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Growth in Manufacturing Output since 1980 Some Preliminary Findings This note des R Nagaraj rribes trends in the growth of gross value added in the manufacturing sector using mainly National Accounts Statistics, 1989 and reports findings of a comparison of the observed trends in the eighties with the ex- perience of the previous three decades. The results of this statistical exercise appear to be significant in the context of the doubts exoressed on the validity of the revised index of industrial production (with 1980-81 as the base year) and the continuing debate on the persistence of a ‘relative stagnation’ or ‘deceleration’ since the mid-sixties: Ingsector in india have boen a much debated issue for quite sometime now, Abluwalia’s statistical exercise conclusively demonstrated the relatively slower growth of the registered ‘manufacturing net value added at constant prices between 1966-67 and 1979-80 as com: pared to the earlier seven-year period of 1959-60 to 1965-66 [AHuwalia, 1985]. She added that “there was no differencein results ‘whether the period analysed is up to 1979-80 Or includes the fist wo years of the eighties toend in 1981-82, implying continuation of the “relative stagnation". Before her decisive statistical account was published, Raj's graphical analysis of smoothened time series of coral manufactur ing gross value added for the period 1952-53, 0 1982-83 questioned the persistence of the relative stagnation or deceleration [Raj, 1984). He “advanced the view that even though one cannot yet firmly support it with adequate staristical evidence (in fact not pethaps for another decade tll sufficiently Jong time series is available), there has been possibly some increase in the rate of growth, ff industrial output since the middle of the 1970s raising it closer to the levels achieved jn the 1950s end 1960s (Raj, 1984, p 1802) Drawing a different periodisation on the basis of a certain understanding of policy regimes, Alagh [1985) arrived at a similar conclusion: “Even ignoring the unregistered ‘manufacturing sector, industrial output in India grew ata rate of 7.6 per ceet per an- ‘num for the period 1976-77 onwards com- pared! to 4.6 per cent per annum in the period 1971-76...” Arguing that the improved industrial per- formance (secured as a result of tae policy | initiatives since 1980) is not getting fully | TRENDS in the grow2h of the manufactur reflected in the index of industrial produc tion (1IP]! Eronomic Survey, 1985-86 pro- vided data to suppdrt iis view (Table 1). Tt ‘Showed that during 1974-75 to 1982-83, the ‘Output growth in real terms was 8.0 per cent per annum according to Annual Survey of Indusries [ASI], whereas IP recorded a growth rate of only 44 per cent.) ‘To overcome the shoricomings of the ITP (with 1970-71 as base year), a revised (or ‘ne) Index with 1980-81 as the base year was introduced. The revised index, showing a distinctly higher growth rate in the eighties, is widely criticised for the alleged over- ‘estimation of output due to arbitrary Economic and Political Weekly July 1, 1989 replacement of supposedly slow growing industries with faster growing ones (Chandrasekhar, 1988, and Kurian, 1989], However, despite the skepticism over the validity of the new LIP, there now appears 0 be a cautious admission of a moderate improvement, though its not strong enough to change the long term (rend of relative stagnation in industrial output observed since the mid-sixtes: “the most recent tend rate is still well short of the expansion seen in the first decade and a half after the launch Of planned development” Chandrasekhar, 1988, p 2359) In this context, especially as_ serious doubts have been expressed on the accuracy of the revised IIP, there appears to be a need to assess the trends in the eighties with possibly more reliable and recent data. A ‘modest attempt at such an exercise is now possible with the availability of National Ae counts Statistics (NAS), 1989. This nove describes tends in the manufacturing sec tor in the eighties and compares them with the performance in the eatlier periods. Though our exercise has a limited purpose ‘of reporting the findings which seem to merit attention, the observed changes in the eighties could have implications for the long term trends in industrial ouput I NAS 1989, the second issue with new series with 1980-81 as base year, provides data on gross value added at constant prices separately for both registered and unrepis: tered manufacturing disagsregated at two digit National Industrial Classification (NIC), Estimates on registered manufactur: ing, liken the earlier series, i based on ASI data though with changed base year. Estimates for the unregistered manufactur- ing have been revised on the basis of pro- duction of cloth in the decentralised sector and changes in the bench-mark estimates using NSSO data [CSO, 1988]. Considering that the estimation procedures have remain- ‘ed by and large the same the revised series ‘can pethaps be taken to be reasonably satisfactory for analysing broad trends in the ‘manufacturing sector? ‘Taking these remarks into consideration we find a significant difference in the estimates of gross value added in the new ‘series, The share of unregistered segment in the total manufacturing which came down from 48 per cent in 1953 to 37 per cent in 1979-80 (according to the 1970-71 series) in- creased 10 43 per cent in 1980-81 jn the revi cedseries. However, it has declined since then (Figure D. § comparison of the share of unregistered ‘manufacturing to the total at 1970-71 prices and 1980-81 prices for the year 1980-81 shows (Table 2) that the upward revision in the new series is mainly on account of in- dustry groups beverages and tobacco (22)* and textiles (23-26). Decline in the share of unregistered manufacturing is discernible in industry groups food (20-21), paper and printing (28), leather and fur (29), rubber and petroleum (30), non-metallic minerals (32), transport equipment (37) and others ro) Table 3 provides trend compound growth rate * and annual average growth rate for total, registered and unregistered manufac- ug. The results show that during 1980-81, to 1986-87 total (registered plus unregistered) ‘manufacturing gross value added at constant prices grew at 8.3 per cent per annum. While the registered segment of manufacturing recorded a growth rate of 10.4 per cent per annum the unregistered segment increased at 5.3 per cent per annum. A similar trend is noticeable according to the measure of an- nual average rate also. ‘Total manufacturing gross value added ‘grew at a faster rate than average growth rate in industry groups rubber and petroleum (GO), chemicals G1), non-metallic minerals ‘TABLE |: INDICES OF INDUSTRIAL PRODUCTION (Base: 1973-74=100) er asd on ae eee inant Sr adunese Frodusba twas ss iste ime sa en inate ioe tus hos ar ter aes a0 tae ise toot te 90 pars igs il ees at Bet Growth Rate “4a fn Source. Economie Sure, 185-86 aa 14st Seas Maye = (32), non-electrical machinery (35), electrical ‘machinery (36), others (38) and repair ser- vices (@9)." Beverages and tobacco (22) recorded the lonest positive growth while wood and furniture (27) experienced a negative growth Unregistered manufactur- ‘TanLe2: RELATIVE SHARES oF UNREGISTERED ‘MANUFACTURING AT 1970-71 AND 1980-81 PRICES FoR DiSnGGREGATED Txoustey GROUPS (Per Cent) NIC Industry Group Share of Code Unregistered “Manufacturing in “1980.81 at 1910.8 Prices 458 52 o7 193 a7 106 4 23 510 m2 47 27 machinery BS 4 37 Transport ‘equipment 99174 38° Other manu- facturing 336 506 39 Repairing services 68.7 68.7 ‘Total gross value added 36 29 ‘Source: NAS (1987) and NAS (1989). ‘TaBLt 4: Grown oF MaNURICTURING OUTPUT ACCORDING TO Ust-BaseD ‘CLASSIFICATION (USING REVISED IP) 1980-81-10 1986-87 Industry Group Weight Compared ‘Annual ‘Average Growth Rate (in per cent) 1 Buic goods wa BL 2 Capital goods 1643100 3 Intermediate goods 2051 5.8 4 Consumer goods 2346569 {(@) Consumer durables 255007 (b) Consumer non-durables so $7 Source: Economic Survey, 1988-89. 1482 ing grew ata lower rate than the registered in all industry groups excepting in textiles 23-26). Comparison between the growth rates according to NAS 1989 and the revis- ‘ed IP for manufacturing shows that the output increase by the latter measure is not only lower (6.7 per cent per annum) than that of the registered manufacturing (at 10.4 per cent per annum) but also of the total ‘manufacturing (at 8.3 per cent per annum). This appears to be significant in the coatext of the serious doubts expresied over the ac- ‘Taste 3: Gowri RATE OF MANUSACTURING OUTPUT 1980-81 10 1986-87 Per Cont) NIC Industry Group ‘Trend Compound Growth ‘Annual Code Jered Unregistered Total Mane- —_ Average = eee eerie Growth Rate (1-20) 5100 0 “otal Manu facturing 3021 Food products 131082) 3206) 920859 94 22” Beverge, tobacco, etc 99052) -08@iyr 33037" 32 2.26 Tenis 331066 58097) 49109) 46 27" Wood, furniture, ete 61 (088) —44(090) -300088) — —18 28 Paper and Printing, etc 95090) 870089) 9209) 60 2% Leather and fur products 166099) 32096) 651098) 64 30 Rubber petroleum, et: 123082) 750s) tess) 12 HM Chemicals ete 11109) 820090) 10809 ha 2 Non-metallic mineral products 1621097) 21 (050) 991098) 93. 33. Basic metal industries 4107) 494° 3907) 43 3M Metal products 68009) 490063) 5709) 6 3S Non-ee machinery 103097) ss@on 9309) 89 4% Eleccal machinery 206,096) 1691094) 201 (096) 202 37 Transport equipment 91097) 640099) 86097) 88 38 Other manufacturing 205099) 90040" 150088) 19.6 39 Repair services 133098) 9909) 1009) 10 ‘oial gros value added 104099) 531096) 830099) 84 Notes: Figures in bracket refer to R’ * Statistically net different from zero even at 90 per cent significance. Source: NAS (1988), ‘TABLE $: Growrit RATES tN Gross/NET VALUE ADDED IN REGISTERED MANUFACTURING IN [DIFFERENT SUB-PERIOD AT DISAGGREGATED LEVEL (Per Cent) Industry Group Period 1 Period It Period IIT (1959-60 to “(966-67 1 (1980-81 t0 1965-66) 1979-80) 1986.87) 1 Food produets or 38 131 2 Beverages, 93. 73 98 3 Tobacco, ee 15° 13 4 Textiles 39 44 33 5 Footwear, ee 133 14s 166 6 Leather and fur products ose 31 7 Wood and cork Mi 54 61 8 Furniture and fixtures 7 63 9 Paper and paper product ns 73 9s 10 Printing and publishing 7 1 Rubber products a2 123 12 Petroleum products 62 13 Chemicals and chemical product 94 it 4 Non-metallic mineral products 3.0 162 1S Basic metal sa 4 16 Metal products 25 68 17 Non-ele: machinery 15 103 18 Electrical machinery 98 206 19) Transport equipment 46 3 20 Miscellaneous 45 208 21 Repair services 133 ‘Total gross/net value added 16 35 104 ‘Notes: Figures in brackets refer to R? ‘Statistically not different from zero even at 99 per cent significance Sources: (1) Ahluwalia (1985), pp 30-31; (2) National Accounts Statistics (1989) Economic and Political Weekly July 1, 1989 _ FIGURE I: SHARE OF UNREGISTERED MANUFACTURING (Near: 1950-51 to 1986-87) Percentage 48 a as4 34 34 a4 56 6 6 (ear: 1980-8 1807 110. 160: Index Numbers __ Se 8 a 2 8 © ‘ual + Registered O UP ‘curacy of the revised ITP. As the observed higher growth rate according 10 NAS com- ‘pared to ITP is similar to the pattern observ- ‘efor the earlier periods by Ahluwalia, the arguments of overestimation of output by TIP do not appear to be tenable. If we ac- cept that the trends depicted by the IIP is broadly correct, though on a conservative side Figure 2), then it may not be inap- propriate to utilise the ITP to discern some patterns in the observed growth in the eighties. FIGURE 2: TRENDS IN MANUFACTURING OUTPUT n 16 8 Year $1 to 1986-87) ae 86 37 Use based classification of the revised IIP for the period 1980-81 to 1986-87 shows that ‘consumer durables accounting for 2.55 per ‘cent of manufacturing grew the fastest at 147 per cent annum® followed by capital goods (weightage 16.4) at 10 per cent per an- ‘num (Table 4) 1 Having described the growth of manufac- turing sector in the eighties ina few limited Economic and Political Weekly July 1, 1989 —_ imensions, we compare them with the record of the earlier periods though such an attempt has a number of limitations. Fist, ‘comparison of result based ona short time petiod of seven years with long term trends Could yield misleading results. Secondly, as the data for different time periods ae based on different base years a\rict comparison is not possible. Thirdly, as there have been changes in the industrial clasification a igorous comparison would require more disaggregated data. Considering these limitations our exercise could at best be taken as an indication ofthe broad changes To accommodate forthe statistical problems mentioned above, variation in gfowth rate in different periods up to two percentage points are not taken into account Our preliminary attempt could perhaps be justified, despite being fully aware of the shortcomings since it appears tous to be im- portant to have such a comparative empirical Basis to assess the changes in the policy regime in the eighties. “able § provides growth rates in value added" ia registered! manufacturing for three time periods, namely, 1959-60 to 1965-66 (period 1), 1966-67 to. 1979.80 (period 11), and ‘1980-81 to 1986-87 (Period 119." Growin rate in registered manufacturing in period IIT at 104 per cent per annum is not only higher than that a tained in period Il (a 5.5 per eq but also that in period I (at 7.6 per cent). Growth rate at the disaggregated lee in period I slower than that in period III after applying a dis- count of two percentage point) in all in dustry groups except textiles (23-26), wood and furnitare (27) and basic metals (33). A similar comparison between period I and period IIT shows that the following industry froups constituting about two-fifths of the value added (in 1986-87) experienced a x growth rate in the latter period a compared to the former: food products (20-2), leather products (29), rubber and petroleum (30), non metallic mineral pro- ducts (32), electrical machinery (36) and miscellaneous (38). The above findings indicate that the observed expansion of registered manufac- turing output in the first seven years in the eighties appear to be comparable if not bet- Economic and Political Weekly ‘Available from: Moder Book Sal 86, Jonpath Morket Hazrat Gan) Uscknow 926 001, UP Shree Ram Abhiash Dubey Newspaper Agents & Booksellers 107 Badshabi Mendi, Allahabad Uttar Pradesh

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