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    Industrial Growth in 1980s

    Uploaded by

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    Attribution Non-Commercial (BY-NC)
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    of 18
    SPECIAL ARTICLES Industrial Growth Further Evidence and towards an Explanation and Issues R Nagaraj This paper, first, provides some further evidence (in support of our earlier findings) on the growth of manufac- turing output in the eighties using the Annual Survey of Industries. Noting the limitations of attributing the im- proved growth rate mainly (or solely) to an increase in the output of consumer durables and/or to the (once over) changes in the policies, the paper then attempts to explore the possible ‘real’ factors to account for the observed phenomenon in the context of the debate on industrial growth and ‘stagnation’: A re-examination of some of the prominent hypotheses in the light of the experience of the eighties suggests (a) some favourable changes in the composition of capital formation, (b) an improvement in the rate and struc- ture of public investment in general and (perhaps as a result of it) performance of infrastructure industries in particular, and (c) a reversal of the adverse movement in intersectoral terms of trade; all of which could have favourably contributed to the observed higher growth rate of the manufacturing sector. Highlighting some of the (micro economic or sectoral) areas of concern for sustaining the improved industrial performance, this study concludes by raising a few issues having a bearing on policy for further enquiry. THE rate and the pattern of growth in manufacturing sector in the eighties has at tracted considerabe attention. While the of ficial scurces as well as the proponents of the policy changes introduced inthe eight have viewed the improved growth rate as vin- dication oftheir stand, many others are not ‘only sceptical of theit claim on empirical {rounds but have tteibuted any possible i provement in the growth rate mainly to a spurt in the production of consumer durables secured largely by import liberalisation giving rise tothe term, *im- port led growth Providing some evidence, using the Na- tional Aecounts Statistics (CSO, 1989al, we [Nagar 1989] suggested that the growth rate of eal manufacturing gross value add- cd during 1980-81 to 1986-87 is not only higher than that daring 1965.66 and 1979-80 ‘but could also perhaps be comparable to that attained” during 1959-60 and 1965-66 even after making an allowance of ‘ovo percentage points in growth rate to ac- ‘count for any possible statistical discrepen- © Further, these esults also questioned the alleged overestimation ofthe growth of out- put by the revised (with 1980-81 as the base Year) Index of Industrial Production (IP). Endorsing the validity ofthe IIP on the basis of our findings, Kelkar.and Kumar (1990) described the pattern of manufectu- ‘output ata disaggregated level and have outlined a policy prescription to reinforce the favourable conditions of the eighties 10 foster an internationally competitive manufacturing sector to realise India’s potential comparative advantage. The Siscussion so far on the recent industrial growth appears to have remained mainly tithe satstical ron the need (or desinbil {y) of the policy eform! with the implicit ‘ttumption of itspositiv effect on inease in output, investment and efficiency of Economic and Political Weekly resource use without perhaps adequately analysing the influence of real economic Fac- tors on the observed growth. This appears striking as the debate on the causes for the rapid growth during 1950 and 1965 and period of (relative) stagnation that follow. ‘ed up to the late seventies or so centred around various structural reasons, especially those emanating from the demand side— ainaik and Rao (1977), Mitra (1977), and Nayyar (1978), to name a few. This paper—-after adducing some further evidence on the recent experience—makes a ‘modest attempt to seek an explanation for the observed industrial change in the eighties by empirically examining some of the pro- rminent hypotheses outlined in the ‘stagna tion’ debate. Such an attempt could also help indicate, though perhaps not in quantita terms, the scope and limitations of the policy changes in securing a sustained higher ‘growth rate of manufacturing output Moreover, such an analysis could also possibly enable one to identify the poter tial constraints on—and the means for over- coming the limitations of—the observed im- provement. We have then sought to raise a ‘number of issues for a more reasoned discus- sion on the implications ofthe policy reform fon the possibility of sustaining the higher ‘growth. Our effort in this direction seems {to acquire a greater significance in the pre- sent context of the renewed attempts at fur- ther reinforcing the policy changes initiated in the eighties. This paper, consisting of six sections, sets out (in Section 1) by offering some more results on the growth rate of manufacturing sector since 1980.81 and its composition, mainly using the Annual Survey of In- dustries (ASI). Since the allegedly rapid ‘growth of consumer durables inthe eighties thas been widely noted with a deep con- ccern—as it is said to reflect a growing October 13, 1990 undesirable pattern ofconsiimption demand indicating a possible increase in inequa- lity—we assess the problem in Section Il, though such an attempt may, atthe first in- stance, appear somewhat a digression. Some of the main hypotheses of growth and relative stagnation of the industrial sector in the light of the evidence of the eighties are re-examined in Section 11, Drawing at- tention, on the basis of such an exercise, to some of the potential micro-economie (or sectoral) areas of concern for sustaining the improved growth rate (Section IV), we have sought to raise a few issues which, in our View, merit a closer scrutiny Section V). The final section contains the conclusion, 1 ome Further Evidence The data on the real gross value added in registered manufacturing reported in the National Accounts Statistics (CSO, 1989a), using which the earlier findings were reported, has a limitation. The figures for 1985-86 and 1986-87—the most recent years—are based? on the IIP (with 1980-81 a the base year), as is evident from the following: Latest ASI data relate t0 1984-85. The ‘estimates for later years have been prepared ‘sing the indexes of industrial Production at 2-digit level of NIC, and corresponding in- dices of wholesale price (CSO, 1989a, pp 204-208), Since the revised IP is said to ‘overestimate industrial output the NAS data for the most recent years have also been sub- jected to the same criticism. Perhaps amore ‘acceptable measure (and which can also test for thealleged overestimation of output by the revised IIP) is to compare the growth rates computed by using the NAS figures 2313 and the ASI factory sector data, though such 2 comparison is Aot without some short- comings. ‘While the ASI reports value added, the LUP refers to output. Asthere is considerable time lag in the publication of the results of the ASI, such a comparison presently gets, limited to only six years of the eighties, namely 1980-81 to 1985-86. Moreover, the ‘ASL and the revised I1P do not have exactly the same coverage as the latter is said to have been expanded to include some industries in the small-scale sector which may partly com- prise of small firmsin the unregistered ‘manufacturing sector.) However, consider- ing that the weight of the small-scale sector isnot very substantial, a comparison of the ‘rowth rates according to the ASI and the revised IIP may not be totally inappropriate for our limited purpose. ‘Table 1 provides annual average growth rales of manufacturing output/real gross value added as revealed by the different sources of data for the period 1980-81 to 1985-86. Growth rate according tothe revis- ed IIP (6.6 per cent) ishigher than that ac- cording to the older series (with 1970-71 as the base year) by only’ about one percentage pint. Growth rates recorded using the NAS data for the registered’ manufacturing are higher than those according to the ASI fac: tory sector data.‘ Moreover, both for NAS and ASI, the growth rates when deflated by implicit'‘deflator used in the NAS for ropistored manufacturing,’ are lower than those deflated by the Wholesale Price Index (averages of months). As a result of these variations one gets a range of four growth, rates from 7.2 per cent for the ASI (when deflated by implicit NAS deflator for regis- tered manufacturing) to 10.7 for the NAS current price data (deflated by Wholesale Price Index). However, significantly the growth rate ‘een at 7.2 per cent per annum is higher than that recorded by the revised LIP at 6.6 per cent per annum. Therefore, the proposition that IIP overestimates industrial growth rate (Chandrasekhar, 1988; Kurian, 1989), does not appear to be consisent with the-available data, ‘While considerable concern has been ex pressed over the alleged arbitrariness in the deletion of the so-called slow growing industries® and their replacement by allegedly Fast growing ones —as also items lite cloth production in the decentralised sextor—no attempt appears to been made to draw attention to the method of collection ‘of data for computing the IP, which ap. parently coatinues to be on a voluntary basis. We are inclined to believe, as has been indicated by Ahluwalia [1985] and reiterated by Alagh [1985], that the real problem with the HIP seems to be the inability of the of- ficial machinery to obtain accurate and up todate production figures from a reasonably satisfactory sample of manufacturing firms fon a regular basis. ‘A-comparison of IIP with ASI at 2-digit level of NIC, for the period 1980-81 to 2314 1985-86, shows that the growth rate accor ding tothe former are not uniformly lower than those according to the later asin the «ase of aggregated data (Table 2) In industry sroups cotton textes (NIC 23); wood, wood. Droduess, furniture and feutes (NIC 2), Paper, parer products and printing in- Astries (NIC 28 eather and far products (NIC 29; electrzal machinery, apparatus and appliances (NIC 36), and transport ‘equipment (NIC 37), the growth rates accor- ding to the HP are higher than the cor responding figures from the ASI. Consider- ing the divergence between the results ob- tained by using the IP atthe aggregated and the disaggregated levels one has 10. be cautious in using the disaggregated data.” ‘An analysis of net value added at cons- tant prices atthe level of 3-

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