The productivity and efficiency of Indian Industry during the nineties has been worse than that during the eighties. According to a study titled "The impact of India's economic reforms on industrial productivity, efficiency and competitiveness", by the National Council of Applied Economic Research (NCAER), New Delhi, the total factor productivity growth rate during the 1990s has been lower than during the 1980s.The NCAER study, which has been sponsored by the Industrial Development Bank of India (IDBI), has taken 3,000 firms as the sample size. The study suggests that factors such as poor quality and slow growth of infrastructure facilities, likes power, roads, ports, transport and communications is acting as a serious drag on industrial productivity and growth.
The study states that the findings of the report come as no "surprise" and any process of opening up an economy would lead to the reallocation of resources across sectors and between firms, obviously with some gainers and losers.
It says that though Indian industry has not changed drastically, there has been a steady re-allocation of resources since the 1980s. Therefore, the study adds, it is "not unlikely that the overall picture that emerges during these relatively early stages of industrial restructuring and resource re-allocation is likely to be "fuzzy."
"This is particularly likely in a situation the movement of capital and labour between firms and sectors is limited and where new entry is slow and its quantum is small", it adds.
Even in the expanding sectors, the study says, it is a "puzzle" as to why these sectors are not doing well in terms of productivity than the others.
The analysis carried out by the NCAER study shows that the total factor productivity growth rates have generally been better in the declining sectors and, possibly, worse in the expanding sectors.
Two possible reasons have been attributed for this:
during the initial periods of rapid expansion firms concentrate on growth and are not able to focus on cost-reduction and efficiency; and when new technologies are initially adopted, firms take time to understand and manage these.The findings of the study also suggest that competition (as revealed by price cost margins) has not increased significantly.An analysis of concentration ratios in Indian industry shows that there has not been an across-the-board increase in competition. Thus, the study says, "any efficiency responses resulting from an increase in competition are not to be expected." The NCAER study goes on to add that, as a result of the sequencing of trade liberalisation, foreign competition increased initially in the capital goods and intermediate goods producing sectors. It states that this could be one of the possible causes as to why there is an improvement in the productivity performance of the declining sectors.
Little evidence of scale of economies has also been found. This is probably not a channel through which productivity gains can be had, feels the study.
Thus, the scope for improvement in productivity and efficiency is from the direct channel of imports of input and technology and through better utilisation of labour.
The analysis further shows that there is scope for productivity gains through the latter channel and that some sectors performed better on this count.
The study goes on to add that labour markets are clearly an area where changes in the policy regime could have a direct impact on industrial performance. In the case of technology, however, there may be a gestation period during which firms learn how to use and manage them, according to the study.
Copyright © 2001 Indian Express Newspapers (Bombay) Ltd.
