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Author(s): R. Mariappan
Source: Indian Journal of Industrial Relations, Vol. 47, No. 1 (July 2011), pp. 20-35
Published by: Shri Ram Centre for Industrial Relations and Human Resources
Stable URL: http://www.jstor.org/stable/23070551
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Growth & Productivity of the Unorganized
Manufacturing Sector in India
R. Mariappan
The Indian Journal of Industrial Relations, Vol. 47, No. 1, July 2011 20
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Growth & Productivity of the Unorganized Manufacturing Sector in India
The Indian Journal of Industrial Relations, Vol. 47, No. 1, July 2011 21
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R. Mariappan
ployee. This ratio reflects the improve Rs.29498 in 2005/06. The manufacturing
ments in the quality of labour, produc industries with relatively high capital inten
tion technologies, labour management sity will be the companies with more
relations, work attitudes and
management efficiency. Simi Table 1: Trends in Partial Productivities of Labour,
Capital & Capital Intensity
larly, capital productivity is
measured in terms of total out Type of Year Labour Capital Capital
Productivity Productivity Intensity
put produced per unit of capi
OAME 1984-85 2124 0.240 8848
tal and it indicates the degree 1989-90 3429 0.957 3582
of utilization of fixed capital 1994-95 6081 0.821 6223
and their efficiency with which 2000-01 9824 0.661 14862
capital is utilized. And, the 2005-06 11417 0.566 20166
NDME 1984-85 6005 0.532 11261
capital-labour ratio, which is 1989-90 2522 0.224 11282
popularly known as capital in 1994-95 15675 0.736 21295
tensity, is defined as the ratio 2000-01 26339 0.469 56143
mizing output as well as effiSource: Calculated from NSSO (1984/85, 1989/90, 1994/95,
ciency of the factor inputs. 2000/01 and 2005/06) and CSO (1984/85 and 1989/90)
22
The Indian Journal of Industrial Relations, Vol. 47, No. 1, July 2011
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Growth & Productivity of the Unorganized Manufacturing Sector in India
The Indian Journal of Industrial Relations, Vol. 47, No. I, July 2011 23
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R. Mariappan
Table 2: OLS Estimates of C-D Production Function for UOM Sector, 1984-85.
Types Types
MPl
*
I
4 210* 15959* -3666* 1351 2316* -70184* -2021
The log transformation of the speci using wholesale price index. Similarly the
fication is: value of fixed capital is also converted
to constant prices. The state and indus
In Q, = lnA0+ a InL, + InK, + u (2) try levels data for the years 1989/90,
1994/95,2000/01 and 2005/06 have been
Where, subscript i refers to the ith pooled and the panel data has been used
industry. The dependent variable is gross to estimate production functions (Tables
value added in rupees. Number of per 7-9).
sons employed (L) and value of fixed
capital in rupees (K) are taken as inde The Cobb-Douglas production func
pendent variables, a and are the elas tion used with time-dummy variables is
ticities of output with respect to inputs specified as:
of labour and capital respectively, u is the at \r 51D 52D2i 3D?i u /"i\
disturbance term. The estimate of regres i-AL; K, e e e e (3)
sion coefficients of Cobb-Douglas pro
duction function at the aggregate and the Where, in equations (4), (5)
sub-sector levels for two digit industries dummy variables, D1 takes th
of unorganised sector are given in Tables if the year is 1989/90 and 0
2- 6, The output measured by gross value D2 takes value of 1 if the yea
added is converted to constant prices and 0 other wise, and D3 take
24
The Indian Journal of Industrial Relations, Vol. 47, No. 1, July 2011
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Growth & Productivity of the Unorganized Manufacturing Sector in India
Table 3: OLS Estimates of C-D Production Function for UOM Sector, 1989-90
Adjusted R Square 0.986 0.983 0.632 .856 0.971 0.958 0.012 .927
N 32 32 32 32 22 22 22 22
Table 4: OLS Estimates of C-D Production Function for UOM Sector, 1994-95
Types Types
N 32 32 32 32 22 22 22 22
The Indian Journal of Industrial Relations, Vol. 47, No. 1. July 2011 25
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R. Mariappan
Table 5: OLS Estimates of C-D Production Function for UOM Sector, 2000-01
Types Types
Adjusted R Square 0.990 0.987 0.985 0.934 0.996 0.994 0.991 0.991
N 35 35 35 35 24 24 24 24
Table 6: OLS Estimates of C-D Production Function for UOM Sector, 2005-06
Types Types
Adjusted R Square 0.948 0.962 0.958 0.961 0.977 0.963 0.891 0.930
N 35 35 35 35 24 24 24 24
26 The Indian Journal of Industrial Relations, Vol. 47, No. 1, July 2011
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Growth & Productivity of the Unorganized Manufacturing Sector in India
Note: Dummy variable 2005/06 is reference category, 't'- statistics are in parentheses
Note: Dummy variable 2005/06 is reference category, 't'- statistics are in parentheses
The Indian Journal of Industrial Relations, Vol. 47, No. 1, July 2011 27
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R. Mariappan
Types Types
Note: Dummy variable 2005/06 is the reference category. Figures in parentheses are t value
if the year is 2000/01 and 0 otherwise and cal change as direct interaction between
u is the disturbance term. Taking natural inputs and time. The Translog production
logarithms the equation to be estimated is function (Christensen et al. 1973) can be
written as:
28 The Indian Journal of Industrial Relations, Vol. 47, No. 1, July 2011
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Growth & Productivity of the Unorganized Manufacturing Sector in India
The Indian Journal of Industrial Relations, Vol. 47, No. I, July 2011 29
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R. Mariappan
Returns to Scale
30 The Indian Journal oj Industrial Relations, Vol. 47, No. 1, July 2011
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Growth & Productivity of the Unorganized Manufacturing Sector in India
The Indian Journal of Industrial Relations, Vol. 47, No. 1, July 2011 31
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R. Mariappan
as explanatory variables in all the speci Table 9. The results are similar but not
fications to control for the effect of time identical to those obtained using the
(year). In all regressions, 2005/06 is the Translog production function. This table
reference category. This result suggests shows a comparative picture of the elas
that the unorganised manufacturing en ticities of substitution between labour
terprises have produced significantly less and capital to test the validity of the
gross value added during the pre-reform hypothesis of unitary elasticity of sub
period (1989/90) compared with the post stitution (a) for state and industry level
reform period (2005/06). analysis. The estimated coefficients of
output (gross value added) with respect
to labour and capital are positive and sta
This result suggests that the
tistically significant at 5 per cent level
unorganised manufacturing enter
both state and industry levels respec
prises have produced significantly
less gross value added during the tively. But the coefficients of "a3" are
not significantly different from zero for
pre-reform period (1989/90) com
aggregate and sub-sector levels except
pared with the post reform period
in the case of NDMEs implying a Cobb
(2005/06).
Douglas production function. The esti
mated coefficient of dummy for the year
The estimated results of Translog pro 1989/90 is found to be negative and sta
duction function are reported in Table 8. tistically significant at 1 per cent level
The coefficient of capital is positive and at the aggregate and sub-sector levels.
statistically significant at 5 per cent level. The results of CES also suggest that the
This coefficient is also higher than that of unorganised manufacturing enterprises
labour at the aggregate level. The coeffi have produced less gross value added
cients of year dummy variables indicate during the pr-reform period in compari
that the gross valued added in unorganised son with the post-reform period. The
manufacturing sector is found to be lower value of elasticity of substitution (c)
in 1989/90 than that of gross valued added between labour and capital is found to
in 2005/06 as observed in Cobb-Douglas be greater than one at the aggregate
production function estimates. We ob level, as well as sub-sector levels par
serve that the regression coefficient of ticularly in the case of OAMEs at state
interaction term between inputs of labour level and DMEs at industry level.
and capital is positive and statistically sig
nificant at the 1 per cent level. At sub The coefficient of determination (ad
sector level, the coefficient of the same is justed R-square) provides the goodness
not statistically significant particularly in of fit for the regression line. As high as
the case of NDMEs at state level and 99 per cent of the variation in gross value
DMEs at industry level. added is explained by the independent
variables in all types both at the state lev
The estimated parameters of CES
els and industry levels in 1994/95,2000/
production function are presented01
inand 2005/06. This value is very high
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Growth & Productivity of the Unorganized Manufacturing Sector in India
during 1994/95, 2000/01 and 2005/06 OAMEs and NDMEs at state level in
compared with 1984/85. 1994/95, OAMEs and DMEs at indus
try level in 2000/01. This indicates that
Conclusions these manufacturing enterprises oper
ated under the increasing returns to
scale.sec
The unorganised manufacturing At an aggregate level, the mar
tor plays an important role in economic
ginal productivity of labour has increased
development contributing to GDP,(at state level and industry level) from
export
earnings and creation of employment op
pre-reform period to post-reform period.
The estimated marginal productivity of
portunities in the Indian labour market.
This study has first examined thecapital
trendshas decreased at the aggregate
level and the sub-sector level from pre
and growth in manufacturing enterprises,
employment, fixed capital, gross value
reform period when compared with the
added, productivities of labour,post-reform
capital period.
and capital intensity. Secondly, we esti
mated the economic returns to scale,
The manufacturing industries in
marginal productivities of labour and capi
the unorganised sector have uti
tal have been estimated using produc
lized the resources efficiently.
tion functions at two digit industry groups
in the unorganised manufacturing sector
in India using NSSO and CSO dataBased
for on the CES production func
the period 1984/85 to 2005/06. tion, the elasticity of substitution (a) be
tween labour and capital is found to be
greater than one in all types at industry,
This indicates that these manufac
as well as sub-sector levels particularly
turing enterprises operated under
in the case of OAMEs at state level and
the increasing returns to scale.
DMEs at industry level. This indicates
that the manufacturing industries in the
The labour productivity and the unorganised
capi sector have utilized the re
tal intensity have shown increasing sources efficiently. However, the growth
trends during the post-reform period in rate of employment generation and val
comparison with pre-reform period in all ued added in unorganised manufactur
the selected Indian states. The produc ing sector could respond to certain in
tivity of capital has also increased dur dustrial, trade and credit polices after
ing the post-reform period. At an aggre 1995 (Unni and Rani 2003). The Cobb
gate level, the results of CDPF show Douglas production function results con
that the rate of return to scale is greater sistently show that the existence of in
than unity in all types at industry level. creasing returns to scale particularly in
At the sub-sector level, the rate of re the case of NDME at state level and
turn to scale is greater than one in DMEs OAME at industry level. Interestingly
at state level in 1984/85, NDMEs and we find that the Indian unorganise
DMEs at industry level in 1989/90, manufacturing sector at aggregate level
33
The Indian Journal of Industrial Relations, Vol. 47, No. 1, July 2011
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R. Mariappan
34 The Indian Journal of Industrial Relations, Vol. 47, No. 1. July 2011
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Growth & Productivity of the Unorganized Manufacturing Sector in India
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