International Journal of Financial Management and Economics 2024; 7(1): 406-409

P-ISSN: 2617-9210
E-ISSN: 2617-9229
IJFME 2024; 7(1): 406-409 Measurement and productivity growth of the Indian
www.theeconomicsjournal.com
Received: 04-03-2024 industrial sector: Review of literature
Accepted: 07-04-2024

Dr. Parmod Kumar Aggarwal Dr. Parmod Kumar Aggarwal and Jagmohan Singh
Associate Professor,
Department of Economics,
Punjabi University, Patiala,
DOI: https://doi.org/10.33545/26179210.2024.v7.i1.336
Punjab, India
Abstract
Jagmohan Singh By utilizing the existing literature, the present study gives the report on productivity growth and
Ph.D., Scholar, various techniques utilized in the industrial sector of India. Meanwhile, most of the studies confined to
Department of Economics, productivity growth either at regional level or at national level. Interestingly the more studies have
Punjabi University, Patiala, been conducted during and after economic reform. Primarily, Translog index method, Growth
Punjab, India accounting approach, Malmquist productivity index, Levinsohn-Petrin method, Data Envelope method,
and stochastic frontier analysis along with descriptive statistics techniques have been applied for
measuring productivity growth. By using different methods, some studies have shown growth in
productivity whereas some encountered deceleration growth in productivity. The reason of variation in
productivity growth has different sphere. As some of the studies has pointed out economic liberation
has positive and negative impact on different manufacturing industries in India.

Keywords: Productivity growth, industrial sector, different methodology

Introduction
Generally, productivity is defined the relationship between output volume and inputs volume
as well. It is the magnitude of efficiency in production inputs likely the case of labour and
capital are being used in an economy. Productivity is considered as a key tool of economic
performance and competitiveness (Krugman, 1994) [14]. Productivity is the measure of
production efficiency because it analyzes the physical and human resources for generating
income and output. In simple word, productivity can be defined in terms of efficiency of
inputs being used in the production process. A change in productivity refers to the change in
volume of input and output used. More simplicity, productivity is usually expressed as the
ratio between output and input. Productivity growth is the measurement of an increase in
value of output produced from various combinations of inputs over time. To be precise more,
productivity growth depends on efficiency of different inputs. First of all, the problem with
regard to the measurement of productive efficiency was solved by Farrell (1957) [8]. He
defined the three type of efficiency such as price (related to inputs prices), technical
(producing optimal output with available inputs) and structural efficiency (comparison of
industrial performance with the efficient production function that is constructed from its own
firms) that is required for productivity. Moreover, it takes account of all inputs
simultaneously and avoids the problem of index number in the measurement of productive
efficiency in the literature. Thus, productivity is the relationship between a flow of output
produced and inputs used during a specified period. In this study we have present the
literature on industrial productivity growth with different tools have applied as well.

Objective of the Study

 To analyze the literature on productivity growth in the industrial sector of India
 To discuss the methods being utilized for pertaining growth in the industrial sector of
Corresponding Author: India
Dr. Parmod Kumar Aggarwal
Associate Professor,
Department of Economics,
Let us discuss the growth and method in productivity in detail with respect to industrial
Punjabi University, Patiala, sector in India. The detail gives us the brief snap of trend in growth and methods utilized as
Punjab, India well.

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Ahluwalia (1991) [1] defined the total factor productivity decreased by 5.64 percent and 0.29 percent respectively.
growth in Indian manufacturing industries for the period Total factor productivity indexes were not uniform during
1964-65 and 1985-86. This study used pooled cross section the entire period as on an average productivity growth rate
and time series data for explaining the total factor based on Translog, Solow and Kendrick were 2.54 percent,
productivity growth. The results of this study were drawn by 2.66 percent, and 2.74 percent respectively.
Translog measure of production function. This study found Pattnayak and Thangavelu (2001) [19] assessed the
that total factor productivity was increased to 3.4 percent productivity trend in 3-digit across 10 organized
per annum over time in the study. The author also manufacturing industries in India during the period from
underlined this productivity reversal in the productivity 1980-81 to 1996-97. The period was sub-divided into three
growth due to economic regime or liberalization polices parts such as 1980-81 to 1984-85, 1986-89 to 1990-91 and
initiated since 1980s in India. 1991-92 to 1996-97. The results were analyzed by two type
Balakrishnan and Pushpangaden (1994) [3] pointed out the of deflators’ growth accounting specification developed by
total factor productivity (TFP) in the manufacturing sector Harberger (1991, 1998). The study concluded that before
by adjusting changes in the relative price of material inputs liberalization productivity growth was negative or sluggish
across 3- digit industries in India for the period 1970-71 to but after trade openness and liberalization regime of 1990s
1988-89. More precisely this study discussed the relative improved the total factor productivity growth.
price of the material that can affect the measurement of the Goldar and Kumari (2003) [10] defined the growth of total
value- added. For the measurement of real value-added factor productivity in Indian manufacturing across 17 two-
measures, this study used single and double deflation digit industries group during 1981-82 to 1997-98. The
methods. The TFP based on the single deflation method was period had divided into two sub-periods as from 1981-82 to
varied on account of 190-91 and from 1990-91 to 1997-98. For the interpretation
83.0 percent in 1980-81 and 106.8 percent in 1988-89. In of total factor productivity growth, the study used Translog
the case of the double deflation method, TFP was specification. The study found that there were divergence in
discontinued as it was 76.8 percent and 154.9 percent in total factor productivity during sub-periods as it was 1.89
1972-73 and 1982- 83 respectively. percent and 0.69 percent per annum during respective
Dholakia and Dholakia (1994) [7] revealed the growth of periods. This study concluded that lowering of effective
Total Factor Productivity in the manufacturing industries in protection to industries had contributed positively to
India for the period 1970-1990. This study investigated the productivity whereas underutilization of industrial capacity
TFPG during 1980-1990 in comparison to 1970-1980 in the was attributed to productivity slowdown in the
context of single deflation method and double deflation manufacturing industries.
method of real value added and it was a debate over these Hashim (2004) [12] conducted a study relating to cotton yarn,
two measures of value added. The data regarding different man-made textiles, and garments in terms of unit cost
inputs was taken from Central Statistics Organization growth and total factor productivity in India. Apart from
Transactions matrix from 1973-74 for both registered and this, this study also touched on the determinants of total
unregistered manufacturing sector and for output the data factor productivity in selected industries. Total factor
was taken from National Account Statistics. Majumdar productivity is measured by the Translog multilateral index
(1996) [15] underlined the productivity trends in Indian given. This study used panel data around 16 states in cotton
industry for the period from 1950-51 to 1992-93. yarn and 13 in each man-made textiles and garment
Srivastava (1996) [23] tried to define the firm level industry. The study identified major determinants that were
productivity in Indian manufacturing for the period 1980-81 output per firm, capacity utilization, electricity available,
and 1989-90. The author divided period further into 1980-81 road density, credit disbursement by commercial banks, the
to 1989-90 i.e. pre and post-reform period respectively. The nominal rate of protection, and non-tariff barriers for
author refined data and reduced to 1941 firms due to various products and machinery.
issues. The growth of total factor productivity was low in Manjappa and Mahesha (2008) [16] enunciated the total
pre-reform ranging from 0.02 percent and 1 percent whereas factor productivity growth in ten manufacturing industries
it was highest during post-reform period between from 0.10 comprising capital and labor-intensive industries for the
percent and 2 percent. period 1994-2004. This study aimed to explore the impact
Rao (1996) [20] attempted to define the method of of trade liberalization on the total factor productivity in
measurement of manufacturing productivity growth in India Indian industries. The study used Data Envelope Analysis
for the period 1973-74 and 1992-93. The results of this based on Malmquist Productivity Index (MPI). The study
study were drawn by the growth accounting approach and found that the TFPG in capital-intensive industries was 1.7
econometric production function. The study divided the percent per annum whereas it was -0.9 percent in labor-
period into two sub-periods. The study found that the intensive industries during the entire period. Total factor
growth of total factor productivity was (TFP) just 2 percent productivity growth was mainly by the contribution of
over the period. Similarly, the index of TFP based on the technical progress (frontier shift) rather than by technical
double deflation method was 2.2 percent over time and it efficiency change (catching-up effect) in the case of capital-
was 4.6 percent and -0.2 percent for periods one and two intensive industries.
respectively. Das and Kalita (2009) [4] attempted to define the aggregate
Mongia and Sathaye (1998) [18] elaborated the productivity productivity growth for 2-digit organized manufacturing
growth in aluminum, cement, fertilizer, glass, paper, iron, industries for the period 1986-2000. This study used the
and steel industries along with total manufacturing during Domar aggregation technique for analyzing total factor
the period from 1973 to 1993 in India. During 1973-93, productivity growth. For the period 1986-90, some
output grew by 7.73 percent, gross fixed capital 8.04 industries like basic chemicals, heavy machinery, electrical
percent, and labor force 1.98 percent. The study also pointed machinery and transport equipment were depicted positive
out that the productivity growth rate of labor and capital TFP growth say 2 percent per annum. However, the leather

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industry was negative growth of TFP and the average TFP infrastructural development at the regional level in India.
growth was 1.74 percent per annum during the same period. The study also found that there was a marked increase in the
In the third period of 1991-95, the TFP growth in five share of the manufacturing sector in state income such as in
industries as in cotton textiles, textile products, basic Gujarat, Punjab, Haryana, and Bihar. The share of states'
chemicals, rubber and plastics and basic metal was negative. investment to total investment was varied over time. It was
Hashim et al. (2009) [13] interpreted the partial and total highest in the case of Maharashtra and Gujarat as their
factor productivity across 2-digit manufacturing industries combined share was around 34 percent of total investment
in India during 1992-93 to 2005. The study also gave insight in the manufacturing sector during the pre- reform era.
about J-curve hypothesis of liberalization and productivity De and Nagaraj (2014) [5] examined the relationship
from import liberalization. The time period was further between productivity and firm size in the context of India.
divided into sub-period as from 1992-93 to 1997-98, form The sample of this study takes from 39751 manufacturing
1998-99 to 2001-02 and finally form 2002-03 to 2005-06. firms. The results of this study were analyzed by Levisohn
The results were drawn by Translog and J- curve analysis. and Petrin 2003 method of intermediate input as parameter
The study found that total factor productivity was 0.81 to control the correlation between input and unobserved
percent per annum over time. The growth of partial factor productivity level and Wooldridge method of Generalized
productivity such as of capital, labour, energy, material and Method of Moments for total factor productivity,
services was 1.2, 5.6, 5.0, 0.7, and 1.41 percent respectively Generalized Least Square method, random effect model for
in all industries during the same. small firms size and productivity, t-test, dynamic model
Sehgal and Sharma (2011) [21] made comparison of inter- given by Arellano and Bond 1991, Arellano and Bover 1995
temporal and inter-industry over the total factor productivity Blundell and Bond 1998, and also Probit model, Standard
in organized manufacturing in Haryana (State) in India for Deviation and Standard Errors. This study finds that there is
the period 1981-82 to 2007-08. This period was known positive correlation between firms and productivity.
period one and this period further divided into pre-reform Deb and Ray (2014) [6] compared the total factor
period from 1981-82 to 1991-92 (say period one) and post- productivity across 20 states during pre and post-reform
reform period from 1992-93 to 2007-08 (say period two). periods 1970-71 to 2007-08 in the manufacturing industries
The findings were analyzed by Malmquist productivity in India. For the construction of total factor productivity, the
index. During post reform period, technological shift was study used the Biennial Malmquist productivity index that
greater than efficiency in all respective industries except for was based on data envelopment analysis. The study found
food and beverages and cotton and textiles indicating that that growth in total factor productivity at the Indian level
growth in total factor productivity was mainly due to was higher in the post-reform period. After the reform, there
innovation regardless of improvement in efficiency. The was a declining trend in productivity growth no dought that
study concluded that there was no unique pattern of the majority of the states revealed accelerated productivity
productivity growth in manufacturing sector of the state like growth. During the reform period, the major component of
Haryana over time. productivity growth was attributed to technical progress.
Ghose (2012) [9] underlined the total factor productivity Mangla and Azad (2015) [17] surveyed the existing literature
growth of Pharmaceutical industries in India over the period on the measurement of industrial productivity in India. This
from 1973-74 to 2003-04.The total factor productivity study explored that there are so many methods used in
growth discovered a significant increase in the Indian different studies such as Translog index method, Growth
pharmaceutical industry over time. Among the determinant accounting approach, Malmquist productivity index,
of total factor productivity, the firm size and capital Levinsohn-Petrin method, Data Envelope method, and
intensity were positive moreover profit per unit of output Stochastic frontier analysis. The study pointed out that the
also positive and it also can be taken as a prime explanatory main determinants of industrial productivity were growth
variable among other inputs. The study underlined that rate of output, an effective rate of protection, non-tariff
partial elasticity was positive for capital and material, barriers, investment to capital stock ratio, real effective
capital and fuel consumption, and the number of workers exchange rate, agriculture output growth rate, terms of trade,
and fuel consumption. inflation rate, and investment in fixed assets.
Thomas and Narayanan (2012) [24] depicted the relationship Goldar (2015) [11] detailed the total factor productivity
between productivity heterogeneity and firms level exports growth in Indian manufacturing industries particularly for
in India for the period 1990 to 2009. The study hypothesizes the period 1999-2000 to 2011-12. The study used 2-digits
that there is self-selection of most productive firms national industrial classification and total factor productivity
attributed to export and firms learn by exporting where was measured by Translog index. The total factor
firms become more productive once they enter in the productivity growth was not unique over time. There was a
exports market. This study aimed to find the level of export negative sign of its growth in tobacco products, publishing
from the heterogeneity productivity of the firms. The sample printing and reproduction of recorded media, coke, refined
of this study was taken from 2481 manufacturing firms. petroleum products, nuclear fuel, and manufacturing of
This study found that exporting firms were more productive furniture whereas it was positive in the rest of the industries.
as compared to non-exporters firms and they were doing The share of imported material in total material was highest
more exports than non-productive firms. But this in the manufacturing of coke, refined petroleum products,
productivity difference was small when compared to other and nuclear fuel says 7 percent whereas it was lowest in the
countries in the world. manufacturing of food products and beverages say 3.3
Babu and Nataranjan (2013) [2] assessed the performance of percent.
regional registered manufacturing in India by examining the Sharma (2017) [22] examined the growth of the
trends in labour and total factor productivity across 15 states manufacturing sector of India for employment, value-added,
for the period 1980-2008. There are variations in and labor productivity during the period from 2001-02 to
productivity growth that can be explained by variations in 2013-14 along with the reason for variation in

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manufacturing performance across 20 states. The study https://www.jstor.org/stable/2343100.

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