Total Factor Productivity Growth in Indian Manufacturing

Abhijeet Bag & Sarbapriya Ray

Published: March 2022

Research findings suggest that the trends in total factor productivity (TFP) are highly cyclical across years during the pre-reform period and have shown a similar cyclical trend during the post-liberalisation period in all three measures—GO based, A based and KLEMS measure adopted. These results indicate higher growth in TFP during the pre-reform period when value added (double deflation) is used but not when value added (single deflation) is used. Overall, the productive performance of manufacturing industry in India has shown a gradual upward, positive trend since the initiation of economic reforms in 1991, explicitly reflecting the favourable impact of liberalisation on TFP growth. For the manufacturing sector in India, the post-reform era witnessed accelerating growth in TFP but deceleration in capital intensity and material and labour productivity. The contribution of TFP growth to the growth in output is either negative or insignificant across the entire timeframe.

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