ECONOMIC REFORMS AND GROWTH PERFORMANCE OF INDIAN MANUFACTURING SECTOR AN INTERSTATE ANALYSIS

Chapter IV ECONOMIC REFORMS AND GROWTH PERFORMANCE OF INDIAN MANUFACTURING SECTOR AN INTERSTATE ANALYSIS The basic objective of economic reforms was to improve productivity growth and competitiveness in the Indian manufacturing sector. These reforms were aimed at making Indian manufacturing sector more efficient and technologically up to date, with the expectation that these changes would enable Indian manufacturing sector to achieve higher and sustainable growth. The government started to deregulate the Indian economy with a liberalization programme, focused on the investment pattern, trade policies, the financial sector, taxation and public enterprises. As a result, the economy has been passing through a crucial transition phase witnessing the challenges of a free market oriented environment in the reformed era. This segment of Indian industrial sector, which had been growing under the protective umbrella, since independence, has been left open to the invisible hands of the market forces. The sphere of competition has increased manifold, both horizontally and vertically in national as well as in the international market where the fittest will survive and inefficient will be weeded out. In recent times, Industrialization has become the catch word of the midtwentieth century and industrial development of the under developed countries or developing countries like India. One of the great world crusades of our times, the Less Developed Countries (LDCs) hope to find in it a solution their problems of poverty, insecurity, overpopulation, backwardness, illiteracy etc. They consider it a panacea for all the evils of their social and economic life. In fact, the essence of 80

economic development of an LDC like India consists essentially in the growth of industrialization. Industrialization gives mankind greater control over its environment; increases its freedom; provides leisure and luxury and yet gives larger employment. Thus, the study of the process of industrial development of an LDC is a fascinating exercise in the growing economies like India. Realizing the importance of industrialization, once Pt. Jawaharlal Nehru rightly remarked, Real progress must ultimately depend on industrialization. His vision was to see India in the group of developed nations of the world and industrialization was the only key to restructure the economy and to achieve sustained growth. Indian economy is a basically an agriculture based economy. It has been evident from the experience of the most of advanced countries that growth based upon agriculture sector will not be sustainable growth. Raul Prebish and Singer (1949) in united nation s study found that terms of trade of developing nations tends to deteriorate and for USA it becomes favorable and rose from 100 in 1870 to 170 in 1938. After studying such behavior of terms of trade they made their belief that for the agriculture based economies terms of trade would always become unfavorable in long run because; a) The income elasticity of export-goods of agricultural countries is low, while the income elasticity of import-goods is very high. As in case of domestic demand, the demand for agricultural products in other countries, in particular advance countries, is very low. In fact, developed countries have surpluses in agriculture products for exports. As against this, the demand for the import of manufactured goods by LDCs is very intense; and b) With the advancement of technology, input-output coefficients are declining and most of primary products which were used as raw material are replaced by the industrial cheaper raw material. 81

This situation characterized by disparities in the elasticities of foreign trade can, therefore, be corrected only by industrialization and not by depending on primary sector only. On the other hand, if we develop only tertiary sector and ignore industrial sector then there may be tendency of inflation in the economy and this inflation may lead to deceleration economic growth. Therefore, industrialization is the only method to achieve sustained economic growth. Moreover, economic history demonstrates that to eliminate a country s techno-economic backwardness it is necessary to develop the industrial sector and then to diversify it over a wide range of area and activities. Industrialization is a process of economic organization characterized by rapid setting up of industries and has invariably been the accompaniment of economic development. Nevertheless, economic development should not be treated synonymous with industrialization because industrialization is only a part of the whole process of economic development. The underdeveloped countries find it difficult to finance their developmental programmes. Consequently, the tempo of industrialization has been slow and the growth rate in general has been extremely low. This is why the subsistence farming dominates the economic landscape of the backward countries. Due to less growth and low levels of real income, the pattern of demand is mostly dominated by food and light consumer goods. Hence, entrepreneurs are, under such prolonged pressure, compelled to invest in staple farming, light consumer goods and labour intensive industries rather than in the heavy capital intensive industries. Developing countries view industry as a leading sector essential for high rates of present and future growth and development. Industry is relied upon to train labour, to absorb it into higher productivity jobs and to relieve the serious unemployment and underemployment in agriculture. Industrialization is required to satisfy the rapidly growing demand for manufactured foods which developing 82

nations cannot import because of balance of payments difficulties. Industry is also wanted for reasons of nation s security and pride. Almost all the economists now concede the need for the industrial development of countries like India with vast manpower, large and varied resources, and continental dimensions. Therefore, the biggest challenges confronting Indian manufacturing sector is not only to survive but also to grow and compete on a sustainable basis in the reformed era. In this context, an attempt has been made in this chapter to analyse the growth performance of various important variables affecting Indian manufacturing sector before and after economic reforms at disaggregated State levels. In order to present the discussion in lucid style, the chapter has been divided into three sections. Section-I provides methodological framework used for the analysis, the Section-II discusses the performance of the Indian manufacturing sector during entire period (1979-80 to 2007-08) and for two sub periods, namely pre-reform period (1979-80 to 1990-91) and post-reform period (1991-92 to 2007-08) whereas, the last Section concludes the discussion along with the relevant policy implications. Section I The required data have been culled out from the various issues of Summary Results of Annual Survey of Industries. The growth performance of Indian manufacturing sector at state levels is confined to the period to 1979-80 to 2007-08. The choice of terminal year is governed by the availability of the latest data from the Central Statistical Organization (CSO). The present study, considered two output variables namely, gross value added at constant prices and gross output and three input variables namely, gross fixed capital at constant prices, number of employees and total emoluments at constant prices for sixteen major states have been utilized. Using appropriate price deflators, the monetary data have been deflated at the constant prices of 2004-05. 83

The gross value added and gross output figures at constant prices have been utilized as an index of output. Following Jayadevan (1995) and Goldar (1986), it is preferred to use of gross value added as an index of output in at the place of net value added because depreciation charges in the Indian industries are known to be highly arbitrary fixed by the income tax authorities and seldom represent true/actual capital consumption. Another variable gross output comprises total exfactory value of products and by-products manufactured as well as other receipts from non industrial services rendered to others, work done for others on material supplied by them, value of electricity produced and sold, sale value of goods sold in the same conditions purchased, addition in stock of semi- finished goods and value of own construction. In the present study, gross fixed capital stock is used as a measure of capital input. The standard practice of perpetual inventory method has been followed here to generate the series of gross fixed capital stock at constant prices. This requires a gross investment series an asset price deflator, a depreciation rate and a benchmark capital stock. To obtain a series of gross fixed capital stock at constant prices we follow the following steps: Step I: following Goldar and Virmani, the value of capital stock for initial (Benchmark) year (k 0 ) has been estimated as: K 0 = 2*B 0 (4.1) Where, B 0 is the book value of fixed capital in the Benchmark year. Following Kumar and Arora (2007) and Arora (2010), using a factor of 2 to the book value of fixed capital in 1979-80 at the prices of 2004-05, the capital stock for benchmark year has been obtained. We take the estimate for 1979-80 and shift the base year of prices to 2004-05 (because all other series used are at the constant prices of 84

2004-05). Thus, we obtain net fixed capital stock in registered manufacturing in 1979-80 at 2004-05 prices. Step II: The gross real investment (I t ) has been obtained by using relationship. I t B B + D P t t 1 t = (4.2) t Where, B t =Book value of fixed capital in the year t; D t =Value of depreciation of fixed assets in year t; P t =Implicit deflator for gross fixed capital formation for register manufacturing in NAS. Step III: After obtaining the estimates of fixed capital for benchmark year and gross real investment, the following equation has been used for the measurement of gross fixed capital series at 1981-82 prices: K t = K t-1 + I t.k t-1 (4.3) Where, K t =Gross fixed capital at 1981-82 prices by the end of year t; I t =Gross real investment in fixed capital during the year t; and =Annual rate of discard of capital. Following Unel (2003), we have taken annual rate of discarding of capital equals to 5 percent. The figures of total person engaged provided by Annul Survey of Industries consisting of both non-production and production workers, has been taken as the measure of labour. However, total emoluments is defined as the sum of wages and salaries, employers contribution as provident fund and other funds and workmen and staff welfare expenses as defined above. After obtaining gross value added at constant price, gross fixed capital at constant prices and total employees we followed Ray (2002) and Kumar (2003) and divided these variables by the number of factories in each state. This step provides us GVA at constant prices per factory, 85

Gross Fixed Capital at constant prices per factory and total person engaged per factory in a particular state. A factory as defined in ASI is one, which is registered under sections 2m (i) and 2m (ii) of the Factory Act, 1948. The sections 2m (i) and 2m (ii) refer to any premises including the precincts thereof (a) whereon ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on or (b) whereon twenty or more workers are working or were working on any day of the preceding twelve months and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on. To calculate growth rates of each of the above variable, following semi-log trend has been utilized: LnY t =α+βt+ε t The estimated value of β represents average annual growth rate of the variable under evaluation. However, the impact of industrial liberalization on the growth rate of variable under evaluation (Y t ) has been captured by computing the growth rates for these sub-periods on the basis of a linear spline function which has been developed by Poirier (1974) and applied by Goldar and Seth (1989), Seth and Seth (1994), Pradhan and Barik (1998) and Kumar and Arora (2010). Assuming that there are two sub-periods, two equations are needed to be formulated which takes the following forms: Sub Period 1: logtfpi t = φ1+ λ1t + ε1 When t < t 1 (4.4) Sub Period 2: logtfpi t = φ2+ λ2t+ ε2 When t t 1 (4.5) 86

where t 1 is the point of structural breaks (year 1990-91 in present study). In order to tackle the discontinuities in the sub-period wise growth rates, the linear spline function is reparametrized as: = ϕ+ + + ε (4.6) logtfpit 1w1 t 2w2t Where, w1t = t and 0 if t<t1 w2 t = t t if t t 1 1 The value 1 100is the measure of pre-reforms average annual growth rate whereas,( 1+ 2) 100 provides average annual growth rate during post-reforms period. To check significance of the estimated growth rates during pre-reforms period, simple t-statistics has been use. However, to test the significance of postreforms period, a restriction ( 1+ 2) = 0 has been tested using F-statistics. Section II Table 4.1 provides average annual growth rate of gross value added in Indian manufacturing sector. It has been observed that value added in Andhra Pradesh has grown at highest annual growth rate of 12.07 percent per annum. The manufacturing sector of Assam also shared the 1 st rank with Andhra Pradesh. The gross value added in manufacturing sector of two states namely Haryana and West Bengal have been observed to be rising at the rate of above 4 percent per annum. The observed average annual growth rate of gross value added for Haryana is 4.65 percent and for West Bengal is 4.16 percent per annum. The gross value added in the manufacturing sector of Delhi is rising at growth rate 3.25 percent per annum. Alongside, the industrial states of Gujarat, Maharashtra and Tamil Nadu are growing at average annual growth rate of 2.56 87

TABLE 4.1 INTER-STATE VARIATIONS IN THE GROWTH RATE OF GROSS VALUE ADDED IN INDIAN MANUFACTURING SECTOR (Percent) States Growth Rate P-Value Andhra Pradesh 12.07*** 2.58E-20 Assam 12.07*** 2.75E-18 Bihar 3.32** 0.037608 Delhi 3.25*** 1.68E-07 Gujarat 2.56*** 3.79E-16 Haryana 4.65*** 7.98E-15 Karnataka 2.97*** 2.79E-17 Kerala 0.03 0.885731 Madhya Pradesh 0.98*** 1.12E-16 Maharashtra 1.38*** 1.43E-17 Orissa 1.83*** 8.22E-09 Punjab 0.69*** 1.03E-16 Rajasthan -0.72*** 2.33E-18 Tamil Nadu 0.83*** 1.34E-18 Uttar Pradesh 0.7*** 1.64E-17 West Bengal 4.16*** 1.64E-17 Notes: *, ** and *** represent significance at ten, five and one percent levels of significance, respectively. Source: Author s Calculations 88

TABLE 4.2 INTER-STATE VARIATIONS IN THE GROWTH RATE OF GROSS OUTPUT IN INDIAN MANUFACTURING SECTOR (Percent) States Growth Rate P-Value Andhra Pradesh 10.123*** 2.37E-09 Assam 8.530** 0.001025 Bihar 8.796*** 6.34E-12 Delhi 3.490*** 8.85E-15 Gujarat 6.596*** 3.27E-19 Haryana 5.579*** 2.33E-22 Karnataka 6.658*** 1.61E-20 Kerala 2.706*** 1.18E-11 Madhya Pradesh 12.810*** 7.91E-22 Maharashtra 12.133*** 2.05E-29 Orissa 4.768*** 1.81E-11 Punjab 11.162*** 3.43E-21 Rajasthan 10.623*** 1.12E-22 Tamil Nadu 3.198*** 1.84E-12 Uttar Pradesh 12.126*** 1.25E-24 West Bengal 10.207*** 2.21E-26 Notes: *, ** and *** represent significance at ten, five and one percent levels of significance, respectively. Source: Author s Calculations 89

TABLE 4.3 INTER-STATE VARIATIONS IN THE GROWTH RATE OF EMPLOYMENT IN INDIAN MANUFACTURING SECTOR (Percent) States Growth Rate P-Value Andhra Pradesh 1.530** 0.047153 Assam 1.564* 0.084137 Bihar 3.692*** 8.85E-06 Delhi 1.010*** 3.76E-05 Gujarat 1.3783 0.236563 Haryana 0.042 0.876391 Karnataka 0.363** 0.037884 Kerala 1.608*** 8.136E-10 Madhya Pradesh 1.496*** 0.000108 Maharashtra 1.191*** 0.000542 Orissa 0.941*** 0.009976 Punjab 0.366 0.31544 Rajasthan 2.454*** 8.84E-10 Tamil Nadu 0.844*** 0.000613 Uttar Pradesh 2.273*** 1.01E-11 West Bengal 2.408*** 4.76E-12 Notes: *, ** and *** represent significance at ten, five and one percent levels of significance, respectively. Source: Author s Calculations 90

TABLE 4.4 INTER-STATE VARIATIONS IN THE GROWTH RATE OF CAPITAL IN INDIAN MANUFACTURING SECTOR (Percent) States Growth Rate P-Value Andhra Pradesh 5.9281*** 1.17E-19 Assam 7.7701*** 7.78E-21 Bihar 1.884*** 0.000803 Delhi 1.5963*** 1.28E-05 Gujarat 7.5327*** 1.2E-22 Haryana 3.7661*** 7.19E-27 Karnataka 6.401*** 2.4E-22 Kerala 11.689*** 1.44E-08 Madhya Pradesh 2.9109*** 5.44E-07 Maharashtra 5.2073*** 8.97E-19 Orissa 5.5214*** 1.97E-11 Punjab 2.2708*** 3.7E-07 Rajasthan 2.4217*** 1.18E-09 Tamil Nadu 4.3165*** 5.28E-18 Uttar Pradesh 2.8668*** 2.76E-09 West Bengal 4.159** 0.03042 Notes: *, ** and *** represent significance at ten, five and one percent levels of significance, respectively. Source: Author s Calculations 91

TABLE 4.5 INTER-STATE VARIATIONS IN THE GROWTH RATE OF EMOLUMENTS IN INDIAN MANUFACTURING SECTOR (Percent) States Growth Rate P-Value Andhra Pradesh 7.4098*** 0.001971 Assam 8.5288*** 0.001025 Bihar 4.934*** 0.000222 Delhi 1.6052*** 1.536E-06 Gujarat 2.5642*** 5.52E-10 Haryana 3.3966*** 8.54E-14 Karnataka 2.9742*** 6.46E-13 Kerala 0.0308 0.897712 Madhya Pradesh 0.9822*** 0.040464 Maharashtra 1.3799*** 6.15E-06 Orissa 1.832*** 2.34E-05 Punjab 0.6886 0.464465 Rajasthan 0.724* 0.075491 Tamil Nadu 0.8278*** 0.003901 Uttar Pradesh 0.6974** 0.03146 West Bengal 4.159 0.103042 Notes: *, ** and *** represent significance at ten, five and one percent levels of significance, respectively. Source: Author s Calculations 92

percent, 1.38 percent and 0.38 percent, respectively. The growth of gross value added in manufacturing sector of Punjab is although statistically significant but not at par the other benchmarks states. The manufacturing value added in Punjab is growing at slow rate 0.69 percent per annum. Further, one state namely, Rajasthan has been reported growth at negative average of -0.72. The reason for slow growth rate of value added in Rajasthan seems to be extreme weather condition and high transport cost. Despite dominance of deglomerative factors, the Industrial growth is being repelled in this state. Table 4.2 provides inter-state variations in the growth rate of manufacturing output. It has been observed that output in seven states namely; Andhra Pradesh, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Uttar Pradesh and West Bengal is rising at a rate above 10 percent per annum. Among these states except Andhra Pradesh the growth of value added had been observed at very slow rate. High growth of output is coupled with low growth of gross value added represents that cost of raw material has been increased at very high rate. Given that gross value added is the difference between sale value of product and value of raw material, value addition is also an indicator of income to the state from manufacturing activities. Hence, among aforementioned states although the output growth is very high yet income from manufacturing activities is not growing at desired rate. Table 4.3 represents the growth of employment in the manufacturing sector of states under evaluation. The highest employment growth has been observed in the manufacturing sector of Bihar followed the manufacturing sector of Rajasthan. However, among industrial states of Maharashtra, Tamil Nadu, Uttar Pradesh, West Bengal and Andhra Pradesh, the employment growth is below the rate of 3 percent per annum. 93

Table 4.4 represents the growth rate of capital among the selected states over the study period under evaluation. The highest growth of capital has been observed in Kerala followed by Assam, Gujarat and Andhra Pradesh and the value is significant at one percent level of significance. Table 4.5 provides growth summary of emoluments among the manufacturing sector of Indian states. The highest emolument growth has been observed in the manufacturing sector of Assam followed by Andhra Pradesh. However, growth of emolument in Kerala is lowest one. It is worth mentioning here that there exist controversy between the growth rates of emoluments and capital. The manufacturing sector of Kerala has been noticed with the highest growth rate of capital but, least growth of emolument. The causes behind such evidence seem to be the knowledge spillovers and capital intensive nature of the manufacturing sector of Kerala. Given the highest literacy rate, people prefer to use capital intensive techniques to reap the benefits of the capital deepening and have an aversion to the use of labour intensive technology. Hence, given the high demand for capital, the price of capital is high and that of labour is low consequently, the emoluments growth is least in the manufacturing sector of Kerala. Table 4.6 provides the summary of gross value added (GVA) in the manufacturing sector of various states during pre and post reform period. It has been observed that GVA in the manufacturing sector of three states namely; Gujarat, Haryana and Karnataka is rising comparatively at higher growth rate during post-reform period in comparison to pre-reform period. Thus, the reform process seems to be positively effecting income generation among manufacturing sector of these states. Except these three states negative impact of economic reforms has been observed because in the remaining states. The growth rate has fallen during post-reform period in comparison to pre-reform period. 94

TABLE 4.6 GROWTH RATE OF GROSS VALUE ADDED IN INDIAN MANUFACTURING SECTOR States Pre-Reforms Period Post-Reforms Period (Percent) Andhra Pradesh 13.00*** Assam 16.00*** Bihar 19.20*** Delhi 7.00*** Gujarat 5.80*** Haryana 2.70*** (0.001) Karnataka 5.10*** Kerala 2.80*** Madhya Pradesh 16.10*** Maharashtra 14.10*** Orissa 8.10*** Punjab 16.60*** Rajasthan 13.10*** Tamil Nadu 2.60*** (0.001) Uttar Pradesh 15.80*** 11.50 (0.448) 9.40*** (0.003) -7.10*** 0.80*** (0.00) 9.80 (0.770) 5.90*** (0.009) 5.80 (0.563) -1.80*** (0.001) 7.30*** 9.30** (0.038) 3.50* (0.089) 6.40*** 6.90* 2.00 (0.606) 7.40*** West Bengal 11.20*** 7.00*** (0.00) Notes: *, ** and *** represent significance at ten, five and one percent levels of significance, respectively. Source: Author s Calculations 95

TABLE 4.7 GROWTH RATE OF OUTPUT IN INDIAN MANUFACTURING SECTOR States Pre-Reforms Period Post-Reforms Period Andhra Pradesh 11.20*** (0.010) Assam 12.20*** (0.007) Bihar 15.00*** Delhi 4.90*** Gujarat 4.40*** Haryana 4.90*** Karnataka 5.40*** Kerala -0.10 (0.980) Madhya Pradesh 17.30*** Maharashtra 13.30*** Orissa 7.30*** Punjab 15.90*** Rajasthan 14.30*** Tamil Nadu 1.50** (0.020) Uttar Pradesh 15.10*** West Bengal 10.90*** 9.50 (0.784) 9.70 (0.702) 4.80*** 2.50*** (0.009) 8.00*** (0.001) 6.10 (0.128) 7.40* (0.053) 3.80 (0.313) 9.80*** 11.30** (0.023) 3.10** (0.015) 8.00*** 8.10*** 4.20* (0.098) 10.10*** 9.80 (0.264) (Percent) Notes: *, ** and *** represent significance at ten, five and one percent levels of significance, respectively Source: Author s Calculations 96

TABLE 4.8 GROWTH RATE OF EMPLOYMENT IN INDIAN MANUFACTURING SECTOR States Pre-Reforms Period Post-Reforms Period Andhra Pradesh -2.40 (0.246) Assam -0.40 (0.862) Bihar 2.20 (0.118) Delhi -0.70 (0.243) Gujarat -2.10 (0.494) Haryana 0.10 (0.869) Karnataka 0.60 (0.216) Kerala -0.70 (0.119) Madhya Pradesh 1.30* (0.072) Maharashtra -1.30 (0.127) Orissa 1.90** (0.012) Punjab 3.10*** Rajasthan -1.40** (0.048) Tamil Nadu -2.00*** (0.001) Uttar Pradesh -3.20*** West Bengal -0.70 (0.121) -1.00 (0.655) -2.30 (0.604) -7.60*** -1.30 (0.505) 3.60 (0.226) -0.20 (0.811) 0.30 (0.622) -2.20** (0.033) -3.30*** -1.10 (0.886) -2.80*** -2.60*** -3.10 (0.130) -0.10** (0.030) -1.60** (0.049) -3.60*** (Percent) Notes: *, ** and *** represent significance at ten, five and one percent levels of significance, respectively. Source: Author s Calculations 97

TABLE 4.9 GROWTH RATE OF EMOLUMENTS IN INDIAN MANUFACTURING SECTOR States Pre-Reforms Period Post-Reforms Period Andhra Pradesh 6.00 (0.318) Assam 8.90 (0.172) Bihar 7.00*** (0.001) Delhi 1.80** (0.020) Gujarat 2.80*** Haryana 4.10*** Karnataka 3.50*** Kerala 2.20*** Madhya Pradesh 4.80*** Maharashtra 2.60*** Orissa 4.00*** Punjab 8.20*** Rajasthan 2.60*** (0.004) Tamil Nadu 0.30 (0.662) Uttar Pradesh 1.90** (0.029) West Bengal 4.60 (0.329) 8.30 (0.797) 8.30 (0.954) -12.80*** 1.50 (0.813) 2.40 (0.761) 2.90 (0.227) 2.60 (0.340) -1.40*** -1.50*** 0.60* (0.051) 0.40** (0.013) -4.20*** -2.90*** 1.20 (0.437) 0.00 (0.131) -9.90* (0.051) (Percent) Notes: *, ** and *** represent significance at ten, five and one percent levels of significance, respectively. Source: Author s Calculations 98

TABLE 4.10 GROWTH RATE OF CAPITAL IN INDIAN MANUFACTURING SECTOR States Pre-Reforms Period Post-Reforms Period Andhra Pradesh 8.30*** Assam 6.00*** Bihar 2.40** (0.026) Delhi 1.50* (0.080) Gujarat 8.20*** Haryana 4.00*** Karnataka 5.80*** Kerala 4.10*** Madhya Pradesh 7.70*** Maharashtra 7.40*** Orissa 10.20*** Pondicherry 13.10*** Punjab 5.80*** Rajasthan 5.10*** Tamil Nadu 6.70*** Uttar Pradesh 6.00*** West Bengal 7.80*** 4.30*** 9.00** (0.011) -4.70*** 1.70 (0.886) 7.10 (0.263) 3.60 (0.221) 6.80 (0.251) 0.20*** -0.20 3.70*** 2.50*** 5.30 0.00 (1.000) 0.60*** 2.80*** 0.80*** 1.60*** (Percent) Notes: *, ** and *** represent significance at ten, five and one percent levels of significance, respectively. Source: Author s Calculations 99

Table 4.7 provides growth summary of manufacturing output in the states under evaluation. Here also acceleration in the growth rates has been observed among manufacturing sector of five states namely; Gujarat, Haryana, Karnataka, Tamil Nadu and Kerala. Expect these states deceleration has been observed in the remaining eleven states. Hence, in majority of states negative impact of economic reforms has been observed in the growth of output variables as shown in Table 4.6 and 4.7. The analysis of growth of input variables has been performed using growth rate of employment, capital and emoluments in the manufacturing sector of sixteen states. Table 4.8 provides inter-state growth comparison of employment during pre and post reform periods. The analysis reveals that employment opportunities on manufacturing sector has improved among five states namely; Andhra Pradesh, Gujarat, Maharashtra, Tamil Nadu and Uttar Pradesh. Among these states the observed improvement in Maharashtra is statistically insignificant where as in the remaining four states significant improvement has been noticed. In these five states there is only one state Gujarat where growth of employment has become positive during post reform period in comparison to negative value during pre reform period. However, apart from these states negative impact of economic reforms on employment growth has also been noticed. To analyze interstate variation in the growth of wages, the proxy variable of emolument has been utilized. Table 4.9 provides result of growth comparison of emoluments among different states between two sub periods. The analysis reveals that an improvement in the growth rate of emolument has been observed in two states only namely; Andhra Pradesh and Tamil Nadu. Except these two states negative impact of economic reforms has been observed on the emolument distribution. In addition there are six states in which growth rate of emolument has become negative in post-reform period. These states are Bihar, Kerala, Madhya 100

Pradesh, Punjab, Rajasthan and West Bengal. Hence, the wage policy of these states requires serious attention of policy planner. For analyzing investment trend in the manufacturing sector of Indian states growth rate of capital have been utilized. Table 4.10 provides intertemporal and interstate variation in the growth rate of capital in Indian manufacturing sector. The visualization of table reveals that among three states an improvement in the growth rate of capital has been observed. These states are Assam, Delhi and Karnataka. Except these three states negative impact of economic reform has been noticed among the remaining thirteen states. The overall analysis of the impact of economic reforms reveals that the reform process has not imparted a significant dent of the growth process of Indian manufacturing sector. In majority of the states negative impact of economic reform has been observed however, there are only few states in which reforms have been affected positively. Section III The analysis of growth performance of major manufacturing states showed that although India adopted economic reforms programme to augment efficiency of Indian manufacturing sector and make the manufacturing industries more competitive in the international market yet the results portray a gloomy picture. Reforms failed to mark a significant dent on industrial performance, as growth rate of value added, output, employment, emolument and fixed capital reveals huge regional variations among Indian states. In this context, the present chapter endeavors to analyze the trends in growth of Indian manufacturing sector. Using linear spline function, the growth 101

rates of five variables namely; Gross Value Added, Gross Output, Employment, Gross Fixed Capital and Emoluments, have been computed over the entire study period and two sub periods (pre-reforms and post-reforms). The analysis discloses the existence of huge variation in the growth rates of all the important variables under evaluation among major States. The analysis reveals that value added in the state of Andhra Pradesh has grown at highest annual growth rate 12.07 percent per annum. The manufacturing sector of Assam also shared the 1 st rank with Andhra Pradesh. The gross value added in manufacturing sector of two states namely Haryana and West Bengal have been observed to be rising at the rate of above 4 percent per annum. The observed average annual growth rate of gross value added for Haryana is 4.65 percent and for West Bengal is 4.16 percent per annum. There is one state namely Rajasthan, which has been reported growing with a negative average annual growth rates of -0.72. Despite of dominance of deglomerative factors, the Industrial growth is being repelled among this state. The inter-state variations in the growth rate of manufacturing output shows that in seven states namely; Andhra Pradesh, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Uttar Pradesh and West Bengal, the rates of output are above 10 percent per annum. However, among these states, except Andhra Pradesh the Growth of value added had been observed at very slow rate. High growth of output is coupled with low growth of gross value added represents that cost of raw material has been increased at very high rate. Given that gross value added is the difference between sale value of product and value of raw material, value addition is also an indicator of income to the state from manufacturing activities. Hence, among aforementioned states although the output growth is very high yet income from manufacturing activities has not grown at a desired rate. The growth of employment in the manufacturing sectors of states under considerations depict that manufacturing sector of Bihar has registered highest 102

employment growth followed the manufacturing sector of Rajasthan. However, among industrial states of Maharashtra, Tamil Nadu, Uttar Pradesh, West Bengal and Andhra Pradesh, the employment growth is below the rate of 3 percent per annum. The analysis of the growth rates of capital among the states over the study period under consideration provides the highest growth in Kerala followed by Assam, Gujarat and Andhra Pradesh. An attempt to analyse the impact of economic reforms on the growth rates of important variables under consideration, it has been observed that gross value added in the manufacturing sector of three states namely; Gujarat, Haryana and Karnataka is rising comparatively at higher growth rate during post reform period in comparison to pre reform period. Thus, the reform process seems to be positively effecting income generation among manufacturing sector of these three states. Except these three states negative impact of economic reforms has been observed. Regarding the impact of economic reforms on manufacturing output, acceleration in the growth rates has been observed among manufacturing sector of five states namely; Gujarat, Haryana, Karnataka, Tamil Nadu and Kerala. Expect these states deceleration has been observed in the remaining eleven states. Hence, in majority of states negative impact of economic reforms has been observed in the growth of output variables. The analysis reveals that employment opportunities in manufacturing sector have improved among five states namely; Andhra Pradesh, Gujarat, Maharashtra, Tamil Nadu and Uttar Pradesh. Among these states the observed improvement in Maharashtra is statistically insignificant where as in the remaining four states significant improvement has been noticed. In these five states there is only state Gujarat where growth of employment has become positive during post-reform period in comparison to negative value during pre-reform period. However, apart 103

from these states, a negative impact of economic reforms on employment growth has also been noticed. The overall analysis of growth performance of Indian manufacturing reveals that there exists huge regional variation in the growth rates of different performance indicators among Indian states. In some states the observed growth is in double digits where as in others negative growth has been observed. Such a huge growth inequalities are despite of agglomerative disparities among Indian states. The Indian planner must design appropriate policy measures so as each State can utilize its own resources to accelerate industrial growth in their own vicinity. Hence, reforms failed to bring significant improvement in the performance of overall Indian manufacturing sector. In this context, use of appropriate technology and optimum allocation of resources becomes a prerequisite to achieve greater economies of scale in Indian manufacturing sector during post-reform era. The analysis showed that there has been a decelerating trend in the growth of selected variables. Therefore, technologically vibrant and internationally competitive manufacturing sector needs to be encouraged to make a sustainable contribution to national output and employment in the reformed era. ************ 104