Appropriate measure of real value added and total factor productivity growth in Indian Manufacturing

Abstract

It is a widely held hypothesis that the Indian industry experienced a significant turnaround in its Total Factor Productivity Growth (TEPG) during the decade of the eighties as compared to the seventies. Recently it is argued that if the real value added is estimated by using the double deflation method, this hypothesis does not hold. It is also suggested that the double deflation method provides a more appropriate measure of the real value added. In the present paper, it is shown that the hypothesis of a significant increase in TFPG during the eighties in the Indian industries is clearly corroborated if sufficient care is taken about applying the double deflation method. Moreover, it is also argued that the double deflation method per se is not necessarily superior to the single deflation method for measuring the real value added.