Profitability in India’s Organized Manufacturing Sector: The Role of Technology, Distribution, and Demand

Using aggregate data from the Annual Survey of Industries, we analyze profitability in India’s organized manufacturing sector from 1982-83 to 2012-13. Over the whole period of analysis, the rate of profit grew at about 1 percent per annum, primarily driven by a rising share of profits. We use structural break tests to identify medium and short run regimes. We find two medium run regimes, one of declining profitability (1982-83 to 2001-02), and another of growing profitability (2001-02 to 2012-13). We find six short run regimes, of which only two are periods of rising profitability, 1987-88 to 1996-97, and 2001-02 to 2007-08. All other short run periods have witnessed declining profitability. Profit rate decomposition analysis shows that both in the medium and short run, technological factors have been the most important determinants of changes in profitability.