Trend in Total Factor Productivity Growth in Indian Iron and Steel Industries Under a Liberalized Trade Regime: An Empirical Analysis with Adjustment for Capacity Utilization

This study attempts to measure productivity performance in terms of partial factor productivity and total factor productivity growth and tries to relate and adjust economic capacity utilization with total factor productivity growth for the entire period, 1979-‘80 to 2003-‘04. The results on partial factor productivity of factors show improvement in productivity of material, labour and capital. The result on the overall productivity shows declining total factor productivity growth during post-reform period as compared to pre-reform period. Total output growth in Indian iron and steel industry is found to be mainly inputdriven rather than productivity-driven. With adjustment for variations in capacity utilization, trend in total factor productivity growth remains declining but variations among sub-periods turn-out to be larger and sharper. Furthermore, our result reveals that total factor productivity growth is more sensitive to the extent of capital-deepening of the steel sector showing negative and statistically significant association between total factor productivity growth and capital-output ratio .The liberalization process is found to have its adverse impact on total factor productivity growth.