Chapter 10 Total Factor Productivity Growth of Formal and Informal Manufacturing Industries in India: An Insight From the KLEMS Database

Abstract Over the last four decades – the 1980s, 1990s, 2000s and 2010s – the share of manufacturing in gross domestic product (at current prices) in India has stagnated, whereas the share of services (construction excluded) has increased significantly. The relatively mediocre growth performance of the manufacturing sector as compared to the services sector in India has emerged as a matter of concern. There has been growing recognition in policymaking circles and academia that India needs accelerated growth in the manufacturing industry in the next few decades, so that India's economic growth is led by manufacturing rather than services. In this paper, a comparative analysis of the growth in total factor productivity (TFP) of formal and informal segments of 10 groups of Indian manufacturing industries is undertaken, which is calculated based on KLEMS data obtained from National Accounts Statistics (NAS), published annually by the Central Statistics Office (CSO) of India. The period covered for the analysis of TFP growth is 1980–1981 to 2019–2020, which is broken into four sub-periods. Year wise total factor productivity growth (TFPG) of different industries for the sample period shows a fluctuating growth rate, which includes both positive and negative trends. Decade wise growth and overall TFPG of the different industries also indicate an oscillating pattern, that is, a mix of positive and negative TFPG. The minimum overall TFPG is observed in the coke, refined petroleum products and nuclear fuel industries, and the maximum in electrical and optical equipment for the period 1981–2020.