Performance of Indian Manufacturing in the Post Reform Period

31 Pages Posted: 16 May 2010 Last revised: 14 Sep 2010

See all articles by Poonam Gupta

Poonam Gupta

Delhi School of Economics

Utsav Kumar

Asian Development Bank

Date Written: May 16, 2010


Many emerging countries in recent decades have relied on a development strategy that focused primarily on promoting the manufacturing sector and the exports of manufactured goods. However, an acceleration of growth of output and employment in manufacturing has eluded India. This is despite the fact that the central focus of the reforms in the 1980s and 1990s was to unshackle the manufacturing sector. Instead it is the services sector which has grown rapidly, contributing about two-third of GDP growth in recent years. This paper discusses the reasons behind the modest performance of the manufacturing sector in India post reforms. It argues that there are many factors that have inhibited the growth of industrial sector in India. One major factor is the rigid and strict labor laws which have affected the industrial performance in a number of ways, by keeping the size of the establishments small, by not encouraging the production of labor intensive goods, by pushing activities to the unorganized sector, and by keeping the Indian industry uncompetitive. Besides the labor laws other factors that are responsible for the modest performance of the manufacturing sector include difficulty in the acquisition of land for industrial use, inadequate financing and infrastructure, and cumbersome business climate. The paper presents arguments and evidence which shows the importance of these factors.

Keywords: Delicensing, employment, growth, India, infrastructure, labor market regulations, liberalization, manufacturing, reforms, services

Suggested Citation

Gupta, Poonam and Kumar, Utsav, Performance of Indian Manufacturing in the Post Reform Period (May 16, 2010). Available at SSRN: or

Poonam Gupta

Delhi School of Economics ( email )

Department of Economics
Delhi University
Delhi, Delhi 110007

Utsav Kumar (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue
Central and West Asia Department
Mandaluyong City


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