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Trend of Labor Productivity with Gross Value Added in India's Manufacturing Sector

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Kanika S Tomar1, Dr. Mahua Bhattacharjee2, Dr Anjali Tandon3
» doi: 10.48047/ecb/2023.12.12.06


The purpose of this paper is to study the trend of growth rate of manufacturing sector from 1980-81 to 2019-20 to identify the area of intervention to achieve the government target of increasing manufacturing sector share to 20% by 2025. The paper has utilized secondary data to show descriptive analysis using KLEMS database for aggregate economy and Annual Survey of India data for organized sector. It shows the trends of gross value added, labour income share, employment and labour productivity covering past 40 years depicting the several business cycles of recession and 2 years of COVID-19 impact. The major findings show that manufacturing sector is dominated by informal sector with 2/3 share of persons engaged, however, it only contributes only 1/3 to the gross value added. The labour productivity has been positive within few sub sectors with positive structural shift to labour productive sectors. The employment has also increased in the formal manufacturing sector manifolds than the informal sector which argues the need to fully transform the manufacturing sector into a formal sector. Though manufacturing sector has achieved higher growth rate since the Independence, comparatively it has under-performed within the sub sectors. The capital stock has substantially been in a negative direction since the 1980’s to 2020’s and the Total Factor Productivity increase can be seen only in 5 sectors out of the 13 sub industries under Manufacturing sector. So, the paper argues to focus policies towards capital stock and increase in the real wages by controlling inflation on necessities and promotion of MSMEs to promotes jobs to tap into the demographic dividend of India and increase standard of living.

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