Total Factor Productivity Growth in India in the Reform Period: A Disaggregated Sectoral Analysis

Abstract

The present paper is an attempt to understand the sources of Indian growth experience for the period 1980-2004 using a newly developed INDIA KLEMS project database for 31 sectors. In particular, it examines the relative contributions of factor accumulation and productivity growth in the different sectors of the Indian economy. A sector perspective gains significance in the context of major reforms undertaken in several sectors in the past two decades. In addition, there has been significant structural transformation in the economy during the past decade suggesting a high and increasing share of service sector GDP. We use a growth accounting framework to document and analyze the sources of India’s economic growth by industry. Following the KLEMS methodology due to Jorgenson et.al (1987), productivity performance of each of the industrial sectors is assessed for the period 1980-2004 and four sub periods. The TFP growth measure incorporates contributions of labor-quantity and quality and capital-ICT and non ICT assets in its measurements. The paper documents the evidence of service sector led productivity growth in the Indian economy. We also find evidence of factor accumulation in accounting for the sources of growth for the Indian economy and its various sectors as well as industries.