chapter v factor productivities in indian textile...

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Chapter V

FACTOR PRODUCTIVITIES IN INDIAN TEXTILE INDUSTRY

5.1 Introduction

Productivity growth has received greater attention from economists and policy

makers in Asia in the 1990s. This is partly due to the work of Alwyn Young (1992,

1995) and Paul Krugman (1994), who argued that economic growth in Asia is driven

by the accumulation of inputs in the production process rather than by increases in

productivity. In other words, it has been observed that the Asian economic miracle is

largely attributable to an increase in the quantity and not the quality of the factors of

production. Further analysis and evidence showed that as countries become more

developed and move closer to the limits of factor accumulation, they rely more and

more on increasing productivity to sustain the economic growth process. Policy

makers and economists argued the importance of technology and productivity in

economic growth. In order to facilitate this process of identifying the movements in

productivity and designing the right policies to enhance it, it is critical to be able to

understand what exactly productivity is and how to measure it.

Productivity is an important concept in the context of the economic growth of

a nation. In the macroeconomic context, productivity refers to the rate at which output

is generated from the employed resources. Output can be raised by increasing the

quantum of physical inputs deployed in the production process. However, every

nation has constraints on physical inputs. For example, advanced countries like the

USA and Japan face severe shortages of labour. The problem of physical input

constraints is more severe in developing countries like India. In India, the capital

inputs are scarce and therefore costlier, due to lower per capita income, lower rate of

savings, and income inequalities. Both the public and private sectors find it

increasingly burdensome to mobilize capital resources on a continuous basis to

support their growth needs. Although labor is abundant in India, there are even labor

input limitations because of structural deficiencies such as an imbalance between skill

availability and skill requirements and because of poorer productivity. Accelerating

the rate at which output is generated from the employed resources is an imperative for

India, i.e., productivity growth must occur.

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The origin concept of total factor productivity growth dates back to the works

of Tinbergen (1942), Abramowitz (1956), Solow (1957) and Griliches & Jorgenson

(1966) among many others. The concept of TFP gained importance for sustaining

output growth in the long run as input growth, which is subject to diminishing returns,

is insufficient to generate more and more output growth. Thus TFP growth became

synonymous with long-run growth, reflecting the potential for growth. This spurred

interest in trying to obtain improved and more accurate TFP growth estimates for the

economy as a whole, for the agricultural, manufacturing and service sectors, as well

as for industries within a sector at various levels of disaggregation.

Many studies have applied the ‘Solow’ growth equation to account for

economic growth and TFP growth (Dollar & Sokoloff, 1990; Moon, Jo, Whang, &

Kim, 1991; Young, 1995; Pyo, Kong, Kwon, & Kim, 1992), other studies extended

the ‘Solow’ growth accounting to include capital utilisation and economies of scale to

analyse TFP growth for the Korean manufacturing sector (Kwon, 1986; Park &

Kwon, 1995).

In the Indian context a number of studies examined the effect of trade policy

reform on total factor productivity in the nineties and these include studies by

Balakrishnan et al. (2001), Krishna and Mitra (1998) and Kusum Das (1998). The

study by Balakrishnan et al. (2001) used firm level panel data of industries that faced

greater reduction in trade protection for the period 1988-89 to 1997-98. This study

found that productivity growth is lower in the post reform period. Krishna and Mitra

(1998) also used firm level panel data of some selected industries for the period 1986-

1993. However, this study also could not find a strong evidence for the productivity

effect of the reform. The study by Kusum Das (1998) analyzed seventy six three digit

industries covering the period from 1980-81 to 1993-94. It is found by this study

productivity response to the trade policy reform is mixed. This study correlated the

productivity growth with different measures of trade liberalization. However, the

results of this exercise showed that in the majority cases the trade liberalization

variable has a statistically insignificant positive component of productivity growth.

Unel (2003) studied the productivity growth of Indian manufacturing sector

and concluded that total factor productivity (TFP) growth in aggregate manufacturing

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and many sub-sectors accelerated after the 1991 reforms. He further, estimated the

average annual growth rate in TFP in aggregate manufacturing as 1.8 percent per

annum for the period from 1979-80 to 1990-91 and 2.5 percent per annum for the

period from 1991-92 to 1997-98. The study by TSL (2003) estimated the average

annual growth rate of TFP in manufacturing as 0.68 percent for the pre-reform period

and 0.97 percent for the post-reform period from 1993-94 to 1999-2000 lending

support to the findings of Unel (2003). Pattnayak and Thangavelu (2005) observed

the dual measure of TFP and indicated that the key economic reforms of India in

1991 have been quite successful in increasing the total factor productivity of key

Indian manufacturing industries. The results showed that 10 out of 13 industries in the

samples have experienced increases in their TFP growth. Banga and Goldar (2007)

studied the contribution of services input to output and productivity growth in Indian

manufacturing industries and concluded that productivity in the organized

manufacturing industry has increased substantially in the 1990s. One of the major

causes for this is found to be the trade reforms undertaken in the post-1990s period.

While these five studies reported positive impact of economic reforms on

productivity growth, studies of Trivedi et al., (2000), Goldar (2000), Balakrishnan et

al., (2000), Goldar (2002), Goldar and Kumari (2003), Goldar (2004) and Prakash

(2006) indicated a fall in the growth rate of TFP in Indian manufacturing in the post-

reform period.

The derivatives in the findings of these studies may be due to the differences

in the methodology adopted by them. Some studies estimated productivity growth for

the aggregate manufacturing (Balakrishnan et al., 2000 and Goldar 2004) and by sub-

sectors (Trivedi et al., 2000 and Goldar and Kumari, 2003). The differences in the

estimation procedure may also give rise to differences in the productivity estimates.

Some studies applied production function (Banga and Goldar, 2007), while others

applied cost function (Pattnayak and Thangavelu, 2005). A common feature of all

these studies is that they fail to estimate the sources of productivity growth of Indian

manufacturing as well as textile industry in particular.

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5.2 Major Definitions of Productivity

Productivity is based on the economics of the firm, and is measured as the

ratio of output to input. Historically, productivity is often expressed as the ratio of

output to the most limited or critical input, with all the other inputs held constant.

Agricultural productivity is usually measured in bushels of wheat or corn per acre. In

industries that require skilled labor, which is often in relative shortage, output per

worker is considered as the most appropriate measure of productivity. However, such

single-factor-based measure of productivity suffers from obvious limitations. First, in

most industries or sectors there may be several factors of production that are of

almost equal importance, in which case it might be difficult to choose among them.

Second, the relative importance of inputs may change over time. For instance, the

relative importance of labor may be low in the initial stages of development when

unemployment is high, but may become critical as the country becomes more

developed because of declining birth rates and an aging labour force.

5.3 Factors Affecting Productivity

The most important factor influencing productivity is found to be output

growth. A positive association is expected between output growth and productivity.

The other key factor is technology advancement. Technological change decides, by

its pace, the nature of restructuring inevitable in an industry along with how fast will

it grow as well as the productivity of industrial production. The technology

advancement take many forms – the flow of technology embodied in the imports of

capital goods and intermediate inputs, technology transfers accompanying foreign

direct investment, foreign collaborations and imports of technology against lump sum

payments, technical fees, royalty etc. After the technology is imported, it is suitably

modified and assimilated before it reaches the take-off stage in industrial growth.

Thus advances in technology results in the improvement of productivity. The

international trade also affects productivity. Exports generate competitive pressure on

companies which causes productivity to increase. Exports also provide opportunity to

learn more about new technology and its application in production. On the other

hand, imports permit availability of embodied technology whether in capital goods or

inputs. This brings about an expansion of domestic demand and widening of the

market for the company through improvement in productivity and better quality

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products. The exports have an effect on productivity growth through growth of

demand. It enables the company to exploit the economies of scale which increases

productivity growth. During the post-reform period in India various policy measures

have been adopted to make trade regime more open. Import restrictions arising out of

tariff and import quota have been reduced. Hence conditions have been made more

favorable to export. This open trade regime, it may be argued, tends to generate

greater competition, accessibility to foreign markets and also imports of better capital

equipment and material input which improve productivity. To this end, this chapter

presents a discussion on partial and total factor productivity ratios in textile product

manufacturing industry in India and results there on.

5.3.1 Partial Factor Productivity

The production process includes a number of inputs such as capital, labour,

energy and materials. By relating the flow of goods to input variables, the partial

productivity measures are obtained. It is typically expressed as a ratio of output to one

or more of the inputs used in the production process. On the other hand, partial

productivity is the ratio of output to one class of input. For example, labour

productivity (the ratio of output to labour input) is a partial productivity measure.

Similarly, capital productivity (the ratio of output to capital input) and material

productivity (the ratio of output to materials input) are examples of partial

productivities.

5.3.1.1 Average Productivity of Capital

Average productivity of capital may be defined as the relationship between

investment in a given economy or industry for a given time period and the output of

that economy or industry for a similar time period. The average productivity ratios

give us an idea about on an average, the units of capital required to produce a unit of

output and the study of average productivity indices would help to trace the

movement and measurement of capital productivity in each firm and its time pattern

of change.

Average Productivity of Capital is APk = Q/K where Q denotes output for a

given period and K denotes capital for the period.

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Average Productivity of Capital (APK) in the Pre- Liberalization Period

Table: 5.1

APK in the Pre - Liberalization Period

(in percentage)

Source: Calculated from ASI data

Year

NIC

140 1711 1712 1721 1722 1723 1729 1730 1810 Mean

1980-81 5.34 4.36 3.47 8.90 8.38 6.41 18.72 8.03 10.71 8.26

1981-82 4.41 4.09 4.40 4.56 12.73 5.93 10.52 7.89 9.25 7.09

1982-83 6.28 3.28 3.10 4.00 7.76 4.82 12.77 7.73 7.97 6.41

1983-84 14.28 3.36 3.93 3.54 3.78 5.00 22.81 6.33 12.95 8.44

1984-85 7.15 3.73 3.46 5.12 4.04 20.09 7.66 5.67 11.22 7.57

1985-86 6.39 3.49 3.54 4.36 4.49 4.89 7.12 6.46 6.97 5.30

1986-87 9.24 5.20 2.95 4.98 5.40 7.72 3.27 3.94 8.84 5.73

1987-88 8.99 3.71 2.79 6.04 5.89 4.94 0.61 4.99 9.93 5.32

1988-89 6.37 5.09 4.45 5.86 7.33 5.94 6.27 6.09 5.23 5.85

1989-90 10.84 4.70 4.69 3.75 4.53 6.90 4.57 5.08 6.50 5.73

1990-91 8.47 3.55 3.43 3.96 15.04 3.95 2.44 8.40 7.14 6.26

1991-92 7.38 3.19 4.68 5.81 23.62 6.79 3.31 6.23 7.84 7.65

Mean 7.93 3.98 3.74 5.07 8.58 6.95 8.34 6.40 8.71 6.63

S.D 2.69 0.70 0.67 1.48 5.89 4.28 6.79 1.39 2.21

C.V 33.90 17.71 18.01 29.16 68.64 61.55 81.46 21.63 25.42

88

Average capital productivity of all product groups for the pre liberalization

period is presented in table-5.1. The industry’s mean ratio during pre-liberalization

period was 6.63 percent. The implication is that Rs.1 lakh worth of gross fixed capital

could produce an output of Rs.6.63 lakhs.

Year wise analysis of APk indicates that 1983-84 marked the maximum of

8.44 percent and 1985-86 the minimum that is 5.30. In between these there are

fluctuations in the APk

Among the different product groups, maximum of 8.71 percent is found in

Manufacturing of all types of Textile Garments and Clothing Accessories (1810)

followed by 8.58 percent in Manufacturing of Making of Blankets, Shawls, Carpets,

Rugs and Other Similar Textiles Products (1722) The minimum of 3.74 percent was

found in Manufacturing of Bleaching, Dyeing and Printing of Cotton1712)

It also presents the details of co-efficient of variation for 9 industry categories

of the cross-sectional data during the pre-liberalization period. The co-efficient of

variations implies the lack of uniformity in APK across the product group. A higher

degree of inter-industry variation was observed in the Manufacturing of Embroidery

Work, Zari Work and Making ornamental Trimmings (1729) with 81.46 percent and

Manufacturing of Making of Blankets, Shawls, Carpets, Rugs and Other Similar Textiles

products (1722) with 68.64 percent and lower degree of inter-industry variation was

noticed in the Manufacturing of Cotton Spinning, Processing other than in Mills,

Weaving and Finishing of Cotton Textiles (1711) with 17.71 percent.

The higher degree of variation in the Average productivity of capital is

implied in higher growth and higher capital productivity vice-versa tended to be more

dynamic in nature.

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Average Productivity of Capital (APK) in the Post- Liberalization Period

Table: 5.2

APK in the Post - Liberalization Period

(in percentage)

Year

NIC

140 1711 1712 1721 1722 1723 1729 1730 1810 Mean

1992-93 4.41 2.77 2.93 3.90 5.98 7.29 4.46 5.97 6.85 4.95

1993-94 7.80 2.54 2.69 2.60 0.92 2.50 4.74 3.68 6.94 3.82

1994-95 4.84 1.96 2.11 6.82 7.91 1.22 0.53 3.24 4.09 3.63

1995-96 5.69 1.42 2.56 4.14 3.24 3.20 1.66 2.82 3.55 3.14

1996-97 7.78 1.69 2.32 5.36 4.28 2.52 2.88 4.57 5.67 4.12

1997-98 7.63 1.70 1.84 5.14 2.51 2.73 2.07 2.50 4.09 3.36

1998-99 9.87 2.01 3.45 5.07 7.71 5.46 1.90 4.01 7.29 5.20

1999-00 3.02 2.88 1.37 5.40 11.90 7.84 1.80 2.88 5.95 4.78

2000-01 9.69 4.64 2.35 7.15 4.68 4.23 5.21 3.42 5.01 5.15

2001-02 7.70 5.22 4.31 4.75 4.96 8.25 3.50 4.19 7.02 5.55

2002-03 11.67 4.11 2.13 3.76 4.00 6.40 4.68 3.88 5.46 5.12

2003-04 8.21 3.24 3.48 5.19 3.40 4.47 4.38 2.63 5.20 4.47

2004-05 11.88 2.45 2.69 1.57 4.45 5.83 2.76 2.55 4.72 4.32

Mean 7.71 2.82 2.63 4.68 5.07 4.76 3.12 3.56 5.53 4.43

S.D 2.69 1.19 0.78 1.53 2.81 2.27 1.48 0.99 1.24

C.V 34.96 42.31 29.49 32.67 55.41 47.69 47.42 27.65 22.42


90

The Average capital productivity of all product groups of textile industry for

the post- liberalization period (1992- 93 to 2004-05) is presented the table 5.2

On the year wise analysis it is seen that during post-liberalization period the

maximum APK of 5.55 percent is recorded 2001-02 and minimum 3.14 percent in

1995-96.

The average growth in the post-liberalization period was 4.43 percent. Inter

product group analysis indicates that on an average, Manufacturing of Cotton Ginning,

Cleaning and Baling (140) has recorded the maximum capital productivity

performance of 7.71 percent and minimum average mean of 2.63 was found in the

Manufacturing of Bleaching, Dyeing and Printing of Cotton, Woolen, Silk, Artificial

Synthetic, Jute & Mesta and other Vegetable Fiber Textiles (1712). The industry’s

average productivity of capital is 4.43 percent during post-liberalization period which

is less compared to pre-liberalization era 6.63 percent.

The maximum measure of co-efficient of variation among the product groups

recorded at 55.41 percent was observed in the Manufacturing of Fabrics or Plastic

Sheeting, Manufacture of made up Textile Articles (1722) followed by 47.69 and

47.42 percent observed in the Manufacturing of Fabrics or Plastic Sheeting, (1723) and

Manufacturing of Embroidery Work, Zari Work and Making ornamental (1729) and

minimum of 22.41 percent is recorded in the Manufacturing of all types of Textile

Garments and Clothing Accessories (1810)

The higher degree of variation in the Average productivity of capital implies

that higher growth and higher capital productivity and vice-versa tended to be more

dynamic in nature.

In the post-liberalization period APK (Average Productivity of Capital) has

decreased marginally, which implies the higher growth in labour productivity and

lower capital productivity.

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Average Productivity of Capital (APK) in the Post- MFA Regime

Table: 5.3

APK in the Post-MFA Regime

(in percentage)


The Average Productivity of Capital (APK) in the Indian textile industry and

its constituent product groups for the post MFA regime is presented in the table: 5.3.

Post-liberalization period has experienced a better average productivity of

capital which is 6.63 and has decreased in the post-reform period to 4.43 percent but

slightly improved in the post-MFA regime to 4.71 percent.

Year

NIC 140 1711 1712 1721 1722 1723 1729 1730 1810 Mean

2005-06 9.78 3.01 2.78 4.77 4.95 4.91 2.10 3.13 5.23 4.52

2006-07 10.27 3.08 2.83 4.91 5.04 5.03 2.06 3.12 5.27 4.62

2007-08 11.31 3.31 3.03 5.30 5.39 5.41 2.12 3.27 5.57 4.97

2008-09 11.33 3.23 2.95 5.21 5.23 5.28 1.98 3.11 5.36 4.85

2009-10 10.88 3.05 2.88 3.71 5.04 5.24 2.12 3.08 5.32 4.59

Mean 10.71 3.14 2.89 4.78 5.13 5.17 2.08 3.14 5.35 4.71

S.D 0.68 0.13 0.10 0.64 0.18 0.20 0.06 0.07 0.13

C.V 6.32 4.02 3.49 13.31 3.43 3.89 2.86 2.33 2.51

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In the post-MFA regime, among the product group, maximum of 10.71

percent growth in APK was found in Manufacturing of Cotton Ginning, Cleaning and

Baling (140) followed by 5.35 percent in the Manufacturing of all types of Textile

Garments and Clothing Accessories (1810), the minimum of 2.08 percent growth was

found in Manufacturing of Embroidery Work, Zari Work and Making ornamental

Trimmings (1729) In other words, the Post MFA regime has experienced a marginal

decrease in the average productivity of capital compared to the pre-liberalization

period.

The maximum measures of co-efficient of variation in the product group

recorded is 13.31 percent in the Manufacturing of Fabrics or Plastic Sheeting, (1721)

and 6.32 percent is recorded in the Manufacturing of Cotton Ginning, Cleaning and

Baling (0140) and a minimum of 2.33 percent is found in the Manufacturing of

Bleaching, Dyeing Manufacture of Knitted or Crocheted Textile Products. (1730)

there are fluctuations notice among the among different product in post MFA regime.

5.3.1.2 Average Productivity of Labour (APL)

Average labour productivity may be defined as the ratio between employment

of labour in a given economy or industry for a given time period and the output of

that economy or industry for a similar time period. Average labour productivity is

indicated as

Average productivity of labour APL = Q/L where Q denotes output for a given

period and L denotes employment of labour for the period.

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Table: 5.4

Average Productivity of Labour (APL) in the Pre-Liberalization Period

APL in the Pre-Liberalization Period (in percentage)


Average labour productivity for different product groups in the pre-

liberalization period is presented in table-5.4. The industry’s mean ratio during pre-

liberalization period is 0.18 which indicates that one labour could produce Rs.0.18

lakh worth of output.

Across the product groups, maximum average labour productivity of 0.27

was found in Manufacturing of all types of Threads, Cordage, Ropes, Twines and Nets

etc. (1723) followed by 0.25 in Manufacturing of Fabrics or Plastic Sheeting,

Manufacture of made up Textile Articles; Except apparel + Manufacture of

Waterproof Textiles Fabrics (1721) and minimum of 0.05 was found in Manufacturing

of Cotton Ginning, Cleaning and Baling (140).

Year

NIC 140 1711 1712 1721 1722 1723 1729 1730 1810 Mean

1980-81 0.02 0.15 0.12 0.21 0.12 0.20 0.13 0.14 0.10 0.13

1981-82 0.02 0.16 0.14 0.23 0.14 0.24 0.15 0.20 0.12 0.16

1982-83 0.03 0.15 0.13 0.20 0.19 0.28 0.16 0.20 0.13 0.16

1983-84 0.07 0.18 0.16 0.21 0.13 0.31 0.15 0.24 0.12 0.17

1984-85 0.05 0.16 0.16 0.48 0.14 0.56 0.16 0.20 0.15 0.23

1985-86 0.05 0.18 0.16 0.21 0.17 0.26 0.14 0.21 0.14 0.17

1986-87 0.05 0.20 0.19 0.30 0.21 0.32 0.20 0.20 0.19 0.21

1987-88 0.06 0.18 0.20 0.28 0.16 0.30 0.17 0.17 0.21 0.19

1988-89 0.07 0.20 0.16 0.27 0.21 0.26 0.21 0.30 0.23 0.21

1989-90 0.06 0.26 0.20 0.33 0.21 0.26 0.27 0.32 0.26 0.24

1990-91 0.06 0.28 0.20 0.34 0.42 0.29 0.20 0.29 0.28 0.26

1991-92 0.07 0.25 0.22 0.48 0.32 0.22 0.38 0.31 0.39 0.29

Mean 0.05 0.17 0.15 0.25 0.18 0.27 0.16 0.21 0.16 0.18

S.D 0.02 0.04 0.03 0.10 0.09 0.09 0.07 0.06 0.08

C.V 39.16 24.73 20.20 38.69 50.21 33.86 44.08 28.53 51.57

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Across the product group maximum variation of 51.57 percent was observed

in the Manufacturing of all types of Textile Garments and Clothing Accessories (1810) and

50.21 percent variation in the Manufacturing of Making of Blankets, Shawls, Carpets, Rugs

and Other Similar Textiles Products (1722) and minimum variations observed is 20.20

percent in the Manufacturing of Bleaching, Dyeing and Printing of Cotton, Vegetable

Fiber Textiles (1712)

Table: 5.5

Average Productivity of Labour (APL) in the Post-Liberalization Period

APL in the Pre-Liberalization Period

(in percentage)


Year

NIC 140 1711 1712 1721 1722 1723 1729 1730 1810

Mean

1992-93 0 0 0

0

0

0

0 0

0 0

1993-94 0.08 0.28 0.23 0.53 0.56 0.33 0.21 0.38 0.38 0.33

1994-95 0.11 0.32 0.39 0.37 0.63 0.37 0.4 0.44 0.65 0.41

1995-96 0.04 0.35 0.27 0.55 0.31 0.3 0.36 0.32 0.46 0.33

1996-97 0.11 0.29 0.21 0.36 0.29 0.28 0.3 0.4 0.33 0.28

1997-98 0.1 0.29 0.2 0.5 0.39 0.32 0.46 0.48 0.27 0.33

1998-99 0.13 0.31 0.22 0.38 0.27 0.28 0.29 0.3 0.27 0.27

1999-00 0.09 0.29 0.27 0.43 0.59 0.16 0.67 0.39 0.32 0.36

2000-01 0.12 0.39 0.58 0.86 0.84 0.58 0.46 0.7 0.49 0.56

2001-02 0.09 0.46 0.38 0.6 0.84 0.23 1.03 0.78 0.44 0.54

2002-03 0.11 0.43 0.28 0.56 0.74 0.28 0.57 0.41 0.36 0.42

2003-04 0.1 0.49 0.41 0.5 0.76 0.4 0.58 0.56 0.43 0.47

2004-05 0.12 0.47 0.45 0.85 0.62 0.34 0.8 0.58 0.37 0.51

Mean 0.1 0.36 0.32 0.54 0.57 0.32 0.51 0.48 0.4

0.61

SD 0.02 0.08 0.12 0.17 0.21 0.1 0.24 0.15 0.11

CV 22.74 22.14 36.21 30.84 37.19 31.65 46.19 31.07 26.82

95

Table 5.5 presents the average labour productivity of all product groups in the

post- liberalization period (1992-93 to 2004-05)

In 1993-94 the APL for the industry was 0.33 percent and it has increased to

0.51 percent in 2004-05. It is evident that APL is higher almost in all product groups

during post-liberalization period compared to the pre-liberalization period.

The industry’s mean ratio during post-liberalization period was 0.61 percent.

Across the product groups, Manufacturing of Making of Blankets, Shawls, Carpets, Rugs

and Other Similar Textiles Products and Manufacture of Floor Covering of Jute, Mesta,

Sannhemp and other Kindered Fibers and Coir (1722) has recorded the maximum labour

productivity of 0.57 percent and minimum of 0.10 percent found in Manufacturing of

Cotton Ginning, Cleaning and Baling (140).

The table 5.5 also presents the details of co-efficient of variations of the APL

with the post-liberalization period; Maximum variation is observed in the

Manufacturing of Embroidery Work, Zari Work and Making ornamental Trimmings

(1729) with 46.19 percent and followed by the Manufacturing of Making of Blankets,

Shawls, Carpets, Rugs and Other Similar Textiles Products (1722) with 37.19 percent

and minimum of 22.14 percent is observed in the Manufacturing of Cotton Spinning,

Processing other than in Mills, Weaving and Finishing of Cotton (1711) . The labour

productivity scenario in the industry in post-liberalization period is marginally better

than the pre-liberalization period.

96

Average Productivity of Labour (APL) in the Post-MFA regime

Table: 5.6

APL in the Post-MFA Regime

(in percentage)


Table 5.6 presents the average productivity of labour in the post-MFA-regime

across the product groups. The industry’s mean ratio in the post-MFA period is 0.83

percent; surprisingly it is a higher labour productivity than the pre and post reform

period. Maximum APL is 1.28 percent found in Manufacturing of Embroidery Work,

Zari Work and Making ornamental Trimmings (1729) followed by 1.20 in

Manufacturing of Making of Blankets, Shawls, Carpets, Rugs and Other Similar Textiles

Products (1722) and the minimum of 0.28 percent found in Manufacturing of Cotton

Ginning, Cleaning and Baling (140)

The co-efficient of variations in the product-wise analysis shows that

maximum variations continue to be observed in the Manufacturing of Bleaching,

Dyeing and Printing of Cotton, Woollen, Silk (1722) with 28.78 percent and

minimum variation of 8.86 percent is observed in the Manufacturing of Cotton

Spinning, Processing other than in Mills, Weaving and Finishing of Cotton Textiles

on Handlooms (1711)

Year

NIC 0140 1711 1712 1721 1722 1723 1729 1730 1810 Mean

2005-06 0.24 0.81 0.57 0.58 0.63 0.51 1.03 0.60 0.83 0.64

2006-07 0.26 0.81 0.67 1.02 1.22 0.46 1.25 0.90 0.84 0.83

2007-08 0.29 0.92 0.75 1.14 1.41 0.49 1.45 1.02 0.95 0.94

2008-09 0.32 0.98 0.80 1.19 1.52 0.50 1.57 1.07 1.01 0.99

2009-10 0.27 0.82 0.61 0.84 1.20 0.38 1.09 0.69 0.60 0.72

Mean 0.28 0.87 0.68 0.95 1.20 0.47 1.28 0.86 0.84 0.83

SD 0.03 0.08 0.10 0.25 0.34 0.05 0.23 0.20 0.15

CV 10.61 8.86 14.15 25.91 28.78 11.51 18.19 23.69 18.31

97

The higher degree of variation in the APL implies that higher growth and

higher labour productivity and vice-versa. The APL is almost active in the post-MFA

period

5.3.1.3 Marginal Productivity of Capital (MPK)

Marginal productivity of capital is defined as the ratio between a change in

output in a given economy or industry in a time period for a given change in Gross

Block of that economy or industry, for a similar time period.

Marginal productivity of capital is indicated as,

K

QMPk

∂

∂=

1... −= βα β KLb

( ) 1.. −= KKLb βαβ

=

K

Qβ

kAP.β=

where APK = Average productivity of capital (ie. Q/K)

98

Marginal Productivity of Capital (MPK) in the Pre-Liberalization Period

Table: 5.7

MPK in Pre-Liberalization Period

(in percentage)

Year

NIC 0140 1711 1712 1721 1722 1723 1729 1730 1810 Mean

1980-81 0 0 0 0 0 0 0 0 0 0

1981-82 -0.66 -15.91 -43.28 0.40 -59.93 2.47 1.72 7.67 4.74 -11.42

1982-83 -16.55 -0.04 0.00 -7.12 2.43 2.31 -2.45 3.48 4.04 -1.55

1983-84 -19.85 3.91 -7.30 -0.74 -2.86 6.42 0.76 4.50 0.43 -1.64

1984-85 -27.92 1.54 -0.66 9.41 19.94 -14.07 -0.71 9.96 8.09 0.62

1985-86 4.31 -5.05 4.01 6.05 2.93 -11.92 -33.99 45.29 -0.54 1.23

1986-87 0.84 -1.86 1.18 13.69 -0.22 -0.67 0.81 -1.48 64.57 8.54

1987-88 7.55 -2.46 1.85 259.76 3.91 1.41 0.10 -15.83 15.85 30.24

1988-89 2.24 -0.53 1.36 4.71 -1.82 2.20 -0.02 15.64 2.09 2.87

1989-90 1.57 3.89 5.42 1.70 2.83 -62.11 2.90 3.90 620.47 64.51

1990-91 1.17 0.60 -0.66 2.45 -2.21 2.04 -3.55 0.05 16.30 1.80

1991-92 3.61 30.01 -1.52 -32.86 6.79 1.68 5.53 1.29 10.54 2.78

Mean -3.64 1.18 -3.30 21.45 -2.35 -5.85 -2.41 6.21 62.22 8.17

SD 11.23 10.47 12.97 75.93 19.12 18.72 10.22 14.44 176.70

CV

-

308.42 890.98

-

393.10 353.94

-

813.52

-

319.76

-

424.19 232.69 284.01


MPK in various product groups in the pre-liberalization period is presented in

table-5.7. The MPK in the various product groups implies that capital contributes

positively to output positive in all product groups, which implies that the capital

contributes positively to output.

The mean of MPK for the industry during pre-liberalization is 8.17 percent.

Across the product group, maximum of 62.21 percent is found in the Manufacturing of

all types of Textile Garments and Clothing Accessories (1810) followed by 21.45 percent

99

in Manufacturing of Fabrics or Plastic Sheeting, Manufacture of made up Textile

Articles (1721) the minimum MPK of – 3.64 percent is recorded in the Manufacturing

of Cotton Ginning, Cleaning and Baling (140). It is evident that there are wide

variations in MPK ratios across different product groups.

The associated measures of variations recorded wide inconsistency for the

MPK across the product group during the period of analysis. The higher degree of

variations is observed in the Manufacturing of Cotton Spinning, Processing other than

in Mills, Weaving and Finishing of Cotton Textiles (1711) with 890.98 percent and

minimum of -813.52 percent in the manufacturing of Making of Blankets and Shawls

(1722) Out of 9 product groups 5 product group recorded negative variations.

Marginal Productivity of Capital (MPK) in the Post-Liberalization Period

Table: 5.8 MPk in the Post-Liberalization Period

(in percentage)

Year

NIC 0140 1711 1712 1721 1722 1723 1729 1730 1810 Mean

1992-93 0 0 0 0 0 0 0 0 0 0

1993-94 -25.15 1.56 2.45 -1.45 0.02 -0.01 5.29 1.69 7.03 -0.95

1994-95 13.69 0.51 -2.88 -4.75 -0.01 -0.15 0.02 -1.18 0.12 0.60

1995-96 6.57 -2.29 1.56 -30.91 -1.92 -0.41 0.02 1.99 42.22 1.87

1996-97 -5.97 -7.73 0.38 -19.83 29.81 0.85 -4.86 -2.40 0.84 -0.99

1997-98 7.15 2.53 0.24 6.79 -27.28 -8.81 87.10 -4.24 0.19 7.08

1998-99 4.61 0.69 -5.09 4.73 -32.95 1.44 1.80 0.03 -4.23 -3.22

1999-00 -0.43 -5.40 0.91 5.61 32.46 10.87 1.31 2.36 4.42 5.79

2000-01 0.23 -0.66 0.59 -3.28 -1.24 -5.83 -9.83 61.57 -1.76 4.42

2001-02 1.14 2.40 0.91 1.11 5.79 0.03 13.55 2.27 1.33 3.17

2002-03 3.66 1.20 0.40 -27.36 -2.79 2.67 -2.90 2.99 2.36 -2.20

2003-04 3.79 -2.68 -2.49 25.39 0.59 1.39 3.47 0.91 9.29 4.41

2004-05 25.09 0.34 1.08 0.61 -0.81 1.87 0.05 2.22 3.57 3.78

Mean 2.64 -0.73 -0.15 -3.33 0.13 0.30 7.31 5.25 5.03 1.83

SD 11.80 3.18 2.18 15.73 18.63 4.71 25.57 17.74 12.15

CV 446.11 -433.29 -1450.13 -471.82 14533.68 1575.17 349.76 338.09 241.58


100

The average of MPK for the industry during post-liberalization is 1.83. Across

the product group maximum of 7.31 percent is found in the Manufacturing of

Embroidery Work, Zari Work and Making ornamental Trimmings (1729) followed by

5.25 percent in Manufacturing of Knitted or Crocheted Textile Products (1730). The

minimum MPK of -3.33 percent is recorded in Manufacturing of Fabrics of Plastic

Sheeting (1721)

The co-efficient of variations computed also shows inconsistency in the

product group. The higher degree of variation is observed in the Manufacturing of

Making of Blankets, Shawls, Carpets (1722) with 14533.68 percent.

Among the 9 product group 5 product groups recorded less than the mean

value during the period of analysis. It is evident that the MPK across different product

groups in the post-liberalization period is better in the pre-liberalization period.

Marginal Productivity of Capital (MPK) in the MFA Regime

Table: 5.9

MPK in the Post- MFA Regime

(in percentage)


Marginal productivity of capital for various product groups in the post-MFA

regime is presented table 5.9. Across the product groups, the industries mean ratio is

4.47 percent; the ratio shows higher capital productivity in the post-MFA regime than

the post reform period.

Year

NIC 0140 1711 1712 1721 1722 1723 1729 1730 1810 Mean

2005-06 - - - - - - - - - -

2006-07 21.45 4.40 3.37 5.87 5.86 6.66 1.85 3.08 5.46 6.44

2007-08 47.65 9.33 5.30 8.35 9.08 11.94 2.43 4.10 7.20 11.71

2008-09 11.66 2.06 2.28 4.63 4.00 3.90 1.35 2.36 4.39 4.07

2009-10 13.21 3.42 3.06 5.47 5.38 5.58 1.85 3.03 5.34 5.15

Mean 18.80 3.84 2.80 4.86 4.86 5.61 1.50 2.52 4.48 4.47

SD 17.85 3.49 1.92 3.05 3.30 4.35 0.92 1.54 2.70

CV 94.99 90.71 68.51 62.74 67.76 77.41 61.43 61.16 60.29

101

Across the product group maximum marginal productivity of capital 18.80

percent which is found in Manufacturing of Cotton Ginning, Cleaning and Baling

(140) followed by 5.61 percent in Manufacturing of all types of Threads, Cordage,

Ropes, Twines and Nets etc (1723) and minimum of 1.50 percent is found in


(1729). The MPK also is almost active with better capital productivity during the

post-MFA period.

It is observed that inter product group variations in MPK persist in the pre -

liberalization period. Comparative analysis of inter–product group ratios indicate that

the marginal productivity of capital vary widely across different product groups in the

same industry. MPK is comparatively lower in the post liberalization period and post

MFA also vis-à-vis before liberalization.

A further inconsistency in co-efficient of variations during the period of

analysis is reflected in the high degree of variations of 94.99 percent in the

Manufacturing of Cotton Ginning, Cleaning and Baling (0140) a much lower level of

61.16 percent in the Manufacturing of Knitted or Crocheted Textile Products (1730)

The cost cut and efficiency changes are marked in the impressive growth in

the Indian textile industry during the post-reform period and post-MFA regime.

5.3.1.4 Marginal Productivity of Labour (MPL)

Marginal productivity of labour is defined as the relationship between the

change in employment in a given economy or industry for a given time period, and

the change in output of that economy or industry for a similar time period

Marginal productivity of labour is indicated as,

βα KLbQ ..=

L

QMP L

∂

∂=

βαα KLb ... 1−=

( ) 1.. −= LKLb βαα

LAP.α=

where APL = Average productivity of labour (ie., Q/L)

102

Marginal Productivity of Labour (MPL) in the Pre-Liberalization Period

Table: 5.10 MPL in the Pre-Liberalization Period

(in percentage)

Year

NIC 0140 1711 1712 1721 1722 1723 1729 1730 1810 Mean

1981-82 0.00 0.07 0.33 -0.23 0.34 -0.09 -0.12 0.56 -1.82 -0.95

1982-83 0.09 -0.01 0.00 -0.44 -0.24 -1.96 -1.12 0.26 0.91 -2.50

1983-84 -0.07 1.96 -8.86 0.06 -0.39 0.55 -3.52 0.47 -0.05 -9.85

1984-85 0.46 3.36 0.15 -1.70 0.35 1.72 0.09 0.54 0.40 5.36

1985-86 0.07 0.05 0.18 -4.19 0.09 65.16 -0.24 0.27 -0.13 61.25

1986-87 0.24 3.70 -0.30 -0.32 -0.01 -0.09 -0.18 0.35 -2.29 1.11

1987-88 -0.05 2.49 0.53 0.20 -1.05 0.21 0.09 0.11 0.32 2.84

1988-89 0.73 -0.15 0.48 0.21 -0.05 9.30 -0.03 -0.29 0.35 10.55

1989-90 -0.06 2.01 0.43 1.16 0.21 0.21 0.62 0.36 0.46 5.39

1990-91 -0.03 -0.65 0.26 0.21 -0.17 0.39 2.03 -0.01 0.50 2.54

1991-92 -0.09 1.05 -0.48 0.64 0.32 0.30 0.75 -0.36 0.91 3.04

Mean 0.11 1.16 -0.61 -0.37 -0.05 6.31 -0.14 0.19 -0.04 0.73

S.D 0.26 1.52 2.74 1.45 0.41 19.54 1.36 0.31 1.05

C.V 243.20 131.44 -450.60 -394.93 -836.79 309.77

-

994.93 166.91

-

2908.63


Marginal Productivity of Labour (MPL) in the various product groups during

pre- liberalization period is presented table 5.10. MPL is inactive in the majority of

the product groups, which implies capital is actively positively to the output.

The mean of the MPL for the industry in the pre-liberalization is 0.73 percent.

Across the product group, a maximum of 6.31 percent is found in the Manufacturing

of all types of Threads, Cordage, Ropes, Twines and Nets etc (1723). Four product

groups out of nine recorded less than the average value of 0.73 percent. These are the

Manufacturing of Bleaching, Dyeing and Printing of Cotton (1712) with -0.61 percent,

Manufacturing of Fabrics or Plastic Sheeting, Manufacture of made up Textile Articles

103

(1721) with -0.37 percent, Manufacturing of Embroidery Work, Zari Work and Making

ornamental Trimmings (1729) with -0.14 percent and Manufacturing of all types of

Textile Garments and Clothing Accessories (1810) with (-0.04) percent.

The higher coefficient of variations of 309.77 percent is in Manufacture of

Manufacture of all types of Threads (1723). Out of 9 products group 5 recorded

negative variations, which implies that the labour contributes positively to the output

during the period of analysis.

Marginal Productivity of Labour (MPL) in the Post-Liberalization Period

Table: 5.11:

MPL in the Post-Liberalization Period

(in percentage)

Year

NIC 140 1711 1712 1721 1722 1723 1729 1730 1810 Mean

1992-93 - - - - - - - - - -

1993-94 0.25 3.45 1.8 -0.23 -0.07 0.01 -0.65 0.81 2.33 0.86

1994-95 -2.33 -1.29 -0.19 2.3 0 -0.11 0.09 -0.04 0.02 -0.17

1995-96 -0.74 -4.8 0.65 25.55 0.44 0.21 -0.07 2.17 -0.32 2.57

1996-97 0.09 0.3 0.05 -0.81 5.53 -0.64 -2.83 5.14 -0.37 0.72

1997-98 0.67 -0.06 -0.12 -1.02 1.4 0.09 -0.97 -0.96 0.42 -0.06

1998-99 -0.69 2.2 0.5 1.37 2.15 -0.79 14.06 0.01 0.98 2.20

1999-00 0.03 -1.34 14.68 1.93 1.6 -0.87 0.14 1.81 20.03 4.22

2000-01 -0.03 -0.34 -0.85 0.15 0.78 -0.18 -31.3 1.89 -0.29 -3.35

2001-02 -0.02 1.57 -2.78 0.33 0.58 0 -17.5 -0.52 -0.35 -2.08

2002-03 0.16 -0.63 -0.16 1.08 0.57 -0.26 0.65 -1.32 -1.51 -0.16

2003-04 1.46 1.15 0.84 -1.91 0.09 0.17 -1.46 0.79 -0.78 0.04

2004-05 -0.82 -0.38 1.34 0.63 0.17 -5.38 0.07 0.21 0.82 -0.37

Mean -0.15 -0.01 1.21 2.26 1.02 -0.60 -3.06 0.77 1.61 0.34

S.D 0.89 2.00 4.20 7.10 1.52 1.48 10.70 1.70 5.61

C.V

-

587.31 100.00 346.17 314.14 149.30

-

248.37

-

349.77 220.84 347.73


Marginal Productivity of Labour (MPL) in the post-liberalization period is

presented in table: 5.11. During this period of analysis the MPL is computed as 0.34

percent. Across the product group, maximum of 2.26 percent is found in the

Manufacturing of Fabrics or Plastic Sheeting, Manufacture of made up Textile Articles

104

(1721) and minimum of -3.06 percent in Manufacturing of Embroidery Work, Zari

Work and Making ornamental Trimmings (1729)

Out of 9 product groups, the MPK in 4 product groups are showing negative

growth rate. These industries are Manufacturing of Embroidery Work, Zari Work and

Making ornamental Trimmings (1729) with (-3.06), followed by Manufacturing of

Cotton Ginning, Cleaning and Baling (140) with (-0.15) , Manufacturing of all types

of Threads, Cordage, Ropes, Twines and Nets etc (1723) with (-0.60) and

Manufacturing of Cotton Spinning, Processing other than in Mills, Weaving and

Finishing of Cotton Textiles (1711) with (-0.01) percent. The mean of Marginal

Productivity of Labour (MPL) for the post- liberalization period is 0.34 percent, which

is lower than that of pre-liberalization period which is 0.73 percent.

In order to examine the co-efficient of variations in the Marginal Productivity

of Labour (MPL), the highest degree of variation is observed in the Manufacturing of

Textile Garments and Clothing Accessories (1810) with 347.73 percent and Out of 9

product groups 4 recorded negative responses. The marginal labour productivity is

marginally positive and better than that in the pre-liberalization period.

Marginal Productivity of Labour (MPL) in the Post –MFA Regime

Table: 5.12

MPL in the Post –MFA Regime

(in percentage)


Year

NIC 0140 1711 1712 1721 1722 1723 1729 1730 1810 Mean

2005-06 0 0 0 0 0 0 0 0 0 0

2006-07 -1.89 -3.24 2.29 1.73 11.27 0.75 3.56 1.52 1.35 1.93

2007-08 -2.95 -5.32 3.28 2.30 16.47 1.08 4.92 2.01 1.78 2.62

2008-09 -1.52 -2.21 2.01 1.65 10.47 0.54 3.64 1.48 1.37 1.94

2009-10 0.09 -14.45 5.20 6.06 -4.12 1.16 6.55 3.41 1.85 0.64

Mean -1.25 -5.05 2.56 2.35 6.82 0.71 3.73 1.68 1.27 1.42

SD 1.26 5.58 1.44 2.10 8.84 0.29 1.40 0.90 0.26

CV -1.01 -1.11 0.56 0.89 1.30 0.41 0.37 0.54 0.21

105

Marginal Productivity of Labour (MPL) for various product groups in the post-

MFA regime is presented Table-5.12. In the post-MFA regime, the marginal

productivity of labour across the product groups shows that the industry’s mean ratio

during the period is 1.42 percent, and it shows that there is higher labour productivity

during the post-MFA regime than the pre and post reform period.

Across the product groups, maximum labour productivity of 6.82 percent is

found in Manufacturing of Making of Blankets, Shawls, Carpets, Rugs and Other Similar

Textiles Products (1722) followed by 3.73 percent manufacturing of Embroidery Work,

Zari Work and Making ornamental Trimmings (1729) and minimum of -5.05 percent is

found in the Manufacturing of Cotton Spinning, Processing other than in Mills,

Weaving and Finishing of Cotton Textiles (1711). The marginal labour productivity

(MPL) is almost positive to the output during the post-MFA regime and also the

computed co-efficient of variations among the product group, the higher degree of

variations is observed in the Manufacturing of Making of Blankets, Shawls, Carpets,

Rugs and Other Similar Textiles Products (1722) with 1.30 percent and lower is observed

in the Manufacturing of Cotton Spinning, Processing other than in Mills, Weaving and

Finishing of Cotton Textiles (1711) with -1.11.

The comparative analysis shows that the mean of co-efficient of variations in

the Marginal productivity of labour varies across the product groups in different

period of analysis. The MPL is lower during pre-liberalization and also post-

liberalization period as against post MFA regime, which implies that contribution of

labour is higher during post-MFA regime.

5.3.1.5 Capital-Labour Ratio

The capital-labour ratio refers to the volume of capital employed per unit of

labour. It is used to measure the extent of capital in textile manufacturing industries.

(i) Capital – Labour Ratio in the Pre-Liberalization Period

The capital-labour ratio refers to the volume of capital employed per unit of

labour. It is used to measure the extent of capital intensity in textile manufacturing

industries.

106

In table 5.13 the capital-labour ratio in the pre-liberalization period is

presented. The mean of K/L ratio in the re-liberalization period is 0.04 percent. In the

year 1980-81 the capital-labour ratio is 0.02 percent and it has increased marginally

during 1990-1991 and reached 0.05 percent. Among the product group maximum

capital - labour ratio of 0.06 percent is found in Manufacturing Embroidery Work, Zari

Work and Making ornamental Trimmings (1729) and also maximum of 0.06 in the

Manufacturing of Fabrics of Plastic Sheeting (1721) the minimum of 0.01 percent is

found in Manufacturing of Cotton Ginning, Cleaning and Baling (0140).

Table: 5.13

Capital – Labour Ratio in the Pre-Liberalization Period

(in percentage)

Year

NIC 0140 1711 1712 1721 1722 1723 1729 1730 1810 Mean

1980-81 0.00 0.03 0.03 0.02 0.01 0.03 0.01 0.02 0.01 0.02

1981-82 0.01 0.04 0.03 0.05 0.01 0.04 0.01 0.02 0.01 0.03

1982-83 0.00 0.05 0.04 0.05 0.02 0.06 0.01 0.03 0.02 0.03

1983-84 0.01 0.05 0.04 0.06 0.04 0.06 0.01 0.04 0.01 0.03

1984-85 0.01 0.04 0.04 0.09 0.03 0.03 0.02 0.04 0.01 0.04

1985-86 0.01 0.05 0.04 0.05 0.04 0.05 0.02 0.03 0.02 0.04

1986-87 0.01 0.04 0.06 0.06 0.04 0.04 0.06 0.05 0.02 0.04

1987-88 0.01 0.05 0.07 0.05 0.03 0.06 0.28 0.04 0.02 0.04

1988-89 0.01 0.04 0.04 0.05 0.03 0.04 0.03 0.05 0.04 0.04

1989-90 0.01 0.06 0.04 0.09 0.05 0.04 0.06 0.06 0.04 0.05

1990-91 0.01 0.08 0.06 0.09 0.03 0.07 0.08 0.03 0.04 0.05

1991-92 0.01 0.08 0.05 0.08 0.01 0.03 0.12 0.05 0.05 0.05

Mean 0.01 0.05 0.05 0.06 0.03 0.05 0.06 0.04 0.02 0.04

SD 0.00 0.01 0.01 0.02 0.01 0.01 0.08 0.01 0.01

CV 31.60 28.26 25.63 35.27 38.43 30.57 130.13 34.32 57.69


107

In order to examine the co-efficient of variations among the product group

during the period of analysis, the higher co-efficient of variations is found in the


(1729) with 130.13 percent and a minimum variation is observed in the

Manufacturing of Bleaching, Dyeing and Printing of Cotton (1712) with 25.63

percent.

Table: 5.14

Capital – Labour Ratio in the Post-Liberalization Period

(in percentage)


Year

NIC 140 1711 1712 1721 1722 1723 1729 1730 1810 Mean

1992-93 0.02 0.10 0.08 0.14 0.09 0.05 0.05 0.06 0.06 0.07

1993-94 0.01 0.12 0.14 0.14 0.69 0.15 0.08 0.12 0.09 0.17

1994-95 0.01 0.18 0.13 0.08 0.04 0.24 0.68 0.10 0.11 0.17

1995-96 0.02 0.20 0.08 0.09 0.09 0.09 0.18 0.14 0.09 0.11

1996-97 0.01 0.17 0.09 0.09 0.09 0.13 0.16 0.11 0.05 0.10

1997-98 0.02 0.19 0.12 0.07 0.11 0.10 0.14 0.12 0.07 0.10

1998-99 0.01 0.14 0.08 0.09 0.08 0.03 0.35 0.10 0.04 0.10

1999-00 0.04 0.14 0.42 0.16 0.07 0.07 0.25 0.24 0.08 0.16

2000-01 0.01 0.10 0.16 0.08 0.18 0.05 0.20 0.23 0.09 0.12

2001-02 0.01 0.08 0.07 0.12 0.15 0.03 0.16 0.10 0.05 0.09

2002-03 0.01 0.12 0.19 0.13 0.19 0.06 0.12 0.14 0.08 0.12

2003-04 0.01 0.14 0.13 0.16 0.18 0.08 0.18 0.22 0.07 0.13

2004-05 0.02 0.21 0.18 0.49 0.12 0.05 0.27 0.18 0.09 0.18

Mean 0.02 0.15 0.14 0.14 0.16 0.09 0.22 0.14 0.07 0.13

SD 0.01 0.04 0.09 0.11 0.17 0.06 0.16 0.06 0.02

CV 51.60 27.62 64.63 76.68 103.31 66.94 73.29 40.11 28.05

108

The Capital –labour ratios for the post-liberalization periods is presented in

table: 5.14. During the period, the maximum capital - labour ratio of 0.22 percent is

found in Manufacturing of Embroidery Work, Zari Work and Making ornamental

Trimmings (1729) and followed by 0.16 percent is found in Manufacturing of Making

of Blankets, Shawls, Carpets, Rugs and Other Similar Textiles Products (1722) and

minimum of 0.02 percent is found in Manufacturing of Cotton Ginning, Cleaning and

Baling (0140)

The mean of capital-labour ratio for the industry in the post-liberalization was

0.13 percent. This ratio has fluctuated during the reform period and reached 0.18 in

the year 2004-05.

Table 5.14 also brings out the co-efficient of variations for the 9 product

group in the post-liberalization period, the maximum coefficients of variations

continues to be observed in the Manufacturing of Making of Blankets, Shawls, Carpets,

Rugs and Other Similar Textiles Products (1722) with 103.31 percent and a minimum

variation is observed in the Manufacturing of Cotton Spinning, Processing other than in

Mills, Weaving and Finishing of Cotton Textiles (1711) with 27.62 percent.

The variations observed reveal that the capital-labour is higher in the post-

liberalization period and it has been found positively contributing to labour

productivity.

Table: 5.15

Capital – Labour Ratio in the Post-MFA Regime

(in percentage)

Year

NIC 140 1711 1712 1721 1722 1723 1729 1730 1810 Mean

2005-06 0.02 0.27 0.20 0.12 0.13 0.10 0.49 0.19 0.16 0.19

2006-07 0.02 0.26 0.24 0.21 0.24 0.09 0.61 0.29 0.16 0.24

2007-08 0.03 0.28 0.25 0.21 0.26 0.09 0.69 0.31 0.17 0.25

2008-09 0.03 0.30 0.27 0.23 0.29 0.09 0.80 0.34 0.19 0.28

2009-10 0.02 0.27 0.21 0.23 0.24 0.07 0.51 0.23 0.11 0.21

Mean 0.03 0.28 0.23 0.20 0.23 0.09 0.62 0.27 0.16 0.23

S.D 0.00 0.02 0.03 0.04 0.06 0.01 0.13 0.06 0.03

C.V 5.07 5.65 11.43 22.06 26.85 12.73 20.40 22.90 17.42


109

The capital-labour ratio in the post- MFA regime is presented the table 5.15.

The maximum ratio of 0.62 percent is found in Manufacturing of Embroidery Work,

Zari Work and making ornamental Trimmings (1729) followed by 0.28 percent in

Manufacturing of Cotton Spinning, Processing other than in Mills, Weaving and

Finishing of Cotton Textiles (1711). The minimum of 0.03 percent is in

Manufacturing of Cotton Ginning, Cleaning and Baling (140). The capital-labour ratio

is higher in almost in all product groups and capital intensity has increased during

post- MFA regime.

The co-efficient of variations are also expressed in the maximum degree of

variations in the Manufacturing of Making of Blankets, Shawls, Carpets, Rugs and Other

Similar Textiles Products (1722) with 26.85 percent and lower degree of variation in the

Manufacturing of Cotton Ginning, Cleaning and Baling (0140) with 5.07 percent.

The variations observed mostly in the post-MFA regime highlighted the

positive contribution of labour to output.

5.3.2 Total Factor Productivity

The total factor productivity is defined as the ratio between real output and all

factor inputs. Total factor productivity is an essential instrument of growth which

plays a key role in ascertaining extent of contributions by different factor inputs to

output. There are various total factor productivity indices that differ from one another

with regard to the weightage involved. The most commonly used are in Kendrick

Index and Solow Index.

Productivity changes as production continues. It improves under favorable

circumstances and deteriorates when unfavorable situations arise. The changes that

lead to higher productivity of inputs are technological improvements, improvement in

efficiency, increased education of labor, improvement in the quality of labor due to

training, etc. Since such changes affect different physical inputs favorably or

unfavorably and the resultant change in output cannot be attributed to the individual

physical inputs. The origin of the term can be traced to the "Abramovitz residual,"

which refers to the growth of output unaccounted for by the factor inputs

(Abramovitz 1956). Today, TFP is considered an important source of output growth

worldwide due to rapid progress in science and technology and due to efficiency-

enhancing measures.

110

5.3.2.1 Solow’s Index

Solow’s index is the one of the measures of Total Factor Productivity. This

index is based on the Cobb-Douglas production function, based on the assumption of

constant returns to scale, autonomous, Hicks-Neutral technical progress and payments

to factors according to their marginal product. Table 5.16 presents the growth rate

TFP in the pre-liberalization period. The Growth Rate has been computed, using the

methods Solow index given in chapter-3.

Total Factor Productivity in the Pre-Liberalization Period

Table: 5.16

Growth in TFP as per Solow Index in the Pre-Liberalization Period

(in percentage)


Year

NIC 140 1711 1712 1721 1722 1723 1730 1729 1810 Mean

1980-81 100 100 100 100 100 100 100 100 100 100

1981-82 88.35 101.11 120.08 79.05 131.02 85.69 124.00 85.17 98.24 101.41

1982-83 115.55 89.75 92.87 68.43 126.59 96.51 136.32 96.80 95.23 102.01

1983-84 177.10 98.19 111.77 65.82 52.93 78.27 229.65 141.60 130.70 120.67

1984-85 49.35 97.86 102.67 89.31 56.03 137.67 134.02 91.00 131.40 98.81

1985-86 46.16 101.61 104.70 22.50 62.90 -22.63 116.86 82.95 96.50 67.95

1986-87 61.89 125.54 99.59 26.80 74.25 -20.31 156.03 73.17 117.85 79.42

1987-88 64.55 100.81 98.06 29.16 69.12 -22.88 159.24 27.73 130.46 72.92

1988-89 54.02 118.84 139.86 28.20 82.79 -18.23 150.43 150.85 102.07 89.87

1989-90 87.58 134.07 151.87 25.77 66.59 -13.12 412.36 144.92 119.48 125.50

1990-91 76.86 127.79 123.02 27.14 121.94 -24.90 303.17 72.00 129.47 106.27

1991-92 74.14 114.98 154.86 34.84 159.91 -16.69 263.37 92.11 145.58 113.68

Mean 82.96 109.21 116.61 49.75 92.01 29.95 190.45 96.52 116.42 98.21

G.R -3.98 2.98 4.07 -6.46 1.25 -14.01 17.69 -0.08 2.89 0.48

111

Table-5.16 shows the productivity measures of Textiles products

manufacturing industry in the pre- liberalization period. It is clear from the table that

productivity performance of the product groups are varying. The growth rate during

the period of analysis shows that maximum of 17.69 percent is recorded in the

Manufacturing of Knitted or Crocheted Textile Products (1730) and minimum of (-

14.01) percent is found in the Manufacturing of Making of Blankets and Shawls (1723)

In the pre-liberalization four out nine product groups recorded negative productivity

growth.

The reason for the negative growth rate of the total factor productivity the

non-adoption of the new production technologies and a lackluster market structure.

The industry’s average productivity growth rate was 0.48 percent during the pre-

liberalization period. The pre-liberalization picture of TFP is represented in fig 5.1.

Figure 5.1

Solow Index in the Pre-Liberalization Period

Source: from Table No.5.16

-3.98

2.984.07

17.69

-14.01

-0.081.25

2.89

-6.46

-20

-15

-10

-5

0

5

10

15

20

140 1711 1712 1730 1723 1729 1722 1810 1721

Grw

oth

Ra

te (

%)

Product Code

112

Total Factor Productivity in the Post-Liberalization Period

Table 5.17

Growth in TFP as per Solow Index in the Post-Liberalization Period

(in percentage)


Table 5.17 presents the total factor productivity computed on the basis of

Solow index in the post-liberalization period. The productivity growth in the Indian

textile industry is more negative in the post-reform period as compared to estimated

figure from the pre-reform period. The high level productivity deterioration during

the post-reform period is an indication of negative effects of reforms process.

Year

NIC 140 1711 1712 1721 1722 1723 1729 1730 1810 Mean

1992-93 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

1993-94 141.94 101.18 118.10 52.64 45.20 75.10 124.36 107.30 125.84 93.17

1994-95 -29.37 94.56 73.72 99.36 576.33 42.04 52.36 70.68 66.52 81.90

1995-96 -38.91 68.44 72.43 42.02 279.81 76.73 118.84 82.33 45.05 73.53

1996-97 -46.09 75.28 67.06 51.68 347.89 75.12 168.53 99.26 51.50 75.54

1997-98 -49.75 78.44 63.70 45.46 153.04 73.14 80.21 38.78 46.18 83.93

1998-99 -50.58 83.29 91.76 46.43 282.71 109.05 100.19 48.70 62.42 98.39

1999-00 -42.66 107.63 104.69 53.52 385.63 155.27 74.05 66.73 72.66 111.01

2000-01 -100.11 144.80 131.59 65.99 207.49 -52.81 126.56 74.30 62.54 114.36

2001-02 -99.22 149.31 179.53 46.99 212.08 -78.03 39.45 19.23 65.39 124.25

2002-03 -123.66 144.49 176.33 37.59 182.40 -83.08 46.69 23.50 68.06 128.15

2003-04 -119.54 123.22 234.49 47.82 146.91 -62.49 51.60 23.50 58.73 135.56

2004-05 -163.03 113.66 221.56 18.88 182.23 -68.00 39.15 17.62 61.47 143.65

Mean -47.77 106.49 125.77 54.49 238.59 27.85 86.31 59.38 68.18 104.88

G.R -19.48 4.41 12.16 -3.88 -4.53 -15.57 -5.93 -7.22 -2.48 -4.73

113

During post-liberalization period, only 2 product groups out of 9 have

achieved better growth rate. These are the Manufacturing of Cotton Spinning,

Processing other than in Mills, Weaving and Finishing of Cotton Textiles (1711) with

4.41 percent followed by the Manufacturing of Bleaching, Dyeing and Printing of

Cotton (1712) with 12.16 percent.

The remaining 7 product groups have recorded negative growth rate, these are

the Manufacturing of Cotton Ginning, Cleaning and Baling (140) with -19.48 percent,

Manufacturing of Knitted or Crocheted Textile Products (1730) with -7 .22 percent,

the Manufacturing of all types of Threads, Cordage, Ropes, Twines and Nets etc

(1723) with -15.57 percent, the Manufacturing of Embroidery Work, Zari Work and

Making ornamental Trimmings (1729) with -5.93, Manufacturing of Making of

Blankets, Shawls, Carpets, Rugs and Other Similar Textiles Products (1722) with 4.53

percent, Manufacturing of all types of Textile Garments and Clothing Accessories (1810)

with -2.48 and the Manufacturing of Fabrics or Plastic Sheeting (1721) with -3.88

percent. The industry’s mean ratio was 104.88 in the period under review.

The post-liberalization scenario of TFP is graphically represented in fig 5.2

Figure 5.2

Solow Index in the Post-Liberalization Period

Source: From Table No.5.17

-19.48

4.41

12.16

-7.22

-15.57

-5.93-4.53

-2.48-3.88

-25

-20

-15

-10

-5

0

5

10

15

140 1711 1712 1730 1723 1729 1722 1810 1721

Gro

wth

Rate

(%

)

Product Code

114

Total Factor Productivity in the Post MFA regime (2005-06 to 2009-10)

Table 5.18

Growth in TFP as per Solow Index in the Post -MFA regime

(in percentage)

Year

NIC 0140 1711 1712 1721 1722 1723 1729 1730 1810 Mean

2005-06 100 100 100 100 100 100 100 100 100 100

2006-07 105.06 91.67 107.01 127.34 133.36 94.45 107.59 115.60 101.14 109.24

2007-08 116.44 96.12 115.92 139.34 148.03 101.19 115.93 124.14 109.62 118.53

2008-09 120.45 118.61 116.60 142.46 154.20 120.77 116.47 123.94 110.67 124.91

2009-10 107.53 128.74 119.86 167.11 124.19 157.89 128.04 141.56 153.28 136.47

Mean 109.90 107.03 111.88 135.25 131.96 114.86 113.61 121.05 114.94 121.10

G.R 3.05 8.44 4.93 14.93 6.92 14.21 6.50 9.15 11.61 8.86


Table 5.18 presented the Total Factor Productivity computed by using Solow

index in the post-MFA regime. During this period all the product groups have shown

better performance. The maximum growth rate of 14.93 is recorded in the

Manufacturing of Fabrics or Plastic Sheeting (1721) and in the Manufacturing of all

types of Threads, Cordage, Ropes, Twines and Nets etc (1723) is recorded 14.21 and

minimum of 3.05 percent is recorded in the Manufacturing of Cotton Ginning,

Cleaning and Baling (0140) The industry’s mean ratio is 121.10 percent during the

period under review. The total factor productivity scenario is a better indication in the

phase out of Multi-Fiber Agreement (MFA) after 2005.

115

The TFP performance of the industry during the post-MFA regime is

presented in the fig 5.3

Figure: 5.3 : Solow Index in the Post-MFA Regime

Source: From Table No.5.18

Table: 5.19

TFPG Estimates based on Solow Index in the Pre-liberalization, Post-

liberalization and Post MFA Regime

3.05

8.44

4.93

9.15

14.21

6.56.92

11.61

14.93

0

2

4

6

8

10

12

14

16

140 1711 1712 1730 1723 1729 1722 1810 1721

Gro

wth

Ra

te (

%)

Product code

Code Pre-liberalization Post- liberalization Post-MFA regime

Mean G.R (%) Mean G.R (%) Mean G.R (%)

140 82.96 -3.98 97.65 -19.48 109.9 3.05

1711 109.21 2.98 106.49 4.41 107.03 8.44

1712 116.61 4.07 125.77 12.16 111.88 4.93

1721 190.45 -6.46 54.49 -3.88 135.25 14.93

1722 92.01 1.25 138.59 -4.53 131.96 6.92

1723 29.95 -14.01 110.07 -15.57 114.86 14.21

1729 96.52 -0.08 118.69 -5.93 113.61 6.5

1730 190.45 17.69 123.99 -7.22 121.05 9.15

1810 116.42 2.89 68.18 -2.48 114.94 11.61

Mean 98.21 0.48 104.88 -4.73 117.83 8.86

116

The total factor productivity ,estimates for Textile product manufacturing

industry in India in the pre-liberalization post-liberalization and post-MFA regimes

are shown in Table-5.19. The estimated growth rate of TFP during pre-liberalization

period was 0.48 percent. It is also evident that out of 9 product groups, 4 product

groups have recorded negative growth in TFP. In the pre-liberalization period, the

industry’s mean ratio is only 0.48 percent. In the post-liberalization period 7 product

groups have recorded negative growth. The overall growth rate of TFP in the post-

liberalization is -4.73 percent. Performance in the post-MFA regime presented better

than pre and post-liberalization periods, the overall growth rate of TFP in the post-

MFA regime is 8.86 percent. The industry’s coefficient of mean value during pre-

liberalization period is 98.21 percent and 104.88 percent recorded in the post-

liberalization.

5.4 Conclusions

Empirical results relating to partial factor productivity indices for the textile

manufacturing industry in India for the pre –liberalization, post liberalization and post

MFA regime.

� It is observed that the industry’s average productivity of capital is higher in

the pre-liberalization period compared to free environment, which is presented

in the table 5.1. The annual average productivity of capital during the pre-

liberalization is 6.63 percent, substantially decreased to 4.43 percent in post-

liberalized regime and slightly increased to 4.71 percent in post-MFA regime.

The fall in capital productivity in the post- liberalization period of analysis

may be attributed to decline in the capacity utilization which is due to the

capital subsidy, worker’s strike and power shortage.

� The average productivity of labour (APL) surprisingly is higher in the post-

MFA period which is 0.83 percent and of 0.61percent in the post-

liberalization and 0.18 percent in the pre- liberalization period, the average

productivity of labour may be absorbed in labour using technology.

117

� The marginal productivity of capital (MPK) persists comparatively lower in

the post liberalization period and post-MFA regime vis-à-vis before

liberalization. The cost cut and efficiency changes marked on better growth in

textile industry during the post-liberalization period and post-MFA regime.

� The marginal productivity of labour (MPL) in the pre-liberalization period is

0.73 percent which is higher than the post-liberalization period by 0.34. The

labour productivity during the post MFA- regime is 1.42 percent which is

higher than the pre and post-reform period.

� The capital intensity has increased in the post-liberalization and followed by

post-MFA regime also.

� The marginal productivity of capital is higher than that of labour productivity

for the period of analysis.

Empirical results relating to Solow’s total factor productivity indices for the

textile manufacturing industry in India for the period pre-liberalization, post and post

MFA regime.

� The productivity growth in the Indian textile industry is negative - 4.73 percent

in the post-liberalization period compared to 0.48 percent of pre-liberalization

period. The steep decline productivity in the post-liberalization period is an

indication of the negative effects of reforms process. This conclusions is line

with the findings of Trivedi et al., (2000), Goldar (2000), Balakrishnan et al.,

(2000), Goldar (2002), Goldar and Kumari (2003), Goldar (2004) and Prakash

(2006) which indicated a fall in the growth rate of TFP in Indian manufacturing

in the post-reform period.

� The implication is that the total factor productivity has declined considerably

after the advent of economic reforms in 1991-92.

118

� During the pre-liberalization period four out of nine product groups and two

product groups during post- liberalization period have shown better

performance in the TFP. There is a communicable growth in TFP during the

post-MFA regime.

� The emerging conclusion is that TFP growth and its components recorded

impressive gains during post-MFA regime and hence the phase out of MFA and

the ensuing competition augurs well for the Indian textile industry.

� Thus it is evident that the phasing out of MFA appears to be advantages to the

Indian textile industry in terms of TFPG.

chapter v factor productivities in indian textile...

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