Total factor productivity growth in Indian manufacturing

Abstract

IN a recent study. Tota l Factor Productivity Growth in the Manufacturing Industry in India', Balakrishnan and Pushpangadan (1994, henceforth B-P 1994) have attempted a very interesting exercise. They argue that the estimate of Total Factor Productivity Growth (TFPG) is highly sensitive to the way the real value added is measured. With the help of the example of the growth experience of the manufacturing industry in India, B-P (1994) have tried to show that measurement of real value added by the double deflation method, instead of single deflation method which is more widely used by the researchers, not only alters quantitatively the estimate of TFPG, but also affects qualitative conclusions about the behaviour of TFPG over time. Thus they argue that if double deflation method is used, during the decade of the 80s TFPG does not show any acceleration over the previous period. Rather TFPG during the 70s turns out to be higher than during the 80s. In the present note we would like to show that (1) the qualitative conclusion about the behaviour of TFPG in the Indian manufacturin g industr y ove r time , particularly during the 80s as compared to the 70s, does not change if sufficient care is taken about applying the double deflation method; and (2) the double deflation method per se is not necessarily superior to the single deflation method.