Abstract
The pharmaceutical industry of India is one of the most rapidly expanding research-based industries of Indian manufacturing. This paper attempts to examine the trends in partial and total factor productivity (TFP) growth of India’s pharmaceutical industry using industry-level time series data covering a period of 25 years from 1993-94 to 2017-18, which is further divided into pre-product and post-product patent periods. Three alternative indices of growth accounting approach viz., Translog, Solow, and Kendrick have been used to measure the growth of total factor productivity with four input production framework. The study results indicate significant increasing trends in capital intensity as well as labour, energy and material productivity and a significant declining trend in capital productivity over the entire study period. This study also finds a positive turnaround in the TFP growth of Indian’s pharmaceutical industry during the post-product patent era. The decomposition analysis confirms that output growth in the pharmaceutical industry is input-driven rather than productivity-driven as TFP growth contributes only 8.5 percent to the observed output growth. From the policy standpoint, this paper also suggests greater emphasis on resource efficiency by improving the quality of factor inputs, particularly capital, through increased R&D activities and adoption of cutting-edge technology.
Highlights
The importance of productivity growth for the sustained industrial growth of an economy is well recognized in the literature as productivity is concerned with efficiency in resource use
Partial productivity estimates for the pre and post-product patent periods reveal that the postproduct patent period has witnessed acceleration in labour and material productivity as well as capital intensity but deterioration in capital and energy productivity
Turning to the total factor productivity (TFP) growth, it is observed that TFP growth estimates are sensitive to the index used
Summary
The importance of productivity growth for the sustained industrial growth of an economy is well recognized in the literature as productivity is concerned with efficiency in resource use. Productivity growth is considered essential not just for increasing output and for enhancing an industry’s competitiveness in both domestic as well as international markets [2]. Growth in productivity enhances the export performance of an industry. The assessment of productivity is an important yardstick for evaluating the performance of an industry over a period of time. With its exports destined to more than 200 countries of the world including the USA, India’s pharmaceutical industry is the world’s largest producer of generic drugs, accounts for 20 percent of global generics exports [4]. The pharmaceutical industry of India contributes around 7.2 percent to the country’s gross domestic product (GDP) and provides employment opportunities to nearly 740,000 people (Annual Report, Department of Pharmaceuticals, 2020-21; ASI database). The pharmaceutical industry in India was estimated to be worth US$ 33 billion in 2017 and the total pharmaceutical exports stood at US$ 16.28 billion in 2019-20 [4]
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