Int. J. Productivity and Quality Management, Vol. 5, No.

2, 2010 137

Impact of liberalisation on productivity performance

of textile industry in India: a growth accounting
analysis

Seema Sharma
Department of Management Studies,
Indian Institute of Technology Delhi,
Hauz Khas, New Delhi-110016, India
Fax: +91-11-26862620 E-mail: seemash@dms.iitd.ac.in

V.B. Upadhyay and Balram Tyagi*

Department of Humanities and Social Sciences,
Indian Institute of Technology Delhi,
Hauz Khas, New Delhi-110016, India
E-mail: upadhyay@hss.iitd.ac.in E-mail: brt.iitd@gmail.com
*Corresponding author

Abstract: The textile industry in India has an important place in Indian

economy in terms of its contribution to GDP, exports and its potential for
employment generation. Productivity is a key determinant of competitiveness
of any industry. In the present study the productivity performance of textile
industry in India has been examined for the post liberalisation period using
growth accounting approach. Total factor productivity growth (TFPG) has been
estimated as a composite measure of input resource utilisation by using
Divisia-Tornquist approximation. In addition to that, partial productivity
indices (PPI) have also been estimated to examine the efficiency of individual
input utilisation. The study revealed that there has been a negative growth trend
in total factor productivity during the study period. The partial productivity
index for energy has recorded highest gain, whereas, the partial capital
productivity has declined over the study period. The raw material and labour
productivity have shown moderate gains after opening of Indian economy in
the nineties.
Keywords: India; liberalisation; textile industry; total factor productivity;
TFP; partial factor productivity; growth accounting; Divisia-Tornquist
approximation.
Reference to this paper should be made as follows: Sharma, S.,
Upadhyay, V.B. and Tyagi, B. (2010) ‘Impact of liberalisation on productivity
performance of textile industry in India: a growth accounting analysis’, Int. J.
Productivity and Quality Management, Vol. 5, No. 2, pp.137–151.
Biographical notes: Seema Sharma is an Assistant Professor in the
Department of Management Studies in Indian Institute of Technology. Her
areas of interest include economics, statistical analysis and marketing research.
The major area of research, among others, centres on productivity and
efficiency analysis. She has participated and presented her research in many
national and international conferences in India and abroad. She has published
her research in national and international refereed journals. She has traveled to
countries like USA, Japan, France, Australia and Thailand.

Copyright © 2010 Inderscience Enterprises Ltd.

138 S. Sharma et al.

V.B. Upadhyay is a Professor in the Department of Humanities and Social

Sciences. His areas of specialisation are development economics, economic
theory and econometrics. He has worked with IIT Kanpur; University of New
Brunswick, Canada; University of PEI, Canada; McMaster University, Canada
and University of Rajasthan, Jaipur. He has authored more than 100 research
papers. He has many research and consultancy projects to his credit.
Balram Tyagi is a Research Scholar in the area of economics at Indian Institute
of Technology, Delhi and presently working with Nova Integrated Systems
(a Tata-IAI joint venture). He is a graduate Mechanical Engineer. He has more
than 13 years working experience in defence industry and teaching operations
management to graduate students. He has worked on various projects of
productivity improvement in defence industry. His areas of interest include
production management, supply chain management, process planning and
productivity improvement.

1 Introduction

Indian textile industry has significant presence in Indian economy. During 2007, the
sector contributed about 14% to industrial production, 4% to the GDP and approximately
17% to the country’s export earnings. Besides this, it is only second to agriculture sector
in providing direct employment particularly to the low skilled workers and weaker
sections. The sector currently employs over 35 million persons that are expected to rise to
45 million towards the end of 11th five-year plan (Government of India, 2006a, 2008).
The textile industry in India was afflicted with wide spread sickness before
deregulation of the industry initiated in mid 80’s. The Textile Policy of 1985 and the
Economic Policy of 1991 paved the way for liberalisation of the industry. The primary
causes for sickness were structural factors like obsolete technology, low scale of
production and fragmented capacities and environmental factors like restrictive policies
and rigid labour laws, etc. The complacency and static perception of industry managers
developed under the protective environment of the economy was also responsible for the
pathetic condition of textile industry (Anubhai, 1988). The opening of Indian economy in
the 90’s provided the much needed thrust to the industry to expand and become efficient
to withstand foreign competition. The government took various initiatives for
liberalisation of the industry viz., removing the requirement for license, rationalisation of
duties, liberalisation of tax laws, simplifying procedures and putting thrust on improving
economic infrastructure. In order to modernise textile industry Technology Up-gradation
Fund Scheme (TUFS) was launched in April 1999 to provide easy access to capital for
technology up-gradation. In February 2000, Technology Mission on Cotton (TMC) was
launched to improve the availability of quality cotton at reasonable price. The woven
garment sector was de-reserved in 2000 from small scale industries (SSI), which was
seriously affecting setting up of large-scale units and investment in modern technology.
The success of these initiatives is reflected in the growth of textile industry, which has
been growing at more than 4% in the post liberalisation era.
The textile industry is fast approaching a high growth trajectory. The major domestic
growth drivers are the rising income levels as a result of fast economic growth, refining
tastes and fast spread of fashion wears among the middle and lower middle income
 Impact of liberalisation on productivity performance of textile industry 139

groups. Various studies estimate the textile economy to grow to US $85 billion by 2010,
creating 12 million new jobs in the process (Government of India, 2006b). The output
growths for cloth and yarn sectors for period 1995–1996 to 2006–2007 are shown in
Figures 1 and 2. The production of cloth has been continuously growing between years
1995–1996 to 2006–2007, except a temporary dip in the year 1998–1999 (Figure 1).
The production of yarn does not exhibit a clear trend during 1995–1996 to 2006–2007. It
has been growing till year 2000–2001 and then started declining, making an intermediate
low of 3,052 million kgs., in the year 2003–2004. Since then it is again in a growth
trend.

Figure 1 Year-wise production of cloth

60000

50000
Q uantity (Million sq. mtrs.)

40000

30000

20000

10000

0
1996-97

1999-00

2000-01

2003-04

2004-05
1995-96

1997-98

1998-99

2001-02

2002-03

2005-06

2006-07

Year
Source: Based on data from Official Indian Textile Statistics 2005–2006 and
Annual Report (2007–2008), Ministry of Textile, Government of
India

Indian contribution in world textile trade is not very significant. Though, India accounts
for about 22% of world’s installed spindles capacity and 33% of world’s weaving
capacity for cloth, yet it contributes only 4.3% and 3.3% to world’s textile and clothing
trade respectively (Government of India, 2006c; WTO, 2007). The liberalisation of
industry had a positive impact on exports of textiles and clothing. The textiles and
clothing exports, despite several systemic debilitating factors, registered growth of
10.65% and 9.34% respectively during 90’s (WTO, 2007). Tewari (2006) suggests that
this impressive exports growth is the result of restructuring efforts undertaken by
domestic firms for reshaping their capabilities to withstand the competition after
deregulation of the industry. The quantitative restrictions on textile trade have ceased to
140 S. Sharma et al.

exist after the expiry of Multi-Fibre Agreement (MFA) on January 1, 2005. The abolition
of trade barriers has thrown new opportunities of growth for Indian textile industry. A
study conducted by Landes et al. (2005) envisages a significant growth in exports of
cotton based textiles and apparel in the post MFA period, even without major reforms in
the industry. The study concludes that the exports can be further boosted by taking
measures for improving the technology and scale, and integration of weaving, finishing
and apparel manufacturing.

Figure 2 Year-wise production of yarn

Source: Based on data from Official Indian Textile Statistics 2005–2006 and
Annual Report (2007–2008), Ministry of Textile, Government of
India

But the new opportunities of growth are accompanied with increased competition in
domestic and international market. India is experiencing serious competitive threat from
countries like China, Turkey, Pakistan, Thailand and Indonesia in the world market.
Figures 3 and 4 show the growth of Indian textile and clothing exports vis-à-vis its
competitors for the post MFA period. China has shown the highest growth both in textiles
and clothing exports (45.6% and 54.2% respectively) in the post MFA period
(2004–2006). Indian textiles and clothing exports have grown by 33.1% and 53.6%. The
other major competitors of India viz. Pakistan, Indonesia and Malaysia have shown
exports growth of 21.9%, 21.7% and 17% for textiles and exports growth of 29.1%,
32.9% and 22.1% for clothing respectively. The prevailing notion that developing
countries are going to be the major beneficiaries of post quota period may not be tenable,
as in addition to traditional factors of cost and quality, the sourcing location decisions
would be guided by existing public-policy environment in the supplier’s country in
addition to the proximity of suppliers, especially in the case of apparel sourcing
(Abernathy et al., 2006). Thus, the competition in international textile trade is going to
 Impact of liberalisation on productivity performance of textile industry 141

harden and Indian textile industry has to continuously work on cutting cost and
improving productivity to remain competitive.
The textile industry in India has an important place in Indian economy primarily
because of its large potential for employment generation. In the backdrop of huge export
opportunities to be capitalised upon and the emerging competitive challenges post MFA,
it is imperative to examine the competitiveness of Indian textile industry. The
productivity is one of the key parameters of any industry to evaluate its ability to
withstand competition. Therefore, the present study has been aimed at examining the
productivity performance of Indian textile industry to assess the impact of liberalisation
on productivity. The study has been carried out for post liberalisation period (1990–1991
to 2006–2007). The findings will be useful for the policy planners and the industry alike
to get useful insights into the areas of productivity under-performance and underlying
causes thereof and help them to take suitable measures for improving the competitiveness
of the industry.
The rest of the study is organised as follows. Section 2 presents review of literature.
Section 3 spells the methodological framework and database of the study. Findings are
provided in Section 4 and finally the work is concluded in Section 5.

Figure 3 Textile exports of India and its competitors (base year 2000 index = 100)

Source: Based on data from, International Trade Statistics 2007 of WTO

142 S. Sharma et al.

Figure 4 Clothing exports of India and its competitors (base year 2000 index= 100)

Source: Based on data from, International Trade Statistics 2007 of WTO

2 Literature review

There is voluminous literature available on the textile industry competitiveness in

different nations. Studies have been carried out on various aspects of textile industry
ranging from assessing the effect of technological changes and innovation on
productivity to impact of scale on productivity. Batavia (1979) in his attempt to estimate
the extent and the type of bias of technological change in US textile industry during
1949–1974 found that the technological change in the US textile industry during
1949–1974 is labour saving in the Hicksian sense. Baily et al. (1985) studied the role of
innovation in productivity growth for cement and textile industries in US and concluded
that decline in innovation in chemical industries in 1970s played an important role in
slowdown of chemical industries. However, innovation in chemical industries during
1950s and 1960s contributed to the growth of textile industry during 1970s. Lin et al.
(1994), while studying the relationship of product line characteristics and sewing system
to estimate productivity, found that the firms with a higher production volume tend to
have a higher level of productivity, whereas the firms with frequent style changes have
low productivity. However they could not establish a clear relation between sewing
system and productivity levels.
Ramcharran (2001) used variable elasticity of substitution production function to
examine the need of protection for US textile industry in the wake of trade deficit,
 Impact of liberalisation on productivity performance of textile industry 143

fluctuating profits and job losses during the period 1975–1993. The study concluded that
the industry was successful in stabilising the profits by way of increased labour
productivity, which obviated the need for protectionist policies. This work was further
expanded by Kouliavtsev et al. (2007) to estimate the marginal productivity of inputs,
elasticity of substitution and elasticity of scale for 23 sub-sectors of the industry. It was
noticed that the differences in productivity and performance across sub-sectors were
substantial.
Christoffersen and Datta (2004) studied the impact of structural changes in the
productivity of US textile industry. The results suggested that during the period
1962–1994, although greater capitalisation and R&D had a positive impact on the
productivity but investment in information technology could not evince any positive
effect on the productivity of the industry. In another study Datta and Christoffersen
(2005) analysed the competitiveness of the US textile industry in the backdrop of
emerging threats from low wage developing countries as a result of easing out of quota
restrictions. The study was aimed at identifying the factors that contributed towards
productivity growth during 1953–2001. It was noted that the productivity growth of
textiles was higher than that of apparel sector and the major contribution in the
productivity growth of textiles came from technical change rather than scale efficiency.
However, for apparel industry technical change contributed towards 70% of productivity
growth while the remaining 30% came from scale economy effects. In a recent study
Christoffersen and Datta (2008) examined the performance of US nonwoven sector for
the period 1953–1996. The study noted that the process and product innovation driven
growth of nonwoven sector has set an example worth emulating before the entire US
textile industry.
Bilalis et al. (2006) studied European textile sector competitiveness using industrial
excellence model to find that EU textile companies lag substantially in performance
compared to the best-in-class industry sectors and the key elements of success are
adaptability and use of modern technology. Wadud (2007) studied the sources of
productivity growth in Australian textile and clothing firms. The study revealed that
overall direction of multi factor productivity growth was mostly dominated by change in
technical efficiency rather than scale effects. Al-Salman (2008) has used input-output
model by using V-RAS1 to analyse the technological change and productivity in food,
textile and chemical industries in Kuwait (1992–2002). It was concluded that acceleration
in technical progress gave rise to a higher rate of investment and industrial growth for the
study period that resulted in higher imports but lower trade surplus.
So far as the Indian textile industry is concerned, it seems that it has not attracted the
needed attention for research. Verma (2002) studied the export competitiveness of Indian
textile and garment sector and found that the labour and machine productivity in India
was much lower than countries like Hong Kong, Nepal and Sri Lanka. Gherzi (2003) in
its report on comparative costs of Indian textile industry vis-à-vis its other Asian
neighbours concluded that India is losing its traditional advantage in home-grown cotton
and low labour cost. The study further noted that in the garment sector limited scale and
outdated technologies of Indian textile industry are major hurdles in achieving
competitiveness. Bheda et al. (2003) have investigated the factors affecting apparel
productivity in Indian factories for period 1992 to 2000 to conclude that the productivity
performance of Indian apparel industry has remained stagnant for the study period and an
average Indian garment factory has about 100% productivity improvement potential.
144 S. Sharma et al.

Hashim (2004) studied the relation between cost and productivity for Indian textile
and garment sector. The study found that for the study period 1889–1890 to 1997–1998,
the productivity growth for cotton yarn and garment was negative. It was lower for cotton
yarn (–1.9%) compared to garment (–1.5%). An inverse relation was identified between
unit cost and productivity. It was found that the largest contributor to unit cost was
material price. The study also concluded that technological change has resulted in labour
saving in case of man-made textile, while for cotton yarn and garment sector it did not
have any effect on labour saving. Bhandari and Maiti (2007) studied the efficiency of
Indian manufacturing firms taking textile industry as a case study. The study found that
the average variation in technical efficiency during the study period 1985–1986 to
2001–2002 was between 68% to 84%. The study further noted that the individual
technical efficiency of a firm was dependent on its size and age.

3 Methodology and database

The production growth in an economy is a function of input factors growth, qualitative

changes in input factors and other factors like technological change, economies of scale
and innovations such as improved methods and processes, etc. Total factor productivity
(TFP) measures changes in output that are not attributable to increase in inputs. It is a
measure of the efficiency of input factors utilisation. The growth accounting technique of
productivity measurement is based on construction of input and output indices. The
literature on production theory provides three index numbers viz., Kendrick, Solow and
Divisia or Geometric Index to construct the TFP index under the growth accounting
approach. However, Divisia Index is more popular as the Kendrick and Solow indices
have certain drawbacks. Kendrick Index due to its linear form fails to cater to possible
diminishing marginal productivity of factors of production. Solow Index also becomes
restrictive due to its assumption of elasticity of substitution as unity as is based on
Cobb-Douglas production function.
Divisia measures the difference between rate of output growth and weighted average
of rates of input growth. However, it is based on assumption of continuous underlying
function and therefore, cannot be applied for discrete data in its original form. This
restriction is overcome by using Tornquist discrete time approximation, a variant of
Divisia Index developed by Diewert (1976) and Lau (1979). Tornquist approximation
assumes the underlying production function as Transcendental Logarithmic (Translog)
function that is homogeneous with degree one. It is flexible in application as it can be
applied in those conditions where elasticity of substitution is not constant. In the event of
divergence of actual production function from Translog function, Trivedi (1981) has
shown that numerical approach can, in principle, improve upon the approximation errors,
but it cannot indicate whether the improvement would be significant in real terms.
Therefore, for the present work Divisia-Tornquist approximation is used to estimate the
total factor productivity growth (TFPG). TFPG is given by:
TFPG = lnQt – lnQt – 1 – 1/2∑ (Sit + Sit – 1) (lnXit – lnXit – 1)
where,
Qt is the output in the tth year at constant prices
Sit is the share of ith input in the total cost in tth year at current prices
 Impact of liberalisation on productivity performance of textile industry 145

Xit is the value of ith input in the total cost in the tth year at constant prices
i represents capital, labour, material and energy.
TFP for each year is calculated with the help of TFPG in the following manner:
TFPt = 100 (for year 1990–1991)
TFPt + 1 = TFPt*(1 + TFPGt + 1)
The TFP is a composite measure of input resource utilisation. However, partial
productivity indices (PPI) can estimate the efficiency of individual input utilisation. PPI
is calculated by dividing the output by value of individual input in total cost.
PPIit = Qt / Xit

where,
PPIit is the partial productivity index for the ith input in the tth year
Qt is the output in the tth year at constant price
Xit is the value of ith input in total cost in the tth year at constant prices
i represents capital, labour, material and energy.
The data for the present study has been drawn from the Prowess database, which is
developed and maintained by CMIE (2007a). In order to estimate values of inputs and
output at constant prices, the figures have been deflated by making use of WPI from
Business Beacon database of CMIE (2007b).

4 Findings

In this section, the results of the TFP and the partial factor productivity analysis are
presented. The findings of our empirical analysis on TFP and TFPG are presented in
Subsection 4.1. Further the partial productivity analysis is given in Subsection 4.2.

4.1 TFP and TFPG results

The TFP index and TFPG for textile industry have been estimated for the study period
(1990–1991 to 2006–2007) using Divisia-Tornquist approximation. The results are
presented in Table 1 and plotted in Figures 5 and 6. It may be seen from the findings that
TFP of the textile industry has experienced a downward trend from year 1991–1992 to
1995–1996. This decline may be attributed to the fact that in India, the process of
economic reforms started in early 90’s and its virtuous impact on productivity could be
expected only in later years. This is confirmed with the positive productivity growth in
the industry in the post 1996–1997 periods. The TFP index attained its maxima in
2003–2004 with TFP score of 108.51. Since then the productivity is again exhibiting a
downward trend.
It is also important to note that the TFPG has not been smooth. It remained negative
in early 90’s followed by a steep recovery that resulted in achieving its maxima in
1997–1998 with an annual growth rate of 9%.
146 S. Sharma et al.

A similar declining TFP trend was reported for cotton yarn and garments by
Hashim (2004) for the study period 1889–1890 to 1997–1998. Therefore, it can be
concluded that during post liberalisation, the textile sector has experienced an overall
negative TFPG. It implies that input growth has exceeded the output growth for the study
period, which is a reflection on the poor efficiency of resource utilisation.
Table 1 TFP Index and TFPG for Textile Industry (1990–1991 to 2006–2007)

Year TFP TFPG

1990–1991 100.00 -
1991–1992 109.95 0.10
1992–1993 99.53 –0.09
1993–1994 91.66 –0.08
1994–1995 81.78 –0.11
1995–1996 74.98 –0.08
1996–1997 78.69 0.05
1997–1998 85.53 0.09
1998–1999 89.05 0.04
1999–2000 91.95 0.03
2000–2001 98.10 0.07
2001–2002 101.00 0.03
2002–2003 103.28 0.02
2003–2004 108.51 0.05
2004–2005 97.16 –0.10
2005–2006 92.27 –0.05
2006–2007 85.40 –0.07

Figure 5 TFP index for Textile Industry (1990–1991 to 2006–2007)

120.00

100.00
Index (Base Year = 100)

80.00

60.00

40.00

20.00

0.00
1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

Year
 Impact of liberalisation on productivity performance of textile industry 147

Figure 6 TFPG in Textile Industry (1991–1992 to 2006–2007)

0.15

0.1

0.05
TFPG

-0.05

-0.1

-0.15
1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07
Year

4.2 Results of PPI

The PPI for labour, capital, material and energy have been estimated to ascertain the
efficiency of conversion of individual inputs for the study period 1990–1991 to 2006–
2007. The results are tabulated in Table 2 and variation of PPI over the study period is
exhibited in Figure 7. The results show that partial productivity index for energy (fuel
and power) has shown substantial rise of 170.35% over the entire study period. One of
the distinct features of this growth in energy productivity is that the rise has been
continuous throughout the period except for the year 1994–1995. The rise in energy
productivity can be attributed to the restructuring initiatives undertaken by the industry to
cut down energy costs by investing in energy saving process technologies, which became
essential to sustain competition after opening up of the economy. The partial productivity
of labour has shown a gain of 37.83%, whereas, the partial productivity of raw materials
has shown a moderate gain of 15.61%. The partial productivity of capital has declined by
38.05% over the study period indicating a state of capital surplus in the industry.
The partial productivity index for capital has shown distinct phases of growth and
decline. One striking feature noticed in the partial productivity for capital is that there
was a steep fall in the PPI index during early 90’s, touching a low of 48.34 in 1995–1996
against the base year index value of 100 for 1990–1991. Then it shows a positive growth
between 1996–1997 and 2002–2003 attaining a maximum of 83.49. Thereafter, it has
again gone into a constant declining mode recording a score of 61.95 at the end of study
period (2006–2007). This trend can possibly be explained in the backdrop of phases of
capital investment during the study period. The textile industry witnessed heavy
investment in capital for modernisation, technology up-gradation and capacity expansion
between years 1992–1993 and 1998–1999, which reflected in steep decline in capital
productivity in initial years due to underutilisation. The capital productivity growth in
subsequent years may be attributed to the positive impact of modernisation and scale
efficiency due to capacity expansion. The textile industry, helped by various initiatives
148 S. Sharma et al.

taken by the government in the form of creation of TUFS, TMC, de-reservation of

woven-garment sector from SSI, etc., is once again in the phase of large scale capital
investment for expansion of scale and modernisation to capitalise on the opportunity
thrown open by the end of MFA. This expansion in capital may be one of the possible
causes of current declining trend in capital productivity.
Table 2 Partial Factor Productivity (PPI) Indices of Individual Inputs (1990–1991 to
2006–2007)

Partial Factor Productivity (PPI) Indices

Year
Labour Capital Material Energy
1990–1991 100.00 100.00 100.00 100.00
1991–1992 104.22 99.18 123.26 108.61
1992–1993 117.83 93.48 104.18 115.23
1993–1994 122.23 74.72 111.54 118.67
1994–1995 120.36 53.78 134.66 112.88
1995–1996 122.09 48.34 125.95 116.24
1996–1997 134.43 52.45 124.69 126.06
1997–1998 148.11 56.16 140.69 134.83
1998–1999 143.03 58.29 147.90 143.05
1999–2000 148.75 65.46 134.18 152.77
2000–2001 145.45 72.51 135.76 179.06
2001–2002 146.82 76.63 133.78 200.66
2002–2003 159.81 83.49 125.66 209.44
2003–2004 152.95 82.65 142.93 217.54
2004–2005 143.46 75.01 123.77 238.91
2005–2006 149.53 70.35 116.84 259.50
2006–2007 137.83 61.95 115.61 270.35

The PPI for raw material shows an overall growth trend till year 1998–1999 reaching a
maximum of 147.9 and then a constant decline except a onetime spike in the year
2003–2004. This gives an indication that the industry has not been able to adopt material
saving processes.
The PPI for labour has shown an overall growth of 37.83% for the entire study
period. Although the labour productivity has been in an overall upward trend for most
part of the study period with PPI for labour reaching a maximum of 159.81 in
2002–2003, it is exhibiting a downward trend since then. This declining trend in labour
productivity is an area that needs the attention of both the industry managers as well as
the policy planners. It stresses the need of skill up-gradation in the industry, which
employs mainly the unskilled workforce. The need of reforms in labour laws (which have
not changed much even after almost two decades of economic reforms) is once again
emphasised to enable the industry scaling down surplus manpower.
 Impact of liberalisation on productivity performance of textile industry 149

The overall positive growth in labour partial productivity index may not be entirely
attributable to improved labour productivity. The large-scale investment in modernisation
and technology up-gradation also contributes towards improved productive performance
of labour. Besides this, the slowing down of labour expansion in this industry like other
industries can also reflect in higher labour productivity.

Figure 7 Partial factor productivity indices of inputs in textile industry (1990–1991 to

2006–2007)

5 Summary

The textile industry in India has to face the challenge of domestic and international
competition after the removal of MFA quantitative restrictions on exports on January 1,
2005. Various steps have been taken to make the sector competitive after liberalisation of
Indian economy in the 90’s. The present study was carried out to examine the
productivity growth of the industry post liberalisation (1990–1991 to 2006–2007). The
study revealed that there has been an overall negative growth in TFP during the study
period. However, an intermediate upward trend is observed during 1996–1997 to 2003–
2004. This positive trend may be attributed to the investments made in the industry and
rationalisation of policies in the initial phase of liberalisation. The partial productivity
index for energy has recorded highest gain while the raw material and labour have shown
moderate gains after opening of Indian economy in the early 90’s. The largest negative
growth is witnessed for capital. The gain in labour productivity seems to be the result of
capital expansion. However, the high correlation between decline in partial productivity
index for capital and simultaneous growth in labour partial productivity warrants further
investigation to understand the effect of factor substitution.
150 S. Sharma et al.

Acknowledgements

The authors express their sincere thanks to Prof. Angappa Gunasekaran, PhD for his kind
editorial efforts and the anonymous reviewer(s) for providing useful and constructive
comments that helped a lot to improve the contents of the paper.

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Notes
1 A modified approach of RAS method integrating TFP and relative prices.