This paper examines the Total Factor Productivity (TFP) growth in the Indian manufacturing sector. The TFP growth is estimated by applying ratio form of Cobb-Douglas (C-D) production on the panel data of 10 manufacturing industries by classifying them into capital-intensive and labor-intensive industries for the period 1994 to 2004. Our investigation reveals that four out of five industries in capital-intensive segment have shown productivity growth during the sample period, while one has recorded no change. A somewhat contrasting picture is observed for labor-intensive sector, where productivity decline is statistically significant in three industries and negative but not significant in two other. The study also reveals that capital-intensive industries seem to be doing better than their counterparts during the reform period. Therefore, the need to adopt new technology and attract Foreign Direct Investment (FDI) is very essential for productivity improvement in labor-intensive industries in India.

India began intensive liberalization of its economy and its manufacturing sector in particular, over a decade and a half ago. One of the objectives of liberalization was to make Indian industries more efficient, productive and globally competitive. Towards this end, the government of India has been pursuing three sets of reforms: disbanding complex network of industrial controls, industrial licensing, and permits system; liberalizing foreign trade and currency transactions; and instituting several measures to facilitate Foreign Direct Investment (FDI) inflows. The aim of the reforms is free entry and removal of licensing barriers which would expose Indian industries to international competition and thus compel them to improve their efficiency and productivity through the adoption of new technology. Removals of import restrictions and currency transactions have enabled them to import better quality materials, components and technology. The aim of the FDI inflow is to improve productivity spillover effects and increase the productivity in Indian industries.

Economic reforms could boost productivity performance and the extent of its impact may vary across different industries. In fact, different forms of industries could demonstrate different reactions to environmental changes. Hence, the impact of economic liberalization could vary across industries. The issue to be investigated is that, do all industries get equal benefit from the new economic environment? Towards this end, the study made an attempt to measure Total Factor Productivity Growth (TFPG) in selected capital-intensive and labor-intensive industries in the Indian manufacturing sector.

Productivity Performance, Capital-Intensive, Labor-Intensive Industries, Empirical Analysis, Total Factor Productivity, TFP, Cobb-Douglas production, C-D production, Foreign Direct Investment, FDI, Total Factor Productivity Growth, TFPG, Central Statistical Organisation, CSO, Indian Council for Research on International Economic Relations , ICRIER, Economic Reforms.