India’s Manufacturing Story: Productivity and Employment

Abstract

Services have been the driver of India’s overall growth since the onset of economic reforms in India and particularly beginning the 2000s. However, India’s manufacturing sector continues to draw attention despite several decades of reforms covering industrial policies and trade liberalization. The government through its several initiatives—National Manufacturing Policy as well as ‘Make in India’ program—continues to drive the sectors role in the overall growth and development. The sector is targeted to contribute around 25% of GDP by 2025 as against its current 16% share. In the recent past, Indian manufacturing has attained a sharp rise in growth and this augurs well for a sector that has seen stagnancy in its share of GDP in the last several decades. The lack of jobs in organized manufacturing has so far failed India’s industrial objectives and add to that is the large number of people employed in informal manufacturing activities as well has remained a perennial challenge to development needs. The productivity performance of manufacturing industries has been well documented and continues to exhibit low productivity growth. A recent study by Das et al. (The World Economy: Growth or Stagnation? Cambridge University Press, Cambridge, pp. 199–233, 2016) however finds labour-intensive manufacturing outperforming non-labour-intensive goods during the period 2000–15 and this is important when we have evidence of declining labour intensity even in labour-intensive manufacturing (Sen and Das in Economic and Political Weekly 50(23):108–115, 2015). Several challenges remain if productivity is to be improved. Most critics would point to the labour market rigidities for the inefficiency in the manufacturing sector, but there remains several issues beyond simple labour market reforms that need to be addressed—particularly those related to skill formation and its impact of labour quality. The present study would cover the manufacturing industries for the period 2000–2015 in an attempt to understand the productivity dynamics in manufacturing sector and its relation to employment. Using a neoclassical growth accounting technique and the India KLEMS dataset, we would examine the manufacturing performance both at the aggregate-level as well as 13 disaggregated industries and present an industry-level perspective on manufacturing performance. The period of study would also take into account the several phases of the Indian economy including pre-global slowdown, slowdown and recovery phase. The study would address some of the possible determinants of manufacturing performance which need attention if the stagnancy of manufacturing share in overall GDP is to be reversed.