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Title: An Analysis of Factors Influencing Industrial Productivity and Its Impact On Economic Development of the State of Punjab
Authors: Kaur, Puneet Prakash
Supervisor: Kiran, Ravi
Keywords: Total Factor Productivity;Punjab Manufacturing;Market Structure;India;Gross Value Added
Issue Date: 5-Mar-2024
Abstract: The current investigation aims at analysing the factors influencing industrial productivity in the state of Punjab. An effort is made to identify factors affecting productivity of the state at not only the aggregate level but also at disaggregate level. The study also compares a set of factors affecting productivity for the state of Punjab with these factors at national level. This helps us to identify unique factors affecting productivity for the state. Finally the study analyzes how productivity impacts the economic development of the state and suggests measures to improve the productivity of Punjab based on the results of the study. The secondary tools are employed to know the determinants of productivity at aggregate and disaggregate level for India and the state of Punjab. The Central Statistical Organization's ASI, or Annual Survey of Industries, is the primary data source used in the study to calculate productivity. The Annual Survey of Industries, or ASI, is associated with the manufacturing sector that is registered. Data pertaining to Punjab has been taken from Punjab Statistical Abstract which contains information relevant to Punjab. It is the only document that summarizes a comparable series of statistical data and shows how different socioeconomic aspects of the State have changed over time. However, the sales of the top four companies in the industry must be measured in order to calculate the industry-wise concentration ratio. To that end, data is gathered from the Prowess database of the Centre for Monitoring Indian Economy (CMIE). All companies traded on the National Stock Exchange and the Bombay Stock Exchange are included in the Prowess database, along with hundreds of private limited companies and thousands of unlisted public limited companies. Out of all factors analysed, total emoluments, Total Persons Engaged, Credit and Capital Intensity emerge significant for the Aggregate Industry analysis in Punjab for the present analysis. The current study further compares certain common factors affecting productivity at the state and aggregate level and evaluates factors that emerge significant at the state level in comparison to national level. Based on prior literature we identify the common variables to make a comparison on factors which may emerge significant at Punjab and national level. Results of Indian and Punjab industries highlight that the variable growth of value added has emerged as a common significant variable influencing TFP at Indian and Punjab level. This corroborates the Verdoon’s law which indicates that output growth facilitates capacity utilisation which reduces average cost and therefore enhances productivity. However, emoluments and skilled labour ratio emerge significant for Punjab group, while scale variable and capital intensity emerge significant for India group. The results of the scale variable i.e. output per factory did not emerge significant indicating that the predominance of the small sized firms has adversely impacted TFP in the state since the beta value of the same is also negative. The study further investigates factors affecting productivity at the disaggregate level and four factors are for identified our disaggregate analysis i.e. CR4, emoluments, total persons engaged and capital intensity. For the disaggregate analysis only CR4 emerged significant. The findings for CR4 and productivity for disaggregate analysis suggest non- linearity in the relation between concentration and productivity suggesting that as concentration increases, productivity also increases up to a critical point beyond which further increase in concentration leads to a loss in productivity rather than a gain. Therefore, the present investigation adds to the body of knowledge by analyzing factors affecting productivity both at aggregate and disaggregate level for the state of Punjab. The study highlights the role of Verdoon’s law (1949) which indicates that output growth facilitates capacity utilisation which reduces average cost and therefore enhances productivity since this factor emerged significant for aggregate industry group both for Punjab and India. Secondly, it reveals that role of CR4 on productivity is nonlinear and follows an inverted U- pattern. Finally, it is suggested that Punjab firms are more capital intensive compared to other regions at similar stage of development. However, this rise in capital intensity is not backed by technology. This leads to low productivity in the state. The state needs to build suitable capacity to focus on the development of SMEs to make it a highly dynamic and vibrant sector. The results highlight the impact of market structure on productivity is maximum for medium sized firms. However, most of the industrial structure for the state is dominated by small scale industries. Therefore, the industrial sector is not reaping benefits of scale economies, R& D, innovation etc. which are attributable to relatively larger firms. This highlights the need for the government to promote the growth of middle sized firms by providing them with fiscal and non-fiscal benefits.
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