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Technical Change in India’s Rural Organised Manufacturing Industries

Given the robust performance of India’s rural organised manufacturing industries in recent times, this study attempts to understand the nature of the technical change underlying it. Felipe and Kumar’s (2010) analytical framework is used to assess the direction of technical change in India’s rural industries in the period 1998–99 to 2016–17. The findings indicate that the direction of technical change was Hicks-neutral from 1998–99 to 2007–08 and Marx-biased from 2008–09 to 2016–17. At the disaggregated level, various industries exhibited diverse directions of technical change. The high growth seen in the economy in the first decade of this century was accompanied by a sustained rise in capital productivity. This ended subsequently, which contributed to a slowing down of the growth rate.

The contribution of the rural manufacturing segment to India’s economy is growing. In 2011–12, it generated 51.3% of the economy’s manufacturing national domestic product (NDP), its output exceeding that of urban manufacturing (Chand et al 2017). The authors’ study (Mitra and Das 2019) on India’s rural organised manufacturing industries revealed that from 1998–99 to 2007–08, the real output of these industries registered a healthy growth rate. Although labour force growth trailed output growth, the fact that labour employment went up at a reasonable rate is encouraging. The productivity of rural industrial labour has risen along with a rise in capital productivity and capital per unit of labour. The rising capital per unit of labour indicates that, over the years, techniques of production have changed in India’s rural organised manufacturing industries. History shows that steady improvements in production technology with an increase in capital accumulation has resulted in higher productivity and economic growth (Foley and Michl 1999; Hayami and Godo 2005). This growth has sustained advancements in production technology through reinvestment of a part of the profit. The industrialisation that emerged in Britain in the late 18th century demonstrated the transformative power of technical change and has become a hallmark of capitalist economic growth (Foley and Michl 1999).

According to Marxist theory, profitability dictates the type of bias in technical changes in capitalist economies. Over the course of intense competition between capitals, as well as between labour and capital, the capitalist often gets biased towards labour-saving and capital-using technical change. While the output–labour ratio rises (hereafter referred to as “labour productivity”), the output–capital ratio falls (hereafter referred as “capital productivity”) as the capitalist reduces the cost of production at the prevailing level of real wages. Since the capitalist continues to sell their produce at prices decided by the higher costs of less technically advanced producers, their profits burgeon. The growth in net value added and profits go hand in hand with technical change and productivity improvements. This explains the capitalists’ bias (Foley and Michl 1999; Marquetti 2003). On the other hand, neoclassical economics sees the pattern of technical change as movements in the path of a “historically stable production function” (Marquetti 2003: 191). Critics disagree with Solow’s assumption that an aggregate production function captures the various possibilities of substituting capital for labour in a real economy. They argue that capital denotes the market value of various capital goods, whose prices could exhibit various patterns of change with a change in wages (Foley and Michl 1999).

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Updated On : 20th Oct, 2020

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