Impact of economic reforms on productivity performance of manufacturing sector in South India.

AuthorManonmani, M.


Industrialization has been viewed as a pre-requisite to economic transformation of the society. It has been recognized that industrialization is the surest solution to the problem of raising the standard of living of the people. The progress of industrialization since 1951 has been a striking feature of Indian economic development. The process of industrialization launched as a conscious and deliberate policy under Industrial Policy Resolution of 1956 and vigorously implemented under the Five Year Plans, involved heavy investments in building up of capacity over the last 56 years, making India the 10th most industrialized country in the world. The industrial structure has been widely diversified covering broadly the entire range of consumer, intermediate and capital goods. The progress which India has made in the field of industrialization is clearly reflected in the commodity composition of India's foreign trade, in which the share of imports of manufactured goods has steadily declined. On the other hand, industrial products particularly small engineering goods have become a growing component of India's export. Finally the rapid stride in industrialization has been accompanied by corresponding growth in technological and managerial skills for efficient operation of the most sophisticated industries and also for planning, designing and construction of such industries.

Estimating productivity level and growth rate as well as analyzing productivity determinants gained a renewed interest both among growth economists and trade economists.

With the introduction of economic reforms in 1991, Indian industries have been witnessing profound changes in the basic parameters governing its structure and functioning. Relaxing of licensing rule, reduction in tariff rates, removal of restriction on import of raw materials and technology, price decontrol, rationalization of customs and excise duty, enhancement of the limit of foreign equity participation etc. are among those which have been introduced at early 90's. One major objective of trade liberalization in India has been to enhance industrial productivity and input-use efficiency. This has been made possible with the greater and cheaper access to imported know-how, capital goods, intermediate goods and global capital, relaxing constraints on various input use and technology choices, increased domestic and international competitive pressures by bringing in technological dynamism in industries and permitting more efficient firms to grow and competing out inefficient ones. With the introduction of economic policy reforms, Indian industries have been undergoing structural reforms and facing hard competition from external markets. Growth of a firm depends on the efficient and rational use of the scarce resources available to it. In other words, it is the level of productivity of the factors of production that determines the sustainability of the firm. It was recognized that output growth could not be enhanced by continuous input growth in the long-run due to the nature of diminishing returns for input use. For sustained output growth, TFP (Total Factor Productivity) growth is essential (Sarbapriya Ray et. al, 2010).

Sandeep Kumar and Kavita (2012) in their study also stressed that productivity is a key and major factor in the success of any socio-economic system because of its direct relationship with economic welfare. The concept of productivity has come into greater prominence during recent years in the context of industrial development. If some production units can be used more efficiently, the net addition to the total national product will be much higher which will result in the process of industrial growth. Productivity increase is, thus, an indispensable and powerful stimulus to and the end result of a complex socio-economic process of economic development. Since the objective of productivity increment and economic growth is to satisfy the material needs of individual members as well as of society to the fullest possible extent, economic growth is positively correlated with productivity increase. The degree of general welfare, in its ultimate analysis, is therefore, the real barometer of a nation's progressive prosperity.

The liberalization, privatization and globalization (LPG) policies that started in early 1980s in India, and strengthened in the 1990s, opened the Indian manufacturing sector to greater competition from within as well as from outside. One of the major components of the economic reforms package has been the deregulation and delicensing in the manufacturing sector. The justification provided for this often centers on the reason of encouraging competition, which, in turn, is expected to enhance the efficiency and productivity performance of the manufacturing sector. Given that the main objective of reforming the manufacturing sector was to improve industrial productivity, it would be appropriate to probe how far the...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT