Deregulation and liberalisation, business cycles and performance of Indian industry

Abstract

We examine inter-firm performance variation over two decades of deregulation and libersalisation measures that aimed at removing the barriers to competition and access to new technology in Indian industry. This is to understand how firms across industries have responded and performed over business cycles. In the structure-conduct-and-performance (S-C-P) framework, using step-wise discriminant analysis, we find debt ratio, export intensity, gross fixed assets, advertising, marketing and distribution expenses acted as principal discriminants between pre- and post-deregulation periods. Comparing short- and long-term impact of liberalisation measures, we find new investment, export intensity, gross fixed assets growth, capital output ratio, employee cost, advertising, marketing and distribution expenses and sales growth are the significant discriminants that differentiate the 1991-1993 and 2005-2007 period. Trends in the growth contributing sectors as well as major sub-sectors of manufacturing broadly confirm the prediction of discriminant analysis of slowdown of the Indian economy post-global financial crisis.