Productivity growth in India since the 1980s: the KLEMS approach

Using the latest (2016) version of the India KLEMS Dataset and following the KLEMS approach this paper analyzes growth, structural change and productivity advance in the Indian economy in the period 1980–2014. The KLEMS approach takes into account the roles played by capital, labour, energy, materials and services inputs in output growth by industries. In our analysis, we divide the span of 35 years into three sub-periods, 1980–1993, 1994–2002 and 2003–2014. The analysis reveals that value added growth at the economy level accelerated significantly during 2003–2014 by about 1.7 percentage points per annum to 7.2%, which was accompanied by accelerated total factor productivity (TFP) growth, acceleration by about 0.9 percentage points to 1.8% per year. The contribution of TFP growth to aggregate value added growth was much higher during 2003–2014 than that during 1980–2002. The share of Market Services sector in aggregate value added was on the rise, with a falling share of Agriculture. When measured by double deflated value added, the share of Manufacturing in aggregate value added also increased, a rise by about 12 percentage points between 1980 and 2014. The 0.9 percentage point hike in the aggregate level TFP growth rate during 2003–2014 was contributed by acceleration in the rate of TFP growth achieved by Manufacturing, Market Services and Agriculture sectors, in that order. Factor reallocations across industries, shift of labour and capital from lower productivity to high productivity industries, made a major contribution to growth in labour productivity, capital productivity and TFP, especially during 2003–2014.