Disequilibrium in the Indian Registered Manufacturing Sector-A Simulated Maximum Likelihood Analysis

How a macroeconomic policy package is designed depends critically on whether the economy in question is supply constrained or demand constrained. In simple terms, this may often be seen in terms of whether the policies should try to augment demand or to raise productive capacity. The question is relevant to objectives of growth as well as stability. In the present study, we examine this problem with regard to the registered manufacturing sector in India, within a framework of market disequilibrium for the period 1980 through 2007. The maximum simulated likelihood approach used by us indicates that the registered manufacturing sector in India has largely been demand-constrained over the entire period of analysis.