Efficiency, technological progress and regional comparative advantage: a study of the organized manufacturing sector in India

Technological upgrading and increases in capital intensity have been championed in the organized manufacturing sector in India on the grounds that such measures improve productivity, efficiency and competitiveness. In a developing economy, these are costly propositions. Also, the effect of technological changes on productivity and efficiency levels must be estimated before implementing such policies. This paper seeks to estimate trends in factor productivity, technological progress and technological efficiency in the manufacturing sector in India and examines the relative importance of each component. It is observed that technical efficiency was moderate in the period studied, showing declines in the 1990s. Substantial disparity exists among regions and product groups regarding efficiency, technological progress and efficiency changes. It is found that increasing capital intensity was associated with falling productivity, efficiency and technological deceleration in the 1990s. Wider diffusion of technology, rather than greater capital use, is thus recommended for increasing productivity. A regional efficiency matrix is also provided to help states focus on the specific areas in which they have comparative advantages.