Skip to main content

Advertisement

SpringerLink
Log in

Productivity growth in India since the 1980s: the KLEMS approach

  • Article
  • Published:
Indian Economic Review Aims and scope Submit manuscript

Abstract

Using the latest (2016) version of the India KLEMS Dataset and following the KLEMS approach this paper analyzes growth, structural change and productivity advance in the Indian economy in the period 1980–2014. The KLEMS approach takes into account the roles played by capital, labour, energy, materials and services inputs in output growth by industries. In our analysis, we divide the span of 35 years into three sub-periods, 1980–1993, 1994–2002 and 2003–2014. The analysis reveals that value added growth at the economy level accelerated significantly during 2003–2014 by about 1.7 percentage points per annum to 7.2%, which was accompanied by accelerated total factor productivity (TFP) growth, acceleration by about 0.9 percentage points to 1.8% per year. The contribution of TFP growth to aggregate value added growth was much higher during 2003–2014 than that during 1980–2002. The share of Market Services sector in aggregate value added was on the rise, with a falling share of Agriculture. When measured by double deflated value added, the share of Manufacturing in aggregate value added also increased, a rise by about 12 percentage points between 1980 and 2014. The 0.9 percentage point hike in the aggregate level TFP growth rate during 2003–2014 was contributed by acceleration in the rate of TFP growth achieved by Manufacturing, Market Services and Agriculture sectors, in that order. Factor reallocations across industries, shift of labour and capital from lower productivity to high productivity industries, made a major contribution to growth in labour productivity, capital productivity and TFP, especially during 2003–2014.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Fig. 1

Source: Authors’ computations from India KLEMS dataset, 2016

Fig. 2

Source: Authors’ computations from India KLEMS dataset, 2016

Fig. 3

Source: Authors’ computations from India KLEMS dataset, 2016

Fig. 4

Source: Authors’ computations from India KLEMS dataset, 2016

Fig. 5

Source: Authors’ computations from India KLEMS dataset, 2016

Fig. 6

Source: Authors’ computations from India KLEMS dataset, 2016

Fig. 7

Source: Authors’ computations from India KLEMS dataset, 2016

Fig. 8

Source: Authors’ computations from India KLEMS dataset, 2016

Similar content being viewed by others

Notes

  1. For a reasonably detailed recent review of productivity research in India, see Krishna and Goldar (2016).

  2. See Jorgenson et al. (2005), Chapter 8.

  3. Further details on the methodology of construction of variables are available in the India KLEMS Data Manual which can be accessed at the RBI website. This section is heavily drawn upon India KLEMS data manual and Das et al. (2016).

  4. Data for the years 2004–2005 to 2011–2012 have been drawn from the CSO publication National Accounts Statistics, 2014 and such data for earlier years, 1980–1981 to 2003–2004, have been taken from the CSO publication National Accounts Statistics (Back Series), 2011. This applies also to collection of data for constructing the gross output series.

  5. See Data Manual of India KLEMS dataset, 2016.

  6. Growth rate in capital-labour ratio in manufacturing during 1980–2014 exceeded that in other broad sectors and the economy. However, in mining, capital deepening was faster than that in manufacturing.

  7. See Jorgenson et al. (2005), Chapter 8 and Jorgenson et al. (2007).

  8. Note that this is average annual growth rate. This is slightly different from the trend growth rate reported in Sect. 3 of the paper.

  9. When Domar aggregation was applied to the TFP estimates for broad sectors and select industries (Table 6), instated of applying Domar aggregation to industry-level TFP estimates, the results remained by and large the same (as in Table 8). The results indicated that factor reallocation made a significant contribution to aggregate level TFP growth, particularly during 2003–2014, and Manufacturing, Market Services and Agriculture (in that order) contributed to the post-2003 hike in the aggregate level TFP growth rate.

  10. Following the neoclassical assumption of equality between prices and marginal productivities, these may be interpreted as factors moving to sectors with higher marginal productivities.

References

  • Aggarwal, S. C., & Erumban, A. A. (2013). Labour input for measuring productivity growth in India: methodology and estimates, paper presented at the Second India KLEMS Annual Workshop, April 26, 2012. New Delhi: ICRIER.

    Google Scholar 

  • Banga, R., & Goldar, B. (2007). Contribution of services to output growth and productivity in indian manufacturing: pre- and post-reform. Economic and Political Weekly, 42(26).

  • Bosworth, B., & Collins, S. M. (2008). Accounting for growth: comparing China and India. The Journal of Economic Perspectives, 22(1), 45–66.

    Article  Google Scholar 

  • Boyce, J. K. (1986). Kinked exponential models for growth rate estimation. Oxford Bulletin of Economics and Statistics, 48(4), 385–391.

    Article  Google Scholar 

  • Das, D. K., Erumban, A. A., Aggarwal, S., & Sengupta, S. (2016). Productivity growth in India under different policy regimes. In D. Jorgenson, M. P. Timmer, & K. Fukao (Eds.), The world economy: growth or stagnation?. Cambridge: Cambridge University Press.

    Google Scholar 

  • Das, D. K., & Kalita, G. (2011). Aggregate productivity growth in Indian manufacturing: an application of domar aggregation. Indian Economic Review, 46(2), 275–302.

    Google Scholar 

  • deVries, G. J., Erumban, A. A., Timmer, M. P., Voskoboynikov, I., & Wu, H. X. (2012). Deconstructing the BRICs: structural transformation and aggregate productivity growth. Journal of Comparative Economics, 40(2), 211–227.

    Article  Google Scholar 

  • deVries, G. J., Timmer, M. P., & de Vries, K. (2015). Structural transformation in Africa: static gains, dynamic losses. The Journal of Development Studies, 51(6), 674–688.

    Article  Google Scholar 

  • Domar, E.D. (1961). On the measurement of technological change. Economic Journal, 71.

  • Erumban, A. A. (2015). Relative importance of sectors and structural change in overall economic growth in India, paper presented at the India KLEMS Conference, December 2015. New Delhi: Delhi School of Economics.

    Google Scholar 

  • Erumban, A. A., & Das, D. K. (2013). Capital input for measuring productivity growth in India: methodology and estimates, paper presented at the Second India KLEMS Annual Workshop, April 26, 2012. New Delhi: ICRIER.

    Google Scholar 

  • Ghani, E., William R.K., O’Connell, S.D. (2013). The exceptional persistence of India’s unorganized sector, Policy Research Working Paper no. 6454 (May 2013), Economic Policy and Debt Department, Poverty Reduction and Economic Management Network, World Bank.

  • Goldar, B. (2015). Productivity in Indian manufacturing (1999–2011): accounting for imported materials input. Economic and Political Weekly, 50(35), 104–111.

    Google Scholar 

  • Goldar, B., Aggarwal S.C. (2015). Structural changes in manufacturing employment in India, 1999–2011, paper presented at the 57th Annual Conference of the Indian Society of Labour Economics, held at Srinagar, 10–12 October 2015, also at SSRN, 2017.

  • Goldar, B., & Kumari, A. (2003). Import liberalization and productivity growth in Indian manufacturing industries in the 1990s. Developing Economies, 41(4), 436–460.

    Article  Google Scholar 

  • Jorgenson, D. W. (1990). “Growth”, in fifty years of economic measurement, Studies in income and wealth, vol. 54 (pp. 19–118). Chicago: University of Chicago Press.

    Google Scholar 

  • Jorgenson, D. W., Gollop, F. M., & Fraumeni, B. M. (1987). Productivity and US economic growth. Cambridge, MA: Harvard University Press.

    Google Scholar 

  • Jorgenson, D. W., Ho, M. S., Samuels, J. D., & Stiroh, K. J. (2007). Industry origins of the American productivity resurgence. Economic Systems Research, 19(3), 229–252.

    Article  Google Scholar 

  • Jorgenson, D. W., Ho, M. S., & Stiroh, K. J. (2005). Information technology and the American growth resurgence. Cambridge, MA: The MIT Press.

    Google Scholar 

  • Jorgenson, D. W., & Vu, K. (2005). Information technology and the world economy. Scandinavian Journal of Economics, 107(4), 631–650.

    Article  Google Scholar 

  • Krishna, K.L, Erumban, A.A., Das, D.K., Aggarwal, S., Das, P.C. (2017). Industry origins of economic growth and structural change in India,” CDE working paper #273, Centre for Development Economics, Delhi School of Economics, available at: http://www.cdedse.org/pdf/work273.pdf.

  • Krishna, K.L. & Goldar, B. (2016). Productivity growth performance in Indian: review and new approach. In Kapila, U. (ed.), Indian Economic Development Since 1947, Gurgaon: Academic Foundation.

  • McMillan, M. & Rodrik, D. (2011). Globalization, structural change, and productivity growth. NBER working paper no. 17143. Cambridge: NBER.

  • OECD. (2013). Structural transformation and natural resources in Africa. African Economic Outlook 2013: Structural Transformation and Natural Resources. OECD Publishing, pp. 111–189.

  • Panagariya, A., Chakraborty, P., & Govinda Rao, M. (2014). State level reforms, growth and development in Indian states. Oxford: Oxford University Press.

    Book  Google Scholar 

  • Rao, J. M. (1996). Manufacturing productivity growth: method and measurement. Economic and Political Weekly, 31(44), 2927–2936.

    Google Scholar 

  • Schreyer, P. (2001). The OECD productivity manual: a guide to the measurement of industry-level and aggregate productivity. International Productivity Monitor, 2, Spring.

  • Timmer, M. P., Inklaar, R., O’Mahony, M., & van Ark, B. (2010). Economic growth in Europe: a comparative industry perspective. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Trivedi, P., Prakash, A., & Sinate, D. (2000). Productivity in major manufacturing industries in India: 1973–74 to 1997–98. Development Research Group Study No 20, Department of Economic Analysis and Policy. Mumbai: Reserve Bank of India.

    Google Scholar 

  • Virmani, A. & Hashim, D.A. (2011). J-curve of productivity and growth: Indian manufacturing post-liberalization. IMF Working Paper no. WP/11/163, International Monetary Fund.

  • Wu, H.X. (2015). Measuring and interpreting China’s total factor productivity. Paper presented at Asian KLEMS Conference, Taipei, August 12–14, 2015.

Download references

Acknowledgements

This paper is prepared under the research project, “Disaggregate Industry Level Productivity Analysis for India: The KLEMS Approach,” being undertaken at the Centre for Development Economics, Delhi School of Economics, financially supported by the Reserve Bank of India. The authors thank the Officials in the Ministry of Statistics and Programme Implementation for advice on Data issues.

Author information

Authors and Affiliations

  1. Institute of Economic Growth, Delhi, India

    Bishwanath Goldar

  2. Centre for Development Economics, Delhi School of Economics, Delhi, India

    K. L. Krishna

  3. Department of Business Economics, University of Delhi, South Campus, New Delhi, India

    Suresh Chand Aggarwal

  4. Ramjas College, Delhi, India

    Deb Kusum Das

  5. The Conference Board, Brussels, Belgium

    Abdul Azeez Erumban

  6. Faculty of Economics and Business, University of Groningen, Groningen, The Netherlands

    Abdul Azeez Erumban

  7. Kidderpore College, Kolkata, India

    Pilu Chandra Das

Authors
  1. Bishwanath Goldar
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. K. L. Krishna
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Suresh Chand Aggarwal
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Deb Kusum Das
    View author publications

    You can also search for this author in PubMed Google Scholar

  5. Abdul Azeez Erumban
    View author publications

    You can also search for this author in PubMed Google Scholar

  6. Pilu Chandra Das
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Bishwanath Goldar.

Appendix

Appendix

See Appendix Table 13.

Table 13 List of KLEMS industries in India KLEMS database, 2016
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Goldar, B., Krishna, K.L., Aggarwal, S.C. et al. Productivity growth in India since the 1980s: the KLEMS approach. Ind. Econ. Rev. 52, 37–71 (2017). https://doi.org/10.1007/s41775-017-0002-y

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s41775-017-0002-y

Keywords

JEL Classification

Search

Navigation