Big Reforms but Small Payoffs: Explaining the Weak Record of Growth in Indian Manufacturing

81 Pages Posted: 19 Feb 2009

See all articles by Poonam Gupta

Poonam Gupta

Delhi School of Economics

Rana Hasan

Asian Development Bank; University of Maryland - Department of Economics

Utsav Kumar

Asian Development Bank

Date Written: February 18, 2009

Abstract

India has undertaken extensive reforms in its manufacturing sector over the last two decades. However, an acceleration of growth in manufacturing, and a corresponding increase in employment, has eluded India. Why have the reforms not produced the intended results? Using Annual Survey of Industries data at the three digit level for major Indian states, for 1980-2004, we analyze the effects of the reforms that liberalized India's industrial licensing regime on the performance of registered manufacturing. We find that the performance of the manufacturing sector is heterogeneous across states, as well as across industries. In particular, labor intensive industries and industries dependent on infrastructure have not benefited much from reforms. Industrial performance appears to be contingent on the state specific policy and economic environment. States with relatively inflexible labor regulations have experienced slower growth of labor-intensive industries and slower employment growth overall. Additionally, states with relatively competitive product market regulations and with better infrastructure have experienced larger benefits from reforms.

Suggested Citation

Gupta, Poonam and Hasan, Rana and Kumar, Utsav, Big Reforms but Small Payoffs: Explaining the Weak Record of Growth in Indian Manufacturing (February 18, 2009). Available at SSRN: https://ssrn.com/abstract=1346042 or http://dx.doi.org/10.2139/ssrn.1346042

Poonam Gupta (Contact Author)

Delhi School of Economics ( email )

Department of Economics
Delhi University
Delhi, Delhi 110007
India

Rana Hasan

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
808-944-7590 (Phone)
808-944-7399 (Fax)

Utsav Kumar

Asian Development Bank ( email )

6 ADB Avenue
Central and West Asia Department
Mandaluyong City
Philippines

HOME PAGE: http://works.bepress.com/kumarutsav/

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