Liberalisation and Sources of Industrial Growth in India: an Analysis Based on Input-Output Approach

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Abstract
India has experienced transformation from the regime of regulated economic development to competitive regime since the liberalisations of 1991. The main thrust of these liberalisations has been on industrial delicensing and openness, that is, import liberalisation and removing barriers to exports for accelerating growth. In this paper, an attempt has been made to analyze the effect of economic liberalisations on pattern of sources of growth of output of Indian manufacturing industry from a demand side perspective. The analysis has been based on Chenery’s factor decomposition approach based on input-output framework. It decomposes output growth into its four sources: domestic demand expansion, export expansion, import substitution and intermediate demand expansion due to change in input-output coefficient. The basic data used for this study has been the input-output tables for 1983-84, 1989-90 and 1997-98. The analysis has been done separately for the pre-liberalisation period, 1983-84 to 1989-90, and the post-liberalisation period, 1989-90 to 1997-98, to examine the changing pattern in the sources of growth of output as a result of policy liberalisation and structural reforms during the 1990’s. The nominal values of the variables have been deflated. The study found that output growth in manufacturing industry has been mainly driven by domestic demand expansion followed by contribution of export expansion during both pre-liberalisation as well as post-liberalisation period, but after liberalisation the contribution of both domestic demand expansion and export expansion has increased. Further, contribution of both import substitution and intermediate demand expansion to output growth, which has been positive before liberalisation, has become negative. At disaggregated level of industries, there has been considerable similarity with some exceptions in pattern of sources of growth of output.
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