Development planning in India, initiated in the early fifties, aimed at transforming India from an agrarian economy to an industrialized one. The objective was to follow an industry-led development of the country. But in spite of that, the industrial sector has not quite achieved the broad-based presence originally hoped for. The manufacturing sector today accounts for only about 17 per cent of India's national income. The dominant fraction of the labor force still depends on agriculture, and it is the service sector, which accounts for the largest share of national income. The role of the industrial sector, both in terms of its contribution to the national income and the labor force it employs, has been rather inadequate in proportion to the resources channeled for its growth. These are some of the issues that have shaped the ongoing research activities of the present author, namely: growth and productivity in manufacturing sector, export performance of the Indian economy, and the external sector policies with an emphasis on exchange rate and trade policies.

Productivity Trends
A study on Productivity in Major Manufacturing Industries in India: 1973-74 to 1997-98 was recently undertaken as a collaborative research work by the author, Anand Prakash (Reserve Bank of India, Mumbai) and David Sinate (currently at EXIM Bank, Mumbai). The study was sponsored and published by the Development Research Group (DRG), Reserve Bank of India, Mumbai.

Two important contributions of the study are: updating the estimates of productivity of the manufacturing sector, and estimation of the contribution of productivity to growth of manufacturing production. As the study indicates, the rates of growth of productivity have been quite low for the manufacturing sector, averaging to around 1% per annum. Even the contribution of productivity to the growth of production has been just about 13%. These productivity levels are far lower than that of the developed economies (see table).

The Hurdles
The real barrier that had been faced by the Indian industry in the earlier era was the plethora of rules and regulations in the form of industrial licensing and import controls. Such a situation prevented the Indian industry from striving hard for quality improvement and cost effectiveness. A basically imperfect market structure allowed many industries to operate with cost-plus pricing.

More recent data on the productivity trends of the last decade - marked by economic reforms - reveal what appears surprising: that, in most industries, the reforms do not seem to have enhanced productivity (in the nineties) as compared to that in the eighties. The main reason is that by the time we made the decision to adopt the liberalization process, the cost structure of the Indian industry had already escalated and was high vis-à-vis cost and price structures of our competitors.

Some Boosters
The challenge of global competition is inevitable today . And with the World Trade Organization mounting pressure on developing countries to adhere to more stringent labour and environmental standards, the Indian manufacturing industry is almost certainly in for cost escalations. What then needs to be done? Macroeconomic policies will certainly have to play a supportive role through sustainable anti-inflationary stratagems. In addition, the policy-makers will have to aim for lowering and stabilizing input prices. Further, in order to use an input, such as labour, more effectively, a reform toward productivity-linked benefits appears apt. Finally, the most challenging solutions lie in the domain of technological innovations, which can be the prime enhancer of productivity.