Input-Led Growth, Weak Productivity: Evidence from Indian Manufacturing Industries

Abstract

This thesis examines the sources of output growth across eight manufacturing industries in India over 2008–2023, using a KLEM (Capital, Labour, Energy, Materials) growth accounting framework with Törnqvist index weights and a bottom-up, output-share-weighted aggregation strategy. The central finding is that output growth in Indian manufacturing is overwhelmingly input-driven across all eight industries: the aggregate factor input contribution accounts for at least 89% of output growth in every case, with TFP contributing negligibly or negatively in six of eight industries. Materials accumulation is the single largest driver of output growth, contributing between 4.2 and 8.9 percentage points per annum. A central methodological finding is the inverse structural relationship between materials intensity and measured TFP: industries with materials shares exceeding 60% of total output mechanically exhibit near-zero residual TFP, and a twofactor (KL) model on a value-added basis produces TFP estimates that differ from KLEM by −0.12 to +3.69 percentage points per annum across industries. Motor Vehicles (NIC-29) is the sole industry recording meaningfully positive TFP growth (1.45% per annum), concentrated in the COVID/PLI era (4.31% per annum), driven by a capacity utilisation mechanism. Sub-period analysis reveals a broad-based deterioration in post-GST TFP (2017–2019). A panel regression (NIC-4 panel, 47 clusters) confirms that labour intensity is negatively associated with TFP growth (!! = −0.859, p < 0.01) and capital intensity positively so (!" = 0.386–0.669, p < 0.05) across fixed-effects specificationsmaterials intensity is insignificant, consistent with the cross-sectional materials-TFP relationship being a structural between-industry feature.