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Introduction
Sector
Within Manufacturing sector, more emphasis is on skill than on
labour
But these patterns have not changed even after changes in reforms
Uneven distribution of opportunities across states is a cause of
concern
restriction
Heavy public sector involvement in production
High degree of control by the government on the private sector
India in the Cross Section: Share of Manufacturing and Services, Early 1980s
1. First, manufacturing was unusually concentrated in industries that typically require large scale.
2. Second, within industries however, the array of policies that discouraged large firms appear to
have had their intended effect.
Coverage of manufacturing data varies across countries, therefore we cannot take value added
per establishment in industry.
Instead, we focus on relative size, that is, we find the relative size of establishments in an
industry in a country by dividing the value added (or employment) per establishment in the
industry by the value added (or employment) per establishment in the country.
The impact of the discriminatory policy regime against private sector scale (industrial licensing,
forced geographic distribution of production, reservation and other incentives for small-scale
sectors, and the anti-monopoly MRTP Act) was felt within industry rather than between
industries.
we compare the average firm size in India with the average firm size in 10 emerging market
countries for manufacturing as a whole and for the nine largest industries in India.
The pattern of size across industries in India matches the pattern in comparator countries (with,
for example, iron and steel or industrial chemicals being large and food products small), albeit at
a much lower level, verifying that relative size is a distinctive characteristic of an
industry that holds across countries.
Ratio of value added in above-median labor-intensive industries to that in below-median laborintensive industries in unregistered manufacturing is significantly higher (by about 2 times
in 1980)
Diversification
We examine the concentration of Indian industry compared to the average country
pattern, we find that India is significantly less concentrated (or more diversified).
India has broader array of skills in labor force.
China is not unusually diversified in the cross-section whereas India is.
In 1981 India had approximately the normal share of output and employment in
manufacturing.
Manufacturing output and employment appeared to be above the norm in industries that
typically are skill intensive or have larger scale.
Average establishment size within industries, though, was substantially smaller than in
comparable countries.
Indian manufacturing was significantly more diversified both in terms of output and
employment than countries of comparable income and size.
High relative labor productivity observed in the labor-intensive sectors in India.
The one area where Indian manufacturing appears to have thrived is in the industries
using highly skilled labor.
India was a significant negative outlier in services in 1981,because the slow-moving public
sector again dominated areas like telecommunications and business services where
India's advantage in skills
intermediate inputs
The extension of export incentives through the tax system, and more
liberal access to credit and foreign exchange
The significant relaxation of industrial licensing requirements through
direct delicensing of some industries and through broad banding,
which permitted firms in some industries to switch production between
similar product lines
The decontrol of administered prices of key intermediate inputs
Manufacturing Vs Services
Predicted a rapid increase in the share of manufacturing, a decline in
Conclusion
Unique features of Indias development that were apparent in 1981 have
Neither are the fast growing states uniformly increasing their share, nor are the slow growing states
on average there seems to be a slight decline in share
Nearly all states in India have seen a uniform shift toward services
Diversification
There is little relationship between a states growth in the period 19802000 and the increase in its
concentration is mildly positive.
Looking Ahead
It would appear that fast growing peninsular states are starting to
of the fertility rate will increase. So they are expected to increase to 620
million.
General capabilities
Decentralization, states were able to differentiate themselves
economically.
Dismantling of the industrial license system which helped to do away
with regional equity policy.
Rising trend in private investment and falling trend in public
investment. The private investment is more sensitive towards
differences in policies between states.
State Capabilities
The form of capability
goods
Highest industrial tariff down from 350% in 1991 to 12.5% currently
Agriculture: very high tariff equivalents(bound at 100 to 300%)
Services: On balance more open now than China
DFI negative list approach; only handful of sectors with sectorial caps
below 51%.
1980s
Tariffs raised to mop up the quota rents.
Conclusion
The change since 1980 the move toward pro-business and pro-market
economic policies
Centralized politically and uniformly medicore in economic
performance has given way to multiple India's with performance more
related to the capabilities of individual states and the opportunities they
create
The East Asian economies would play within India
India should reform in Labor incentive rather capital incentive