This study investigates the structural changes in the manufacturing sector of India brought about by liberalization and globalization of the economy. Structural changes in terms of employment of labor and capital, indicated by replacement of the former by the latter, and changes in returns to scale have been examined by estimating Constant Elasticity of Substitution (CES), Zellner-Revankar, Transcendental, Diewert and Bruno's production functions. State-wise data for 1990-91 and 2003-04 have been analyzed. The findings have indicated that the rise in industrial output during the reference period is accountable to substitution of capital for labor in almost all states. The elasticity of substitution has declined for most of the states. In the pre-globalization period, the industries experienced increasing returns to scale. Globalization has given way to diminishing returns to scale. Along with a rise in industrial output, globalization has led to a decline in regional disparities in terms of population-deflated indices of employment of manpower and capital, and the resultant output.

In 1991, India chose to open her economy to global economic forces and formulated the New Economic Policy (NEP). Under the structural adjustment and reform programs, the NEP aimed at promoting growth by eliminating supply bottlenecks that hinder competitiveness, efficiency and dynamism in the economic system.

As it is well known, the Indian industrial policies in the pre-liberalization era had imposed several restrictions on the manufacturing sector with regard to the scale of operation, procurement and use of raw materials and capital, nature and type of industry that the private sector could enter, markets that they could supply to, etc. The policies had also favored labor-intensive, small-size firms. They also protected inefficiency in production in some sense by restricting competition. All these restrictions did not allow an optimal allocation of resources in response to the ever-changing economic environment in the domestic, as well as foreign domain.

Globalization and Structural Changes in the Indian Industrial Sector: An Analysis of Production Functions, economic, capital, manufacturing, returns, policies, globalization, restrictions, structural, dynamism, Elasticity, estimating, environment, formulated, bottlenecks, industries, investigates, laborintensive, liberalization, manpower, operation, populationdeflated, procurement, Structural, Transcendental