UNIVERSITY OF MUMBAI DEPARTMENT OF ECONOMICS

INDUSTRIAL GROWTH AND STRUCTURE: AN ANALYSIS OF THE MANUFACTURING SECTOR IN MAHARASHTRA

BY L. G. BURANGE

WORKING PAPER 98 /1 FEBRUARY 1998

DEPARTMENT OF ECONOMICS UNIVERSITY OF

MUMBAI

Documentation Sheet
Title: Industrial Growth and Structure - An Analysis of the Manufacturing Sector in Maharashtra Author(s): Dr. L. Q. Burange Unit : General Economics Unit

WP.

No.:

98/1

Date of Issue: February 1998 Contents: 45P,15T,10R

No. of Copies: 100 Sponsor's Project No.: -

External Participation: Sponsor:

Approval: Editorial Committee, Working Paper Series.

JELCode(s): L60
Keywords: Fixed Capital, Value-added, Employment Elasticity, Factor Intensity Structural Ratios, Competitiveness. , Abstract: Maharashtra occupies a very significant position as far as the manufacturing sector in India is concerned. Howe ever since the seventies the share of the secondary sector in the state domestic product has been stagnating around 33 to 34 percent Further the state is experiencing significant changes in the industrial composition wherein capital and intermediate goods industries are becoming dominant The manufacturing sector is itself undergoing major structure changes over the period 1979-80 to 1993-94, the state realised high growth rate iv fixed capital as a result employment has been declining in the manufacturing sector the rising capital intensity and thereby substitution of capital for labour,low growth rates of output and value-added, all do not ensure satisfactory performance of the state on the industrial front

INDUSTRIAL GROWTH AND STRUCTURE AN ANALYSIS OF MANUFACTURING SECTOR IN NAHARASHTRA

L.G.Burange * 1. Introduction: The industrial scenario of India has changed since the mid-8Os with the first round of liberalization. The new economic policy introduced in 1991 is expected to provide a boost to the industrial sector. After 1991 many state governments have come out with policies for promoting industries, especially through foreign direct investments. Without discerning the trends over the years at industry level, any growth strategy, propelled by private investment,may be unduly optimistic. Thus industrial growth and structure at the state level has to be analyzed at disaggregate level in order to evaluate industrial policies and potential for growth. Here efforts are made to analyze industrial structure and growth of the manufacturing sector in Maharashtra with as much disaggregation as possible. This study is divided into ten sections. In section two data have been discussed. Section three describes the industrial situation in the state. Section four analyzes industrial composition while section five deals with manufacturing sector. Employment and output elasticities as well as factor intensity are discussed in sections six and seven

The author wishes to thank Professor M.J.M'< Rao for helpful discussions and incisive comments on an earlier draft. He also wishes to thank Dr. Neeraj Hatekar, Dr. Ritu Dewan, Ms. Mala Lalvani and Dr. A. Balachandran for suggestions and advice. However, the author remains solely responsible for any remaining errors

respectively. The changes in structural ratios are analyzed in section eight. Section nine takes the cursory note of the responsible factors. The last section presents the conclusions. 2. Data: The main data source is the Annual Survey of IndustriesSummary Results for Factory Sector (ASI). There are few

limitations of the data which must be noted. Firstly, the period begins with 1979-80, because in that year ASI started publishing state level data for two-digit industries; 1993-94 is the latest year for which industry wise data is available through ASI summary results. Secondly, since the analysis depends on ASI data, the limitations of the data due to collection and compilation procedures of ASI will automatically affect our analysis. To recount a few important limitations: (a) The analysis relies mainly on the data presented through ASI (Census and non-census) returns received in the Directorate of Economics and Statistics, Maharashtra. Data collected by the NSSO usually undergo revision as a result of scrutiny references issued to the field staff by Central Statistical Organization (CSO),

Government of India. To this extent the corrections were not applied on this set of data, (b) As data in respect of less than three units in an industry cannot be shown separately, the details in respect of such units have been combined with other industries. (c) In respect of non-responding factories, no

estimates have been made and incorporated in this report. Further it is not possible to capture the growth of modern hi-tech industries like computer and information 2

technology industry as the ASI data ' clubs these industries together With other industries (category 38). Unless one gets disaggregated data one may not be able to analyze growth of this sector which has shown phenomenal growth from the mid-80s in the state. The performance of 'other industries' in this analysis may be taken as a proxy for the above observation. The other required data are obtained from the various Economic Surveys of Maharashtra, and Monthly Bulletins of Index Number of Wholesale Prices in India. For deflation of current values price index with the base as 1981-82 is used. The values at constant prices are computed using the all-India WPI series, as this is not available for the state. For deflation of fixed capital the composite price index for building material, manufacture of machinery, machine tools and parts, manufacture of electrical machinery and

manufacture of transport equipments and parts are used. To deflate value of output of different industries in manufacturing sector, the industry-wise wholesale price index has been used, while for value-added the wholesale price index (general) is used. Total emoluments to employees are deflated to base year 1981-82, using consumer price index for industrial workers.
3.

Industrial Situation:

Maharashtra is the leading industrialized state in our country. This can be seen from the fact in 1969-70 the state contributed 17.91 per cent of registered factories, 17.43 per cent of productive capital, 19.10 per cent employment, 32.36 per cent value of output and 26.68 per cent of value-added.

However, while over the period of time Maharashtra remains on top of industrial map of India, the worrisome factor is that state's share in Indian industry is declining which indicates that the state is loosing its grip on industrial front. In 1990-91 the state contribution in terms of registered factories declined to 14.15 per cent, in terms of productive capital it was 17.13 per cent, in terms of employment it declined to 15.18 per cent, in terms of value of output it cane down to only 22.70 per cent and in terms of value-added it declined to 23.30 per cent. This indicates that the rest of India is doing better than Maharashtra. After three years of 1990-91fi.e.,in 1993-94, except for net value-added and the number of factories, the situation has further deteriorated (Table 1). This scenario seeks to examine the industrial performance of the state for the recent period. Table 1: Maharashtra's share in Indian Industry. ( Per cent ) Item 1969-70 75-76 17.25 16.64 18.26 24.05 24.60 79-80 IS.57 16.48 17.45 23.70 24.87 85-86 14.82 19.06 16.06 22.54 25.88 90-91 14.15 17.13 15.18 22.70 23.30 92-93 13.86 17.63 14.73 21.18 22.75 93-94 15.39 17.36 15.11 21.66 24.43

l.No.of Registered 17.91 Factories 2.Productive 17.43 Capital 3.No.or Employees 19.10 4.Value of Output I,.Net Value-added 32.36 26.68

The sectoral composition of 'state domestic product 1 also shows some what unsatisfactory performance in the industrial sector. Maharashtra is an agriculturally deficit state, also

beyond a point the state does not have enough scope for the growth in the agricultural sector. However, this is not the case of the secondary sector. The percentage share of this sector in state domestic, product continuously went on increasing up to 1972-73, but since then it has remained more or less stagnant. The percentage share of primary, secondary arid tertiary sectors in 1960-61 were 41.6, 26.7 and 31.7 respectively. In 1970-71 these shares were 28.6, 34.2 and 37.2, showing marginal increase in secondary and tertiary sectors and a large decline in the share of the primary sector.In 1980-81 the share of primary, secondary and tertiary sectors were 28.1, 35.1 and 36.8 per cent respectively. In 1990-91 these shares were 22.9 per cent of primary sector, 33.8 per cent of secondary sector and 43.3 per cent of tertiary sector. This means that only the share of tertiary sector is increasing. In 1993-94 the shares of primary and secondary sectors further declined to 21.9 per cent and 32.7 per cent respectively and that of the tertiary sector increased to 45.4 per cent. If the annual compound growth rates of these shares are computed from 1960-61 to 1993-94, the share of the primary sector goes on declining by 0.72 per cent per annum whereas the share of the secondary sector increases by 0.13 per cent per annum, the tertiary sector also increasing by 0.40 per cent per annum. However, if annual compound growth rates of shares of these sectors are computed for the period of this study i.e.,from 1979-80 to 1993-94, it shows a decline in the share of the primary sector by 0.95 per cent per annum. The share of the

secondary sector also declines by 0.12 per cent per annum. Only the share of the tertiary sector shows increase by 0.67 per cent per annum. This shows the relative performance of the sectors in the state (Table 2). However, a growing tertiary sector and declining real sectors is not good for the state in the context of employment, income equality, and regional balance in development. Table 2: Sectoral Composition of State Domestic Product. (Per cent)
Sector Secondary

Year

Primary

Tertiary

1960-61 1965-66 1970-71 1975-76 1979-80 1980-81 1981-82 1982-83 19H3-84 1984-05 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94
ACGR(%) 960-61to] 993-94 L979-80tol993~94

41.6 32.8 28.6 31.7 28.7 28.1 27.6 27.2 28.1 25.8 23.9 21.4 25.4 24.7 24.2 22,9 20.1 22.0 21.9

26.7 31.5 34.2 32.0 34.5 35.1 33.7 33.4 32.6 33.5 35.3 37.1 33.5 33.5 33.7 33.8 33.5 32.5 32.7

31.7 35.7 37.2 36.3 36.8 36.8 38.7 39.4 39.3 40.7 40.8 41.5 41.1 41.8 42.1 43.3 46.4 45.5

(-) 0.72 ( - ) 0.95

(-)

0.18 0.12

0.40 0.67

Note: ACGR = Annual Compound Growth Rate.

4.

Industrial Composition: In the 1960s industrial activity in Maharashtra was

concentrated in production of consumer goods. According to valueadded, the composition of industries in Maharashtra in 1960 was about 52 per cent consumer goods industry while 48 per cent was accounted for by capital and intermediate goods industries. This structure has changed completely over the period of time. In terms of value-added in 1980-81 the consumer goods industry accounted for 35 per cent whereas capital and intermediate goods industries accounted for 65 per cent. This has further declined to 21 per cent for consumer goods and 79 per cent for capital and intermediate goods in 1989-90. In 1993-94 the consumer goods industry accounted for merely 18 per cent , and capital and intermediate goods industries together 82 per cent (Table 3). This shows that the industries in Maharashtra experienced major compositional changes. Table 3: Composition of Industries According to Value-added. (. Per cent ) Year Goods 1960 1980-81 1989-90 1991-92 1992-93 1993-94 Consumer Goods Capital and Intermediate

52 35 21 20 16 18

48 65 79 80 84 82

Source: Economic Survey of Maharashtra , Govt. of Maharashtra (Various Issues).

To strengthen the above argument, industries in the manufacturing 3ector are grouped into agriculture-related industries and non-agriculture-related industries ; their relative shares are then computed for 1979-80 and 1993-94. The share of agriculture-related industries in fixed capital, employment, value-added and value of output declined substantially in 1993-94. Correspondingly the share of nonagriculture related industries went up in 1993-94 (Table 4). This means that the major changes in the production structure of the manufacturing sector took place during the period from 1979-80 to 1993-94 in the state.

Table 4: Relative Shares of Agriculture-related Industries and Non-agriculture related Industries in Fixed Capital, Employment, Value-added and Value of Output. ( Per cent) Industry Fixed Capital
Type

Employment

Value-added

Value of Output

1979-8G 1993-94 1979-80 1993-94 1979-80 1993-94 1979-80 1993-94 Agr.rel. 31.12 23.67 50.37 41.88 30.51 21.91 33.40 24.42 -Ind. Non-Agr. 68.88 76.33 49.63 58.12 69.49 78.09 66.60 75.58 -Ind. Mfg(2-3)100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 To study the concentration of industries in the state, the Hirschman Herfindahl index (HHI) is used for the manufacturing sector for the period 1979-80 to 1993-94. The HH index has been constructed for fixed capital,for number of employees, for value of output and for value-added.

where

Pi =

Percentage sector.

share

of

ith

industry

in

the

manufacturing

Using this index one can study with this data set the industrial concentration in manufacturing sector. HH1 can be used for two-digit industrial disaggregation in the manufacturing sector. The HHI constructed for fixed capital at constant prices shows decline which implies that the concentration is decreasing in Maharashtra. That is fixed capital is Ies3 concentrated in few industries in the state. However, after 198990, it went on increasing, implying that fixed capital is getting concentrated in a few industries in the state (Table 5). As long as in this case HHI > 5.26 it means fixed capital in concentrated in some industries. That is minimum (5.26) value of HHI will be obtained when the fixed capital is equally distributed in all two-digit industries. The maximum value of HH index is 100 when the entire fixed capital is concentrated in on< industry only in the manufacturing sector. According to the number of employees the degree of concentration is less in the state. Employment is less concentrated in the industries than is fixed capital. The trend remains more or less the same from 1982-83 onwards. In terms of value-added the degree of concentration is higher than that of employment and it is increasing over the 15-year period. Similarly in terms pf value of output (real output) the degree of concentration in the manufacturing sector in the state is higher than that of employment, increasing especially after the 1990s.

Table 5: HH Index with respect to Fixed Capital, No. of Employees Value-added and Value of Output Year Fixed Capital 13.06 11.69 11.85 9.79 10.22 10.45 9.90 10.09 10.08 10.08 13.67 13.79 14.28 12.31 12.62 No.ofEmployees 10.77 9.63 9.28 8.93 8.75 8.69 8.68 9.05 8.38 8.46 8.17 8.03 8.01 7.93 8.81 Value-Added 12.39 11.79 10.79 10.03 11.45 9.74 10.37 9.98 10.49 10.08 11.14 10.16 9.81 11.88 14.11 Value of Output 1 11.59 1C.58 10.65 10.34 10.76 10.61 10.73 10.72 10.44 10.64 10.86 12.19 11.08 11.52 12.49

1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94

In case of fixed capital manufacture of food products, rubber plastic, petroleum and coal products, manufacture of chemical and chemical products, basic metal and alloys industries and the manufacture of electrical and non-electrical machinery account , for 68.07 per cent of fixed capital of manufacturing sector in Maharashtra. For Value of output manufacture of food products, manufacture of rubber, plastic, petroleum and coal products, manufacture of chemical and chemical products, manufacture of electrical and non-electrical machinery and manufacture of transport equipments account for 69.34 per cent of the total output of manufacturing sector in the state in 1993-94. In case of net value-added in 1993-94 only four industries account for 62.40 per cent of net value-added in the manufacturing sector in

10

the states. These industries are manufacture of rubber, petroleum and coal products, manufacture of

plastic, and

chemical

chemical products, manufacture of electrical and non-electrical machinery.In case of employment 50.46 per cent employees of manufacturing sector in the state are in manufacture of food products, cotton textiles, coal products rubber, plastic, petroleum and

and electrical and non-electrical machinery.

However, in 1979-80 the manufacture of food products, cotton textiles, chemical and chemical products, and manufacture of transport equipments together accounted for 59.24 per cent of fixed capital, 52.67 per cent of employment, 53.26 per cent of value-added and 53.79 per cent of value of output of

manufacturing sector in the state. The share of the same four industries in 1993-94 decreased to 28.47 per cent in value-added and 33.39 per cent in value of output. These are the major structural changes that have occurred in the manufacturing sector in Maharashtra. 5. Manufacturing Sector: To understand the pattern of growth in the manufacturing sector of Maharashtra, annual compound growth rates have been estimated for the period 1979-80 to 1993-94, Fixed capital of the manufacturing sector has grown by 3.88 per cent per annum over the period, non-agriculture related industries increasing by 4.32 per cent per annum, and agriculture-related industries

increasing by only 2.67 per cent (Table 6).

11

Table 6: Annual Compound Growth Rate For 1979-00 to 1993-94. ( ia Constant Prices , 1981-82^100 ) (Per cent) Industry Fixed Code Capital 20-21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 2.87 4.53 1.38 2.77 __ 4.32 1 05 3.63 6.46 9.90 0.22 7.31 5.12 4.22 3.29 4.68 2.45 2.82 2.68 3.88 2.67 4.32 No.of Employees Total Emoluments Value of Output 2.64 1.59 0.39 2.17 4.66 (-) 1.00 1.52 4.09 5.83 1.24 3.73 2.64 1.28 2.39 4.39 2.87 6.46 5.09 2.93 2.00 3.27 ValueAdded 3.89 2.23 (-)3.64 1.82 -5.58 (-)0.27 1.76 6.39 8.83 (-)l.06 2.75 (-)0.58 1.21 2.37 4.00 2.05 3.46 4.87 2.54 1.70 2.82

(-) 0.18 1.01 (-) 1.56 (-) 0.83 -0.27 (-) 1.86 (-) 0.82 1.85 4.61 (-) 3.81 0.30 (-) 0.60 (-) 0.17 (-) 0.32 1.13 (-) 0.95 0.98 3.08 (-) 0.21 (-) 0.70 0.20

2.71 1.35 (-) 0.62 0.21 -- . 1.53 (-) 0.72 0.57 4.36 7.57 (-) 4.44 1.67 0.31 0.68 1.63 2.76 1.06 1.66 2.93 1.24 0.59 1.54

Mfg.(2-3) Agri.rel. Ind. Non-agri. rel.-Ind.

Annual compound growth rates for two-digit industries in manufacturing sector are also estimated. Manufacture of rubber, plastic, petroleum and local products (30) shows the highest growth of 9.90 per cent per annum in the fixed capital in the manufacturing sector. Manufacture of non-metallic mineral products(32) realized 7.31 per cent per annum growth in the fixed

]2

capital. Manufacture of leather and leather products(29) shown growth rate of 6,46 per cent, basic metal and alloys industries(33) 5.12 per cent; manufacture of beverages,tobacco and tobacco products(22) 4.53 per cent and manufacture of textile products(26> 4.32 per cent per annum. The manufacture of chemical and chemical products(31) shows the lowest growth rate in fixed capital of 0.22 per cent per annum. Manufacture of cotton textile(23) and manufacture of wood and wood products(27) also show some what lower growth rates of 1.38 and 1.05 per cent per annum respectively. The output of the manufacturing sector increased by 2.93 per cent per annum. The non-agriculture related industries show higher growth rate in output at 3.27 per cent compared to the agriculture related industries which recorded 2.08 per cent growth rate per annum. Among the two-digit industries, other manufacturing industries.(38) show the highest growth rate in output 6.46 per cent per annum. This may be because this sector includes fast growing modern hi-technology industries like computer and information technology. The output of manufacture of rubber, plastic, petroleum and coal products (30) increased by 5.83 per cent per annum. The manufacture of textile products(26) shows the growth rate in output of 4.66 per cent per annum. The manufacture of leather and leather products(29) shows the growth rate in output of 4.09 per cent per annum. The manufacture of wood and wood products(27) is the only industry which experienced decrease in output at the rate of 1.00 per cent per annum. The manufacture of beverages, tobacco and tobacco products(22), paper

13

and paper products(28), chemical and chemical products(31) and manufacture of metal products and parts (34) are" the industries in which growth rate was less than 2 per cent per annum. The manufacturing sector experienced growth rate 6f 2.54 per cent per annum in the net value-added during the period in the state. Non-agriculture related industries show higher growth rate of 2.82 per cent in net value-added compared to that of 1.70 per cent of agriculture related industries. In case of net valueadded within two-digit industries, the manufacture of cotton textiles(23) , wood and wood products(27), chemical and

chemical products(31) and of basic metal and alloys industries recorded negative growth rates for the period under study. .The manufacture of cotton textiles(23) recorded the highest decrease of 3.64 per cent in value-added in the state. However, the manufacture of rubber, plastic, petroleum and coal products(30) recorded the highest growth rate of 8.83 per cent per annum. The

manufacture of leather and leather products(29) and textile products(26) recorded 6.39 and 5.58 per cent growth rates in value-added respectively. The manufacture of food products (2021), electrical machinery(36) and other manufacturing industries(38) recorded growth rates higher than 3.00 per cent in net value-added. The manufacture of wool, silk and synthetic fibre(24), paper and paper products(28), and metal products and parts(34) recorded the growth rate in net value-added less than 2.00 per cent per annum in the state during the period of 15 years.

14

The performance of the state in terms of employment in the manufacturing sector is very unsatisfactorty the employment in the manufacturing sector over the period declined by 0.21 per cent per annum this is mainly because employment in

agriclture related industries Declined by 0.70percent per annum how in non agriculture related industries employment increased by 0.20 percent per anum among the two digit industries manufacture of rubber ,plastic ,petroland coal products(30) Employment also realized 3 . 0 0 in repair of capital goods(39) However the industry is

percent per annum growth. for last five

new and its data is only

year(1989-90 to1993-94) The manufacture by 1.85

of leather and leather products(29) shows increase in employment per cent tobacco *(32), per annum and over the period.

The manufacture of beverages, non metallic mineral product

tobacco product a (22), electrical

machinery(36) other

manufacturing

industries(38) However, silk

recorded marginal industries and

growth in employment

during the period., textiles(23), products (27),

such as food products(20-21),cotton and wood

wool,

synthetic f i b r e ( 2 4 ) , wood

paper and

paper products(28),chemical and

chemical

products (31),basic metal and

alloys industries( 33) ,metal product and and transport

parts(34),machine tool and parts(35)

equipments(37)recorded decrease unemployment during

the period. The

manufacture of chemical and chemical products(31) realised the

highest fall in employment of 3.81 per anum over all the state realized fall in employment in manufacturing sector during

15

1979-80 to 1993-94. Although emoluments employment in the state is falling, the sector total has

at constant prices for the manufacturing

increased by 1.24 per cent per annum. The increase in emoluments is higher i.e., 1.54 per cent per annum in non-agriculture related industries, while in agriculture related industries the increase is merely 0.59 per cent. The manufacture of rubber, plastic, petroleum and coal products(30) realized the highest rise in

emoluments of 7.57 per cent per annum during the period.

Leather

and leather products(29> also realized rise in emoluments at the rate of 4.36 per cent per annum. The manufacture of food products*20-21), electrical machinery(36) and repair of

capital goods(39) recorded the rise in emoluments more than two per cent per annum. wood and However, wood industries such and as cotton and

textiles(23),

products(27)

chemical

chemical products(31) realized fall in emoluments. Chemical and chemical products(31) recorded the highest decline of 4.44 per cent per annum. Overall, he state realized increase in fixed capital and fall in employment; at the same time recording a rise in output and value-added over the period of 1979-80 to 1993-94. 6. Elasticity: The employment and output elasticities are estimated for the manufacturing sector. They are as follow. 6.1 Employment: Elasticity: As seen in the laist section, the fixed capital is increasing while employment is declining in the state during this period. To

1 . 6

study

these opposite trends, employment elasticities for industries in manufacturing sector.

have Using

been the

estimated equation(1)

In L = a0 + al In Y - a2 In K

..... (1)

the employment elasticity With respect to output and fixed capital has been estimated. The employment elasticity with respect to output for the entire manufacturing sector is 0.01 (Table 7). The elasticity for agriculture related industries is negative (- 0.25). This implies that an increase in output decreases employment. The non-agriculture related industries show the employment elasticity of 0.09. The manufacture of textiles(23), textile products(26), wood and wood products(27), leather and leather products(29), non-metallic mineral products(32), etc., show positive employment elasticity with respect to output. However, negative employment elasticity with respect to output is revealed for the manufacture of food products(20-21), beverages, tobacco and tobacco products(22 ), wool, silk and synthetic fibre(24), paper and paper products(28 ), rubber, plastic, petroleum and coal products(30), chemical and chemical products(31), basic metal and alloys industries and manufacture of transport equipments(37). Employment elasticity with respect to fixed capital for the manufacturing sector in the state is negative at 0.0^. This implies that fixed capital is substituted for labour, thus explaining the phenomenon of rising capital and falling employment in the state. Fixed capital is used more as a

17

Table 7: Employment and Output Elasticities. Employment Elasticity With Output Elasticity With Industry Respect to Respect to Code Output Fixed Capital Fixed Capital Labour 20-21 (-) 0.06 22 (-) 0.01 23 0.20 24 (-) 0.35 25 26 0.21 27 0.38 28 (-) 0.10 29 1.28 30 (-) 0.27 31 (-) 1.74 32 0.12 33 (-) 0.22 34 0.18 35 0.02 36 0.11 37 (-) C.56 38 0.11 39 0.75 Mfg.(2-3) 0.01 (-) 0.03 0.18 (-) 0.46 0.18 (-> 0.12 0.01 (-) 0.06 <-). 0.45 0.66 1.60 <-) 0.02 0.02 0.002 (-) 0.08 0.26 0.35 0.14 (-) 0.28 (-) 0.04 (-) 0.05 (-) 0.01 0.91 0.17 0.58 0.7a 0.85 0.15 0.49 0.46 0.27 1.25 0.28 0.53 0.29 0.58 0.83 1.01 1.66 0.48 0.76 0.79 0.74 0.09 0.83 0.42 0.30 0.14 0.05 0.51 0.54 0.73 (-) 0.25 0.72 0.47 0.71 0.42 0.17 (-) 0.01 (-) 0.66 0.52 0.24 0.21 0.26

Agri. (-) 0.25 rel.-Ind. Non-agri. 0.09 rel.-Ind.

In L = aO + al In Y - a2 In K a 2 > 0 = K i s complementary. a2 < 0 = K is substitute. In (Y/L) = aO - al In (K/L)

...... (1)

. ..... (2)

18

substitute for labour employment in agriculture related industries which explains the greater fall in employment in this indubtrial group. Non-agriculture related industries also use fixed capita] as a substitute for labour. The manufacture of food products(20-21), cotton textiles(23), textile products(26) , paper and paper products(28), leather and leather products(29), non-metallic mineral products(32), machine tools and parts(35) and repair of capital goods(39) all show negative employment elasticities with respect to fixed capital. This means that in all these industries fixed capital is used as substitute for labour. However, industries like manufacture of beverages, tobacco and tobacco products(22), wool, silk and synthetic fibre(24), rubber, plastic, petroleum and coal products (30), chemical and chemica 1 products(31), etc., show positive employment elasticity with respect to fixed capital. Thus, in these industries the use of fixed capital is complementary to employment of labour in the state. Overall at the state level, in the manufacturing sector as a whole, fixed capital is used as a substitute for labour employment. This might have resulted in the displacement of labour in the state leading to fall in employment during the period, 6.2 Output Elasticity: Efforts are also made to measure the output elasticity

with respect to fixed capital and labour using equation (2V. In (Y/L) - aO'+ al In (K/L) Output elasticity with respect to fixed capital ...... (2) for the

19

manufacturing sector as a whole is 0.76 (Table 6), 0.79 for agriculture-related industries and 0.74 non-agriculture related industries- In case of two-digit industries the manufacture of food products<20-21), cotton textiles(23), wool, silk and synthetic fibre<24), textile products(26), chemical and chemical products(31), machine tools and parts(35), electrical machinery(36), transport equipments(37), and other manufacturing industries(?8), the output elasticity with respect to fixed capital is more than 0.50. For the remaining industries it is in between 0.17 to 0.50. Output elasticity with respect to labour for the manufacturing sector is 0.24, which is lower than that of fixed capital. This implies that output responds more to fixed capital than to labour. Agriculture-related industries show output elasticity with respect to labour of 0.21 which is lower than that of 0.26 for non-agriculture related industries. Output elasticity with respect to labour is negative for manufacture of chemical and chemical products(31), transport equipments(37) and other manufacturing industriesi38). It means that the output responds to labour inversely in these industries.For the rest of industries in the manufacturing sector the output elasticity with respect to labour varies between 0.09 and 0.85. 7. Factor Intensity: Factor intensity may be studied using fixed capital per

employee and value-added per employee. 7.1 Fixed Capital Per Employee: To gain the insights into the trends in the factor

proportions in the manufacturing sector, industries can be separated into capital-intensive and labour-intensive industries according to whether capital per employee (K/L) is above or below the average for all the industries. However, it must be pointed cut that the concepts of capital-intensive and labour-intensive industries are used only in a restive sense and not in absolute terms. Further, using the average capital labour ratio as the cut-off point for classifying industries into capital-intensive and labour-intensive ones may, however, be arbitrary. Moreover in the absence of a specific capital-labour ratio for all the industries, average capital-labour is used as the criterion for this purpose. The average capital per employee for all the manufacturing

sector was Rs.22.81 thousands in 1979-80, and Rs.88.60 thousands in 1993-94, both at 1981-82 prices. The industries with capital employee above these respective averages may be regarded per as them these under.

capital-intensive and those with capital per employee below as labour-intensive. The industries coming under each in 1979-80 and 1993-94 are listed of here

categories

i) Capital-intensive Industries: 1979-80: Industries (Nos.) 1993-94; Industries (Nos.) 20-21, 30, 31, 33, 36, 37. 24, 28, 30, 31, 33, 34.

ii) Labour-intensive Industries: 1979-60: Industries (Nos.) 22, 23, 24, 25, 26, 27, 28, 29, 32, 34, 35, 38. 1993-94: Industries (Nos.) 20-21, 22, 23, 25, 26, 27, 29, 32, 35, 36, 37, 38, 39.

21

It may be observed from the list that the structure of industries by factor intensity in 1993-94 remained largely the same as in 1979-80. There were, however, a few significant exceptions. The manufacture of food products(20-21), electrical machinery(36) and transport equipments(37) which were in the capital-intensive category in 1979-80 shifted to the labourintensive category in 1993-94. In contrast, three industries, viz., manufacture of wool, silk and synthetic fibre(24), paper and paper products(28) and metal products and parts(34), which were in the labour-intensive category in 1979-80 shifted to the capital-intensive category in 1993-94, Another important observation is' that there was only one industry from agriculture related industries in capital-intensive category in 1979-80, in 1993-94 there were two agriculture-related industries in this category. The dwindling share of capital-intensive industries in the manufacturing sector is clearly indicated in Table 8. Capital I intensive-industries accounted <> as much as 68 per cent of the total fixed capital in 1979-80 and contributed 56 percent to value-added and 66 per cent to output by employing 43 per cent of total number of employees in the manufacturing sector. By 1993-94 their 3hare in employment decreased to 35 per cent, share in fixed capital decreased to 63 per cent while their share in value of output declined to 55 per cent. But their share in value-added increased to 61 per cent. The share of the labour-intensive industries changed correspondingly. Thus, labour-intensive industries provided employment to as much as 65 per cent of the

22

total manufacturing sector's employment by employing only 37 per cent of its capital assets in 1993-94. 3y the same token, it may be observed that, the capital-intensive industries usurped a large chunk of fixed capital, i.e.,63 per cent, out absorbed just 35 per cent of the total employees of the manufacturing sector in the 3tate in 1993-94. Table 8: Relative Shares of Capital-intensive and Labour-intensive Industries in Fixed Capital, Employment, Value-added and Value of Output. ( Per cent)

Industry Fixed Capital Employment Value-added Value of Output type 1979-80 1993-94 1979-80 1993-94 1979-80 1993-94 1979-80 1993-94 Kintlnd Lintlnd 67.98 32.02 63.08 36.92 100.00 42.90 57.10 100.00 35.18 64.82 100.00 56.04 43.96 100.00 60.63 39.37 100.00 65.91 34,09 100.00 54.55 45.45 100.00

Mfg(2-3)100.00

7.2 Value-added Per Employee: The factor intensity in the manufacturing sector can be estimated by using Lary's index. This method involves using the value-added per employee comprising wage and non-wage components as a composite index for the amount of human and physical capital embodied in the production of a good. The wage and non-wage components of the value-added per employee may be taken to reflect the flows of the services of labour (human capital) and capital (physical capital) into the manufacturing process. Thus, the wage component of the value-added per employe'.1 can be used as a proxy for human capital and the non-wage component, a proxy for Physical capital. 23

Lary'a method is based on two assumptions. First, the interindustry differences in wages are assumed to reflect- differences t h e i r requirements of s k i l l e d labour. Since wage rates are positively related to the skill levels, this assumption is not restrictive. As La ry has demonstrated, U.S . data reveal a positive and significant correlation between the wage valueadded per employee and the ratio of skilled labour to the total employment. This phenomenon was examined by Mitra (1974) in the light of the Indian data for the period 1960-65 and his results supported it. Second, inter-industry differences in the non-wage value-added per employee are assumed to reflect differences in respect of physical capital invested* Accordingly, the non-wage value-added per employee can be used as the indicator of the physical capital as against the stock figures. Though affected by various market imperfections, according co Lary, there are two advantages of non-wage value-added per employee as a criterion of capital intensity. One is that, being a flow rather than a stock figure, it fits better with the notion of factor inputs into production and therefore it is more relevant to the theory of production functions. Secondly, itbypasses the difficulty of measuring the stock of physical capital . Thus, value-added per employee can be used as a reasonably good guide to the factor intensity of different industries. Industries can be classified into labour-intensive or capitalintensive ones according to whether the value-added per employee in lower than or higher than the average value-added for all 24 the

industries therefore it can be postulated that the higher the value added per employee the more capital intensive the industry lower the

value-added per employee, the more labour intensive the industry. The average value-added per employee for all the industries was Rs.25.60 thousands in 1979-89 and Rs.63.16 thousands in 1993-94 both at 1981-82 prices. The industries with value-added per employee below these respective averages are regarded as labour-intensive and those with value-added per employee above them as capital-intensive. The industries corning under each of these categories in 1979-80 and 1993-94 are listed here under, i) Capital-intensive Industries: 1979-80: Industries (Nos.): 30, 31, 33, 34, 35, 36, 37. 1993-94: Industries (Nos.): 24, 26, 30, 31, 33, 36, 37.

ii) Labour-intensive Industries: 1979-80: Industries (Nos.): 20-21, 22, 23, 24, 25, 26, 27, 28, 29, 32, 38. 1993-94: Industries (Nos.): 20-21, 22, 23, 25, 27, 28, 29, 32, 34, 38, 39. It may be observed that the structure of industries by factor intensity in 1993-94 remained largely the same as in 1979-80. There were, however, a few significant exceptions. The dwindling share of labour-intensive industries in the manufacturing sector is clearly indicated in Table 9. Capital intensive industries accounted for as much as 67.48 per cent of the total fixed capital in 1979-80 and contributed 66.31 per cent of value-added and 64.06 per cent of output by 25 employing 44.98

per cent of the total number of employees in the manufacturing sector in the state. By 1993-94 their share in employment increased to 49.94 per cent and in fixed capital increased to 71.24 per cent, while their share in value of out put increased to 74.50 per cent. The share of these industries in value-added jumped to 80.46 per cent in 1993-94. The share of labourintensive industries declined correspondingly.In short,the capital -intensive industries are becoming more dominant Table 9: in the state.

Relative Shares of Capital-intensive and Labour-intensive Industries in Fixed Capital, Employment, Value-added and Value of Output. ( Per cent)

Industry Fixed Capital Employment Value-added Value of Output Type -------------------------------------------------------------------------------------------------------------------------------------1979-80 1993-94 1979-80 1993-94 1979-80 1993-94 1979-80 1993-94

Kintlnd Lintlnd

67.48 32.52

73.24 26.76 100.00

44.98 55.02 100.00

49.94 50.06 100.00

66.31 33.69 100.00

80.46 19.56 100.00

64.00 35.94

74.50 25.50

,1fg(2-3)lOO.OO

100.00 100.00

8. Structural Ratios: In order to analyze industrial production in Maharashtra, it is worthwhile to examine some key ratios. Instead of just analyzing the ratios we thought it is more appropriate to analyze the changes in these ratios which will reflect the structural changes in the industry in the state. This has been done by formulating some specific questions to which these ratios would provide the answers. They are as follow. (i) What is the

26

increase in the coat of creating one job ? i.e., growth of (FC/NE). (ii) What is the level of growth in the productivity of an employee and in per unit of fixed capital ? i.e., growth of (VA/NE) and (VA/FC), (iii) What is the increase in the average wage of an employee ? i.e., growth of (EMO/NE). (iv) What is the change in the share of wages in value-added ? i.e., growth of (EMO/VA). (v) What is the increase in fixed capital per unit of output ? i.e., growth of (FC/VO). (vi) What is the increase in average output of an employee ? i.e.,growth of (VO/NE). (vii) What is the increase in labour cost per unit of output ? i.e.,growth of (EMO/VO), and (viii) What is the change in valueadded generated by one unit of output ? i.e.,growth of (VA/VO). Tne answers to all these questions vary according to the industry in the manufacturing sector of the state. The annual compound growth rate has been computed for these ratios for the period from 1979-80 to 1993-94. The cost of creating one job means the fixed capital per employee. This is the indicator of capital intensity of the industry. The cost of creating one job increased by 4.09 per cent per annum in the manufacturing sector. The non-agriculture related industries show higher increase than the agriculturerelated industries. However, manufacture of non-metallic mineral products(32) shows the highest increase of 7.01 per cent per annum for the period. The repair of capital goods(39) shows the most decrease Increase manufacturing in this cost (Table 10). in productivity of an employee is The non-agriculture ?.75 for the

sector.

related

industries

27

demonstrate higher ricuiture-related

labour

productivity

than

that

of

the

industries. The rise in labour

productivity However, fall in

highest in the manufacture of textilo products(26). i manufacture of cotton textiles(23) demonstrates

labour productivity in the state during the period. Table 10: Annual Compound Rate of Growth For 1979-80 to 1993-94. Constant Prices, 1981-82 = 100) (Per cent) flustry FC/NE VA/NE VA/FC EMO/NE EMO/VA FC/VO VO/NE EMO/VO Structura] VA/VO Ratio

1.(2-3) 4 . 0 9 krel. id. on-agr. el.Ind. 3.38 4.11

2 . 7 5 (-U.34 2.10 2.62

1.45

(-)1.30 1.29 1.34

0.94 (-)l.ll

3.14 0.60 1.05

(-)1.70 2.78 3.06

(-)0.40 (-)1.49 (- ) 0 .31 ( -) 0.45

(-)0.97 (-)1.50

<~)1.28

< -) 1 . 72

Note: Fc Fixed Capital ; NE = Number EMO = Total Emoluments to VA - Value-added ; VO = Value of Output. 28

of

Employees Employees

; ;

In case of capital productivity (VA/FC), the state experienced a fall of 1.34 per cent per annum during the period. The fall in capital productivity is more pronounced in non-agriculture related industries. The industries in the manufacturing sector except manufacture of food products(20-21), textile products(26) and repair of capital goods(39>, demonstrate fall in capital productivity. This fall is more pronounced in the case of manufacture of cotton textiles(23) and basic metal and alloys industries(33). The fall in capital productivity may be because of rising capital intensity in the manufacturing sector of the state. The average wage of an employee (EMO/NE) in the manufacturing sector increased by 1-45 per cent per annum during the period. However, the increase in labour productivity is much more than the rise in average wage of the employee. The non-agriculturerelated industries experienced higher rise in average wage than the agriculture-related industries in the state. The industries in the manufacturing sector, except manufacture of chemical and chemical products(31) and repair of capital goods(39), all experienced some growth in the average wage of the employees. The manufacture of chemical and chemical products(31) and repair of capital goods(39) experienced decline in the average wage. Though the average wage of an employee in the manufacturing sector showed increase but the share of emoluments to employees in value-added (EMO/VA* is declined for the manufacturing sector during the period in the state. That is, the wage share in valueadded declined by 1.30 per cent per annum. This implies that the

29

non-wage share has increased in the manufacturing sector. The share of emoluments in value-added declined faster in nonagriculture related industries than in the agriculture-related industries. This share declined in ail the industries except manufacture of cotters textiles (23), and basic metal and alloys industries ( 33). The decline is more pronounced in manufacture of textile products(26) and chemical and chemical products(31), at 4.05 and 3.38 per cent per annum respectively. The manufacture of cotton textilesi23) experienced rise in the share of emoluments in value-added by 3.02 per cent per annum during the period. The increase in capital-output ratio (FC/VO) is 0.94 per rent per annum. This means that every unit of output is produced with more and more fixed capital. This rise is much faster for * non-agriculture related industries than the agriculture related industries. The rise in fixed capital-output ratio is highest at 4.08 per cent per annum for manufacture of rubber, plastic, petroleum and coal products(30>, The increase in capital-output ratio is substantial in the manufacture of non-metallic mineral products(32), metal products and parts(34) and beverages, tobacco and tobacco products(22). However, some of the industries experienced fall in capital output ratio during the period.
t

This

fall is substantial in other manufacturing industries(38). The increase in average output of an employee (VO/NE) is

3.14 per cent per annum in the manufacturing sector in the state.
This

increase

is higher in non-agriculture

related

industries in output

than

in agriculture related industries. The increase

per employee is more than 5.00 per cent in manufacture of rubber,

30

plastic, petroleum and coal products(30) and in other manufacturing industries(38). The manufacture of textile products(26), transport equipments(37) non-metallic mineral products ( 32 ), and electrical machinery (36) also experienced substantial increase in output per employee during the period in the state. This general rise may be because of falling employment and rising labour productivity in the manufacturing sector in the state. The rising output per employee resulted in the fall in labour cost per unit of output (EMO/VO). The emoluments per unit of output is falling by 1.70 per cent per annum during the period. Labour cost per unit of output declined in the state by 1.70 per cent per annum, falling faster in nonagriculture related industries than in the agriculture-related industries. Emoluments per unit of output is declining in a l l industries except; manufacture of food products (20-21), wood and wood product s ( 27 ), leather and leather products ( 29 ) and rubber, plastic, petroleum and coal products (30). This f a l l is more pronounced in manufacture of chemical and chemical products(31) and other manufacturing industries(38). The value-added generated by every unit of output (VA/VO) in manufacturing sector in the state is declining. The Volume-added 1 - o r unit of output is falling faster in non-agriculture related industries than this agriculture-related industries. The valueadded per u n i t of output is increasing in agriculture related industries except manufacture of cotton tcxtiles(23) arid manufacture of wool, s i l k and synthetic fibre(?4), whereas except manufacture of rubber, plastic, petroleum and coal products(30)

31

it is decling in all the industries of non-agriculture

related may

industries group. The f a l l in value-added per unit of output he associated with the fall, in emoluments per unit of

output.

Mo r e o v e r t h e w a ge s ha r e i n va l u e- a d de d is d ec l i ni n g w i t h f a ll i n g employment and only wage share is increasing with increasing capital intensity. All these structural ratios explain the increasing intensit y, productivity fal ling e mploymen t, the refore capital labou r

rising ,

and falling labour cost in the manufacturing sector

in Maharashtra. Rising wages with falling employment explains the increasing skill composition of the employees which results in i ncrease in labour productivity. The increasing capital intensity and higher skills explain the rising output per employee in the state. 9, Responsible Factor: Maharashtra was at one time the dominant state in respect of industrial development. The above analysis clearly shows that the state is experiencing a slow-down in industrial growth and that the structural changes are in favor of increasing capital intensity in production. Though the main purpose of this study is not of discerning the reasons for this state of affairs, to make the stud y comple te one, it is ne cessary to menti on a few major factor 9.1 The Industrial Disputes : sta te exper ienced m ajor set back fr om the strike in Mumbai. This strike adversely textile mill both

workers

affected

32

industrial workers and industries. Increasing trade in the state made industries has been reflected

unionization

substitute c a p i t a l for labour. This intensity in union 'he

from the rising capital

manufacturing also

sector in the state. The militancy in trade the industrial peace in explains the major

disturbed of

industrial

centres

the state. Table 11

the number of workers lockouts.

involved and number of mandays lost due to strikes and In terms of

^ages and productivity

Maharashtra's labour

costlier than the labour in other states. Table 11: Industrial Disputes in the state. Year Number of strikes and lockouts 274 781 690 337 636 300 193 217 194 156 Number of workers involved 83400 514400 450700 151900 200700 83100 60100 59400 83600 89200 Number of mandays lost 5750000 3541900 2052500 421000 9505000 5297800 4008900 4649300 3956300 3686400

1961 19G6 1971 1976 1981 1986 1990 1991 1993 1994

Source

: Economic Survey of Maharashtra 1994-95, Maharashtra. Infrastructure:

Government

of

3.2

In the sixties and seventies Maharashtra had a better position in relation to infrastructure. However, in eighties 1,1.o state lost its position. Infrastructure-wise other states are doing much better than Maharashtra. Infrastructural development did not occur sufficiently in the places other than Mumbai,

33

Thane,pune.nasik belt The growth of infrastructure in the state is 0 , 8 2 per cent per annum during 1980-81 to 1993-94. In t h i s respect Gujarat and Tamil Nadu did much better than Maharashtra (Table 1 2 ) . Table 12: Index of Growth in Infrastructure - 1980-81 to 1993-94. (1980-81 = 100)

Year

Maharashtra 100.6 105.6 106.2 106.8 109.0 109,9 111.2 113.9 117.2 119.7 126.0 124.0 127.8 129.0 0.82

Gujarat 102.9 106.9 108.7 110.5 116.0 115.9 116.9 120.0 122.3 126.2 137.9 140.1 144.4 145.6 1.17

Tamil Nadu 100.2 103.9 105.0 106,0 110.4 112.4 115.9 118.1 126.2 129.8 129.5 132.5 134.3 136.9 1.10

West Bengal 101.9 104.1 105.3 106.4 110.1 106.6 115.2 116.8 120.5 123.2 120.3 119.9 128.5 129.5 0.80

All India 103.1 104.8 105.9 107.0 112.0 113.7 120.4 124.4 128.9 133.1 134.1 136.6 139.9 142.0 1.19

1980-81 1981-82 1982-83* 1983-84 1884-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 ACGR(%)

* estimated Source : CMIE, Overview of states, March 1997. 9.3 State's Industrial Location Policy: In Maharashtra the industrial concentration was and is in the Mumbai Thane Pune belt. In order to have a balanced industrial development, and for dispersal of industries to backward regions the state stopped giving licenses to new industrial units in this region. Similarly, capacity expansion was al3o curbed. For industrial dispersal the state provided some

34

incentives for Betting up industries in backward regions. However* considering the availability of infrastructure in the backward regions of the state, industries preferred to go to the neighboring states which were providing some more incentives and better infrastructural facilities, The state lost many industries due to this reason, A large number of small scale units shifted to Gujarat, Karnataka and Tamil Nadu also. 9.4 Competition Among States: During the 1980s many states realized their industrial backwardness and others understood their mistakes in earlier state industrial policies. These states started giving more and more fiscal incentives, better infrastructural facilities, less bureaucratic administration etc., while Maharashtra went on following exactly the opposite policy. On this front Maharashtra is the main loser in case of manufacture of chemical and chemical products. States like Gujarat, Tamil Nadu, West Bengal, Karnataka, Andhra Pradesh etc., are competing with Maharashtra. These states are giving more and more fiscal incentives, have less bureaucratic administration, better infrastructure facilities and are also trying to provide more and more i ndust rial peace.

9.5

State Competitveneas: Competitiveness of a state can be broadly considered as the

overall health of the economy in terms of various observable economic and social indicators which adequately demonstrate 35 the

level of development attained by the states. In a market economy, the relative competitiveness of the states becomes the guiding [actor for the private corporate sector while evolving their future investment strategies. Therefore, it is necessary to analyze the relative competitiveness of Maharashtra on various performance indicators. National Productivity Index Council for (1994) major constructed states of State India. includes Rail

Competitiveness Competitiveness

(SCI)

of the state is composite index

which

eleven variables, viz., (1) Transport infrastructure (Road, Hid Water Electricity banks, below (5) ways), (2) Telephone availabilty, (3)

Installed commercial Population +

generation capacity, (4) Distribution of Life expectancy, (6) Literacy rate, line, (8) Size of the market (7)

poverty (9)

(Consmption (10)

Savings),

Labour climate ( Mandays lost ),

Political

stability, and (11) Taxes levied by state government. Among these eleven variables seventh, ninth, tenth and eleventh of are the

negatively state,

contributing remaining

to the overall competitiveness other seven variables a-e

while

positively of the

contributing. The competitiveness ranking of select 15 states India arrival at by National Productivity Council leads that Maharashtra lagged behind of many (Table 13). That is Punjab, to

conclusion during

other states Haryana,

1991-92

Kerala,

Gujarat, Karnataka and Tamil Nadu are competitively better states than Maharashtra. attracting maharashtra's These states are in better than position in

private

corporate is 36

sector

Maharashtra. case of (1)

performance

relatively poor in

Transport infrastructure ( Road, Rail, and Wat^r ways ), (2) Telephone availability, (4) Distribution of commercial banks, (7) Population below poverty line, (9) Labour climate (Mandays lest) and (11) Taxes levied by state government. Table 13:Corapetitiveness Ranking of Indian States. Sr. No. Index 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Indian States Punjab Kerala Haryana Gujarat Karnataka Tamil Nadu Maharashtra Andhra Pradesh Orissa Assam Rajasthan Madhya Pradesh West Bengal Uttar Pradesh Bihar State Competitiveness 82.80 67.71 63.25 60.63 56.19 49.10 48.77 46.69 46.61 46.41 39.80 36.8 0 34.18 25.27 22.36

Source: National Productivity Council Research Divison (1994).

9.6

State Administration: State administration in earlier was one of of the major factors A in

Maharashtra

development

industries. attitude

well

Developed administrative industry,without

system and friendly

towards to the the

bureaucratization, contributed a lot

industrial development in the state. Over a period of time, very same administration became more and more

bureaucratic, loss of

creating delays in state clearance at various stages,

37

friendly attitude towards industry, increased difficulties for industry compared to other states. This triads many industries go away from Maharashtra.

The deteriorating law and order situation and rising extraordionary activities to Mumbai, political indecisiveness, backwardness of rural Maharashtra, and rising systemic inefficiencies are some more causes directly or indirectly affecting industrial development. Foregoing analysis is only an initial attempt: in identifying factors affecting industrial growth in the state. A more systematic and detailed analysis would be required to examine the effects of these factors. 10. Conclusions: Maharashtra is the major contributor to the industrial sector in India. Over 1969-70 to 1993-94, however, the share of the state in the country's industrial sector has declined. The share of secondary sector in state domestic product is stagnating at around 33 to 34 per cent, while the share of tertiary sector increasing. The composition of industries in the state is undergoing major changes. The share of consumer goods in valueadded declined to less than 20 per cent while share of capital and intermediate goods industries increased to more than 80 per cent over the period of 34 years. During the nineties the concentration of fixed capital, value-added and value of output increased in the manufacturing sector. The state realized higher growth in fixed capital at the cost of employment. Non-

agriculture related industries experienced better growth than the agriclture-related industries. The complementary role of capital declined in many industries and more industries have begun substituting capital for labour. As a result capital intensity in the manufacturing sector is increasing at. a faster, rate. The capital-intensive industries are employing less labour and more capital, thereby generating more value-added. In Maharashtra the cost of creating job in manufacturing sector has increased, and this increase is more pronounced in non-agriculture related industries. The rising capital and f a l l i n g employment leads to increase in labour productivity and C a l l in capital productivity. Employment is falling but average real wages are inc reasing indicating the rise in skill composition of labour. The increase in real wages is, of course, lower than the productivity of labour. As a result the labour cost per unit of output is falling in the state. The manufacture of jute, hemp and mesta(25), cotton textiles(2J) and chemical and chemical products(31) are declining industries, while rubber, plastic, petroleum and coal products(30) , products<26} leather and

and

leather machinery

products(29), are the

textile expanding

electrical

industries in the manufacturing sector of the state. Rising capitaJ intensity and falling employment, and of

Substitution

of capital for labour, low growth rate of value

output and value-added all reflect the unsatisfactory performance of the state in the industrial activity. This state may of affairs disputes,

be due to insufficient infrastructure, industrial

39

State

policies

aggressive

competition

from

other

states.

And

increasing situation political

bureaucratization of state adminstration the declining law and order and rising extortionary activition in Mumbai,

Indecisiveness are also some of the factors responsible for this state of affaire. However,Maharashtra has comparative advantage only in industrial in activity.In the state it order has can to to accelerate be industrial by

development competitive

supplemented

advantage

which

be engendered, nurtured and

shaped by appropriate policy initiatives by the government.

40

References

Centre for Monitoring Indian Economy, (CMIE), (1997), of States, March,

Profiles

Desai, B. M.,V. K. Gupta and N. V. Namboodiri, (1991), 'FoodProcessing Industries-Development and Financial Performance', Oxford and IBH Publishing Co. Pvt. Ltd., New Delhi. Dholakia, Ravindra H., (1994),'Spatial Dimension of Acceleration of Economic Growth in India', Economic and Political Weekly, Vol. 29 (35), August 27, PP.2303-2309. Goldar B. and Vijay Seth, (1989),'Spatial Variation in the rate of Industrial Growth in India', Economic and Political Weekly, Vcl.24 (22), PP.1237-40.

Government of India, (1996), Annual Survey of Industries 1993-94, Summary Results for Factory Sector, Central Statistical Organization, Department of Statistics, Ministry of Planning and Programme Implementation, New Delhi. (Issues from 1979-00 to 1993-94). Government of India, (1997), Economic Survey 1996-97, Economic Division, Ministry of Finance,New Delhi . (Various Issue;.;). Government Of India, (1995), Index Numbers of Wholesale Prices in India: Base 1981-82, Monthly Bulletin, Ministry Of Industry, Udyog Bhavan, New Delhi. (Various Issues). Government of Maharashtra, (1996) Economic Survey of Maharashtra 1995-96, Directorate of Economics and Statistics, Planning Department, Mumbai. (Various Issues). Gowda, M. V.Srinivasa, (1991),'Technological Change and Employment in India', Indus Publishing Company, New Delhi. Gupta Deepak, (1985),'Inter-state Industrial Disparities in India -The Changing Scene', Reserve Bank of India Occasional Papers, Vol. 6 (1), PP. 54-60. Hirschrcan, A. O., (1964), 'The Paternity of an Index', Economic Review, Vol. 54, PP.761-762. American

Lary, H. B., (1968), 'Imports of Manufactures from Less Developed Countries',National Bureau of Economic Research,New York Mitra,' A'.K., (1974) , ' Employment in the Manufacturing Industry: An Analysis of Growth Rate and Trend: 1960-/0 ', Artha Vijnana, Vol. 16 (I), March, PP.1-49.
41

National productivity Councial, Research Diviaon (1994) , Competitiveness Ranking of Indian States," Productivity, vol. 3r> (2), PP, 366-368. PenJranadh, C, M. Viiayabaskar and Vinod Vyasulu (1994),'Industrial Growth aM'A Sl.rti'i'ture; Analysis of Manufacturing Sector in Karnataka ', Economic and Political Weekly, Vol. 29 (48), PP. M 157-164.

ANNEXURE The output, fixed capital or employment index is a arithmetic mean estimated by the formula I =( I RiWi ) /

I weighted

X Wi )

where I is index, Ri is the relative of value of the variable of industry i in the manufacturing sector and Wi is the value-added weight of industry i. The year 1980-81 is the base year. Using this formula indices for output, fixed capital and employment are constructed. The output and fixed capital are in constant prices (1981-82 = 100). The output index of the manufacturing sector of the state shows continuous increase up to year 1990-91 and in 19?l-92 it suddenly declines to 167.20 and then again it increases (Table Al). The index of fixed capital also shows more or less a similar trend. It also shows a decline in the year 1991-92 and then increases at high rate. The index of employment (number of employees) shows a continuous declining trend. In the year 1991-91, it declined to 82.39 and then showed marginal improvement. However, employment index clearly shows that employment for the manufacturing sector as a whole in the state compared to year 1980-81 is declining.

43

'Table

At : Maharashtra -Indices of Output, Fixed Employment for Manufacturing Sector.

Capital

and

Index Year 1979-80 1980-81 1981-82 1982-83 1983-04 1984-85 1985-06 1986--87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 Output 99.06 100.00 104.16 1.07.35 114.82 124.46 128,76 136.45 140.54 153;74 169.45 203 48 167.20 198.23 227.23 Fixed Capital 92.82 100.00 98.45 105.31 131.86 139.42 139.42 150.30 161.29 184.14 214.16 234.80 203.49 278.73 343.94

Of Employment 100.7 7 100.00 98.16 97.16 96.11 95.44 90.56 90.30 91.27 91.99 86.05 86.00 82.39 89.14 94.17

Note : Weights are per centage shares of gross value-added of two-digit industries in manufacturing sector of the state in 1980-81.

44

Two Digit Industrial Classification

Industry Code 20-21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 2-3

Description of Industry Manufacture of Food Products. Manufacture of Beverages, Tobacco and Tobacco products. Manufacture of Cotton textiles. Manufacture of Wool, Silk and Synthetic Fibre Textiles. Manufacture of Jute, Hemp and Mesta Textiles (Except Cotton). Manufacture of Textile Products (Including Wearing Apparel). Manufacture of Wood and Wood Products; Furniture and Fixtures. Manufacture of Paper and Paper Products and Printing, Publishing and Allied Industries. Manufacture of Leather and Leather Products, Fur and substitutes of Leather. Manufacture of Rubber, Plastic, Petroleum and Coal Products. Manufacture of Chemical and Chemical Products (Except products of Petroleum and Coal). Manufacture of Non-metallic Mineral Products. Basic Metal and Alloys Industries. Manufacture of Metal Products and parts except machinery and transport equipment Manufacture of Machinery, Machine Tools and parts except electrical machinery. Manufacture of Electrical Machinery, Apparatus, Appliances and supplies and parts. Manufacture of Transport Equipment and Parts. Other Manufacturing Industries. Repair of Capital Goods. Manufacturing.

45