity of the Eastern

zone during 1981-82 to 2004-05 are given in Table 6.10.

75

TABLE 6.10

DETERMINATION OF LABOUR PRODUCTIVITY AT THE EASTERN

ZONE MANUFACTURING SECTOR DURING 1981-82 TO 2004-05

Regression Results

R2

DW

Y=0.172 + 0.218X1*

(15.537)

0.913

Y=-0.255 + 0.249 X1* + 1.060 X3*

(16.855) (3.332)

0.940

Y= -0.468+0.149X1* + 1.341X3* + 0.002 X2*

(3.096) (4.181) (2.165)

0.949

Y=0.550+0.189 X1* +0.920X3*+0.002X2* – 0.705X4*

(3.919) (2.581) (2.524) (-2.121)

0.957 1.540

( ) Figures in brakets are ‘t’ value

* Significant at one per cent level

It was observed from the table 6.10 that the adjusted coefficient of

determination (R2) was 0.96, which indicated that 96 per cent of labour

productivity was explained by the selected independent variables in the Eastern

zone manufacturing sector during 1981- 82 to 2004-05. Durbin-Watson statistic

showed that there was no auto correlation at one per cent level significant.

Technology, factor size, managerial skill and wage rate were the significant

variables influencing the labour productivity. Among there four variables,

technology had highly influenced the labour productivity during the study period.

It only explained 91 per cent of the variations in the labour productivity. Both the

variable, technology and Managerial skill explained 94 per cent of variations in

labour productivity. At the same time, technology, managerial skill and factory

size explained 95 per cent of variations. All the selected variables, Technology,

managerial skill, factory size and wage rate explained 96 per cent of variations in

76

the labour productivity. Eventhough the technology was found to be the most

influencing variable for the labour productivity, managerial skill influenced more

in absolute terms for augmenting labour productivity. A 10 per cent increase in

managerial skill helps to contribute 9.20 per cent increase in labour productivity.

While 10 per cent increase in technology and factory size would increase in labour

productivity by 1.89 per cent and 0.02 per cent respectively. But 10 per cent

increase is wage rate leads to 7.05 per cent decrease in labour productivity during

the study period in the Eastern zone manufacturing sector.

6.1.4 DETERMINANTS OF LABOUR PRODUCTIVITY AT THE

NORTHERN ZONE MANUFACTURING SECTOR

The results of main determinants of labour productivity of the Northern

zone during 1981-82 to 2004-05 are given in table 6.11.

TABLE 6.11

DETERMINANTS OF LABOUR PRODUCTIVITY AT THE NORTHERN

ZONE MANUFACTURING SECTOR DURING 1981-82 TO 2004-05

Regression Results

R2

DW

Y = 0.0948 + 0.288 X1*

(21.625)

0.953

Y = -0.408 + 0.307 X1* + 1.1311x3*

(31.238) (5.118)

0.978

Y = - 0.533 + 0.165 X1* + 1.352 X3* + 0.004 X2*

(4.653) (6.998) (4.125)

0.988

1.781( ) Figures in brakets are ‘t’ value

* Significant at one per cent level

77

Table 6.11 revealed that technology, managerial skill and factory size were

the significant variables influencing the labour productivity in the Northern zone

manufacturing sector during the study period. The adjusted coefficient of

determination (R2) was 0.99, which indicated that 99 per cent of variations in the

labour productivity was explained by the above selected three variables. Durbin –

Watson statistic showed that there was no autocorrelation. Among the three

selected variables, technology only explained 95 per cent of the variations in

labour productivity. Technology and managerial skill have explained 98 per cent of

the variations. Further, technology, managerial skill and factory size were

explained 99 per cent of variations in the labour productivity during the study

period. Managerial skill had high contributory ability to increase the labour

productivity. A 10 per cent increase in managerial skill, would increase 13.52

per cent increase in labour productivity. Further, 10 per cent increase in technology

and factory size, would increase 1.65 per cent and 0.04 per cent in labour

productivity respectively. At the same time the labour productivity of Northern

zone manufacturing sector seemed to be independent of their wage rate during the

study period.

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6.1.5. DETERMINANTS OF LABOUR PRODUCTIVITY AT THE

WESTERN ZONE MANUFACTURING SECTOR

The results of main determinates of labour productivity of the western zone

manufacturing sector during 1981-82 to 2004-05 are given in Table 6.12.

TABLE 6.12

DETERMINANTS OF LABOUR PRODUCTIVITY AT THE WESTERN

ZONE MANUFACTURING SECTOR 1981-82 TO 2004-05

Regression Results R2 DW

Y = -0.021 + 0.007 X2 *

(20.078)

0.946

Y = - 0.869 + 0.008 X2* + 1.653 X3*

(26.929) (5.067)

0.974 1.565

( ) Figures in brakets are ‘t’ value

* Significant at one per cent level

Table 6.12 clearly showed that factory size and managed skill were the

significant variables influencing the labour producing during the study period in

the Western zone manufacturing sector. Further, the adjusted coefficient of

determination (R2) was 0.97, which indicated that 97 per cent of the variations in

labour productivity was explained by the above selected variables. Durbin-watson

statistic showed that there was no autocorrelation. Factory size has come to be the

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most significant variable to determine the labour productivity and explained 95 per

cent of variation in labour productivity. Both factory size and managerial skill

explained 97 per cent of variations. Managerial skill influence more in absolute

terms to increase the labour productivity. A 10 per cent increase in managerial skill

would increase the labour productivity by 16.53 per cent, while 10 per cent

increase in factory size would increase 0.08 per cent. At the same time, technology

and wage rate were not significantly influencing the labour productivity of the

Western zone manufacturing sector.

From this chapter the following main findings were drawn.

Factory size and managerial skill were the most significant variables to

influence the labour productivity in the order of their priority at the

southern zone, the Western zone and All India level manufacturing

sector during the study period. But managerial skill influences more in

obsolete terms for augmenting the labour productivity.

All the selected variables i.e. Technology, managerial skill, factory size

and wage rate were the most significant variable to influence the labour

productivity in order of their priority in the Eastern zone manufacturing

sector.

In Eastern zone, more wage per worker has not brought about required

value addition.

Technology, managerial skill and factory size were significantly

influence the labour productivity at the Northern Zone manufacturing

sector during the study period on the basis of its priority.

Managerial skill showed high contributory ability to increase the labour

productivity at All India level and four zone level.

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CHAPTER - VII

SUMMARY AND FINDINGS

Industrial development accelerates economic growth and increases national

income. Industrial development is a key factor for rapid economic development of

any country. It is more true in the case of developing economies, as it would help

in combating many economic evils, which they have been facing. Manufacturing

sector is the oldest industry in India. In 1991, major reforms process started in

India. The 1991 liberalisation policy provided free access of capital, technology

and market in order to induce greater industrial efficiency and international

competitiveness. This position has urged the researcher to study and analyse the

Indian manufacturing sector. Indian economy is characterised by the scarcity of

resources particularly capital. So, India must use the available resources as best as

they can. Hence, the present study has focused attention on productivity in

manufacturing sector in India under the title “Productivity Performance of

Manufacturing sector in India”.

The specific objectives of the present study are

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v. To analyse the growth trend of Indian manufacturing sector.

vi. To identify the productivity performance of Indian manufacturing sector.

vii. To identify the factors determining the labour productivity in Indian

manufacturing sector.

viii. To give suggestions and recommendations for the improvement of Indian

manufacturing sector.

The following hypothesis is framed to test in this study.

ii. Indian manufacturing sector is experiencing a technological change partially

after liberalisation.

The present study analysed the Indian manufacturing sector at All India level

and its four zonal level namely, the Southern zone (Andhra pradesh, Karnataka,

Kerala, Tamil Nadu, Pondicherry and Andaman Nicobar Island.), the Eastern zone

(Assam, Bihar, Orissa, West Bengal, Meghalaya, Tripura, Jharkant, Chatishger,

Manipur and Nagaland), the Northern zone (Hariyana, Himachal pradesh, Jammu

& Kashmir, Punjab, Uttar pradesh, Delhi, Uttranchal and Chandigarh) and the

Western zone (Gujarat, Madhya Pradesh, Maharastra, Dadra & Nagar Haveli and

Daman and Diu, Rajasthan and Goa). The zonal analysis would help to identify the

region, which performed well and take action towards planning and redeployment

of resources to achieve better performance in each zone. It also helps for the

formulation of policies and programmes pertaining to development of backward

zone in India. The study period has covered 24 years from 1981-82 to 2004-05.

To identify the effect of liberalisation policy, the total study period is divided into

two sub-periods. So, the present study is made on three different periods of time,

namely, period I (1981-82 to 1990-91), period II (1991-92 to 2004-05) and overall

period (1981-82 to 2004-05). To analyse the manufacturing sector in the present

study, eight characters about the manufacturing sector were collected from Annual

Survey of Industries, Factory Sector, Central Statistical Organisation, Government

of India. The major characteristics are number of factories, fixed capital,

depreciation, number of workers, total emoluments, fuels consumed, materials

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consumed and gross output. With the help of above characters gross fixed capital

(with the help of perpetual inventory method) and gross value added were

calculated. To standarise the value of the factors, all the value factors are deflated

by appropriate price index based on 1980-81 = 100.

With regard to the first objective namely, to analyse the growth trend of

Indian manufacturing sector during 1981-82 to 2004-05, eight important variables

were used, They were number of factories, gross fixed capital, number of workers,

total emoluments, fuels consumed, materials consumed, gross output and gross

value added. Mean and growth trend of the selected variables had been assessed.

Linear growth rate model was used to examine the first objective.

With regard to the second objective namely, to identify the productivity performance

of Indian manufacturing sector, partial productivity (labour productivity and capital

productivity), total factor productivity and capital intensity, its Mean value and linear

growth have been assessed. The total factor productivity was measured with the help

of Kendrick index.

The third objective, namely to factors determining of labour productivity in

Indian manufacturing sector, four independent variables were selected to find out

the main determinants of labour productivity namely, technology, factory size,

managerial skill and wage rate. Stepwise forward regression model was estimated

to find out the most influencing variables of labour productivity.

7.1 MAIN FINDINGS OF THE STUDY

The findings about the Indian manufacturing sector derived from the

present study are presented at All India level and its four zonal level.

7.1.1. FINDINGS ABOUT THE INDIAN MANUFACTURING SECTOR

All India Level factories increased at the rate of 1.84 per cent per annum

during the overall study period. It had increased at the rate of 1.16 per

cent and 0.95 per cent per annum in pre liberalisation and after

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liberalisation respectively. This indicates that there was no significant

increase in the number of factories after liberalisation compared to the

pre liberalisation period.

The growth rate of gross fixed capital was 49.07 per cent per annum

during the overall study period. There was a higher growth rate in pre

liberalisation period (27.51 per cent per annum) compared to the after

liberalisation period (12.82 per cent per annum). The growth rate of

fixed capital is higher than the number of factories during the study

period. This implies that the factory size increased during the period.

The growth rate of number of workers was 0.35 per cent per annum

during 1981-82 to 2004-05. There was a low growth at 0.11 per cent per

annum in pre liberalisation period. But, it recorded decreasing trend to

-0.89 per cent per annum in after liberalisation period. When compared

the growth rate gross fixed capital and number of workers during the

two sub periods and overall periods, the growth rate of number of

workers was very low in relation to gross fixed capital. This indicates

that Indian manufacturing sector was continuing a capital intensive

industry during the entire study period.

The total emoluments have recorded an overall growth rate of 2.75 per

cent per annum during the overall study period. For the break up period,

the rate was 4.72 per cent per annum in pre liberalisation period and

0.14 per cent per annum in after liberalisation period. So, it shows that

there was considerable decrease in the total emoluments after

liberalisation. As compared to the total emoluments and number of

workers in All India level manufacturing sector during the overall

period and two sub periods, total emoluments is increased as compared

to the number of worked during the period. This indicated that there was

increasing trend in the emoluments per worker (wage) in overall study

period and two sub periods.

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The growth rate of fuels consumed was 4.83 per cent per annum during

the overall study period. For the break up period, it has growth rate of

13.83 per cent per annum in pre liberalisation and -2.25 per cent per

annum in after liberalisation. This implies that the fuels consumed

decreased particularly after liberalisation as compared to the pre

liberalisation period.

The growth rate of materials consumed was 15.01 per cent per annum

during the overall study period. It recorded the growth rate of 17.95 per

cent per annum in pre liberalisation and after liberalisation respectively.

This implies that materials consumed also did not increase impressively

after liberalisation as compared to the pre liberalisation period.

The growth rate of gross output was 16.85 per cent during the study

period. The growth rate was 8.92 per cent per annum and 7.67 per cent

per annum in pre liberalisation and after liberalisation respectively. This

indicated that the gross output did not impressively increase after

liberalisation.

The growth rate of gross value added was 22.06 per cent per annum

during the overall study period. It had increased at the rate of 2.90 per

cent per annum in pre liberalisation period and impressively increased

to 7.86 per cent per annum in after liberalisation period. There was

remarkable growth in gross output and gross value added during the

study period. This indicate that the growth in past is guarantee for the

healthy situation for the future perspective of the Indian manufacturing

sector.

Labour productivity and capital intensity grow at the rate of 20.95 per

cent per annum and 46.77 per cent per annum respectively. Capital

productivity and total faction productivity declined at the rate of -1.52

per cent per annum and -1.36 per cent per annum respectively in All

India level manufacturing sector during the study period.

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Labour productivity accelerated at the rate of 17.90 per cent per annum,

capital intensity at 43.10 per cent per annum. Capital productivity

decreased at the rate or -1.80 per cent per annum and total factor

productivity at -1.40 per cent per annum in the Southern zone

manufacturing sector during the entire study period.

Labour productivity and capital intensity increased at the rate of 18.38

per cent per annum and 44.26 per cent per annum respectively. But

capital productivity and total factor productivity decreased at the rate of

-1.85 per cent per annum and -1.73 per cent per annum respectively

during the study period in the Eastern zone manufacturing sector.

Labour productivity increased at the rate of 22.01 per cent per annum,

capital intensity at 42.17 per cent per annum. But, capital productivity

decreased at the rate of -0.97 per cent per annum and -0.76 per cent per

annum during the overall study period in the Northern zone

manufacturing sector.

The performance of the Northern Zone is encouraging in terms of total

factor productivity during the study period.

Labour productivity increased at 25.00 per cent per annum, capital

intensity at 46.77 per cent per annum during the study period. But,

capital productivity decreased at -1.54 per cent per annum and total

factor productivity at 1.59 per cent per annum during the entire study

period in the Western zone manufacturing sector.

The growth rate of total factor productivity was mainly because of

efficient utilisation of labour than capital in all zones and All India.

There was improvement in total factor productivity particularly after

liberalisation in all zones and All India.

Increase in capital was not efficiently utilized in pre liberalisation period

in all zones and All India.

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Capital deepening did not help to increase the capital efficiency in all

zones and All India.

Increase in capital and labour was efficiently utilised particularly after

liberalisation in all zones and All India.

Factory size and managerial skill were the most significant variables to

influence the labour productivity in the order of their priority at the

southern zone, the Western zone and All India level manufacturing

sector during the study period. But managerial skill influences more in

obsolete terms for augmenting the labour productivity.

All the selected variables i.e. Technology, managerial skill, factory size

and wage rate were the most significant variable to influence the labour

productivity in order of their priority in the Eastern zone manufacturing

sector.

Technology, managerial skill and factory size were significantly

influence the labour productivity at the Northern zone manufacturing

sector during the study period on the basis of its priority.

Managerial skill showed high contributory ability to increase the labour

productivity at All India level and four zone level.

7.2. RESULTS OF TESTING OF HYPOTHESIS

The hypothesis namely Indian manufacturing sector is experiencing a

technological change particularly after liberalisation was statistically tested. This

hypothesis was accepted. This concludes that the Indian manufacturing sector was

experiencing technological change after liberalisation period.

7.3. SUGGESTIONS FOR INDIAN MANUFACTURING SECTOR

Manufacturing sector should increase the factory size through increase

the capital than number of factories in all zones and All India.

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The capital should be used efficiently to increase the gross value added

through efficient management in all zones and All India.

The industry should enhance its technology through the capital than

labour in the Eastern zone and the Northern zone manufacturing sector.

The factors that influence the productivity of the manufacturing sector

vary. To improve the productivity and reduce the variations in

productivity in the four zones, the Government should be framed

separate policy for every zones.

Government has to enhance research and development activities to

increase the gross value added in the Indian manufacturing sector.

From the foregoing summary and findings of the study, the following

important conclusions have emerged. Manufacturing sector in India is a capital

intensive industry. The growth of total factor productivity was mainly because of

growth in labour productivity. The performance of the Northern zone was good as

compared to the other zones. Efficient utilisation of labour and capital was

attributed in Indian manufacturing sector particularly after liberalisation. Hence, to

develop the Indian manufacturing sector, there is need to increase the capital.

Moreover, capital has to be efficiently utilised to increase the gross value added.

There is also need to strengthen Research and Development to increase the gross

value added in Indian manufacturing sector.

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