Efficiency Improvement or Technological Advancement – What is influencing manufacturing productivity in India?

Abstract

Ensuring that the benefits of growth are shared equitably requires a strong focus on greater convergence of regions in terms of output and productivity. The present study examines the regional disparities in Total Factor Productivity (TFP) in India by using the Data Envelopment Analysis (DEA) based non-parametric, Malmquist Productivity Index (MPI),especially in the post-crisis period. It utilises panel data for 3-digit industries from Annual Survey of Industries (ASI) for the period from 2003-04 to 2017-18 for 18 Indian states. The study period has been divided into a pre-crisis period (2003-2008) and post-crisis period (2008-2017) to see the impact of global financial crisis (GFC) on productivity as well. The results show that at the all India level, TFP of Organised Indian Manufacturing has declined in the post-crisis period as compared to pre-crisis period. The decomposition of the productivity growth further reveals that technological changes propelled growth in the pre-crisis period and efficiency changes were responsible for driving post-crisis growth. However, the inter-regional variations in productivity reduced during the post-crisis years signalling towards convergence of growth which is a welcome change. The author found that TFP is positively impacted by education, health and road infrastructure whereas relationship with telecommunication was found to be statistically insignificant.