Parallel Session IARIW 2014

1. Sources of Growth in the Indian Economy
Amarjit Singh Sethi and Supreet Kaur
Guru Nanak Dev University. India
Presentation for IARIW 33rd General Conference
Rotterdam, The Netherlands, August 24-30, 2014

2. 2014-08-28Statistics Canada • Statistique Canada2
Objectives
 Examine the sources of output growth in India and two
states (Punjab and Haryana) over the 30 year period
1980/1981 to 2009/2010 (1981 to 2010 for short).
 Compare the sources of growth between the two states
and the total Indian economy to assess the differences
across the two states and the total economy.
 Compare output growth, input growth and productivity
growth between the pre-reform (1981-91) and post-
reform periods (1991 to 2010) to assess the impact of
the reform on the growth process.

3. 2014-08-28Statistics Canada • Statistique Canada3
Outline of the presentation
 Methodology
 Data
 Main findings
 Comments on the paper

4. 2014-08-28Statistics Canada • Statistique Canada4
Methodology
 Malmquist productivity (MI) index (Caves and
Christensen and Diewert 1982) was adopted to estimate
productivity growth for 4 major sectors
• 1. Primary;
• 2. Secondary (manufacturing, construction and utilities),
• 3. Tertiary 1 (transportation, communication, trade and, hotels
and restaurants);
• 4. Tertiary 2 (all other services including FIRE and public admin)
 The basic component of MI: technical efficiency or
output distance function, is estimated using DEA for
each sector over the two states and total Indian
economy.

5. 2014-08-28Statistics Canada • Statistique Canada5
Basic Decomposition
 MI productivity growth = efficiency change (pure efficiency
change + scale change) + technical change
 Output growth = MI productivity growth + contribution of
Input growth

6. 2014-08-28Statistics Canada • Statistique Canada6
Data
 Four major sectors for two states and total Indian
economy over 1981 to 2010
 One output: Net Domestic Product
 Three inputs: Capital (measured by net capital stock);
labour input (measured by workforce); and energy input
(measured by electricity consumption)

7. 2014-08-28Statistics Canada • Statistique Canada7
Main Findings
 Focus on the findings for total Indian Economy
 The paper also presents the results for two states (Punjab
and Haryana)

8. 2014-08-28Statistics Canada • Statistique Canada8
Output growth in India economy
3.2
4.8
5.0
7.8
4.7
2.8
6.5
9.1
7.4
6.4
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Primary Secondary Tertiary 1 Tertiary 2 Total economy
Pre-reform Post-reform

9. 2014-08-28Statistics Canada • Statistique Canada9
MI TFP growth in India economy
-1.1
2.8
-0.2
2.3
1
-1.1
-0.1
1.8
2.6
0.4
-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
3
Primary Secondary Tertiary 1 Tertiary 2 Total economy
Series1 Series2

10. 2014-08-28Statistics Canada • Statistique Canada10
Contribution of input growth,
India
4.3
2.0
5.2
5.5
3.7
3.9
6.6
7.3
4.8
6.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Primary Secondary Tertiary 1 Tertiary 2 Total economy
Pre-reform Post-reform

11. 2014-08-28Statistics Canada • Statistique Canada11
Relative importance of input growth
and TFP growth for output growth
 Most of the output growth in India comes from the input
growth (6.0 pps out of 6.4% in the post–reform period).
 Very little of output growth comes from TFP growth (0.4
pps out of 6.4% in the post-reform period).
 The acceleration in output growth during the post-reform
period comes from the acceleration of input growth, not
from changes in TFP growth.

12. 2014-08-28Statistics Canada • Statistique Canada12
Decomposition of MI TFP growth
 Most of the MI TFP growth is due to shift in efficiency
frontier (or technical change), and very little comes from
movement towards the frontier (or efficiency change).

13. 2014-08-28Statistics Canada • Statistique Canada13
Comments
 Data
 Findings

14. 2014-08-28Statistics Canada • Statistique Canada14
Comments on Data
 To be consistent with concept of output in the paper (net
domestic product), the paper should only include capital
and labour inputs in the analysis, not energy input (which is
also included in the paper).
 The paper should improve measures of capital and labour
inputs (consult with Indian KLEMS research).

15. 2014-08-28Statistics Canada • Statistique Canada15
Comments on Findings
 The findings on efficiency change may not be robust.
• There are three DMUs for the DEA analysis. This may
explain that two states are both on the efficiency frontier
or close to frontier and there are no efficiency change
over time.
• But the benefit of the reform may lie in large increase in
efficiency change (work by Haltiwanger, Bartelsman and
OECD).
• Include other Indian states in the analysis?

16. 2014-08-28Statistics Canada • Statistique Canada16
Comments on TFP growth
 The findings on declining TFP growth in the post-reform
period in the secondary sector (manufacturing, construction
and utilities) needs interpretation.
 What are the causes of declining TFP growth?

17. 2014-08-28Statistics Canada • Statistique Canada17
Negative TFP growth
 There were large negative TFP growth in the primary
sector (agriculture sector).
 The findings for many other countries are large TFP growth
in that sector (large technical progress and innovation
(seeds, fertilizers and capital).
 What are the causes of negative TFP for Indian farms?

18. 2014-08-28Statistics Canada • Statistique Canada18
THANKS