R Nagaraj

Using independent estimates of China's industrial output, this paper compares the performance of the manufacturing sectors in China and India over the past half century at a disaggregated level. It finds that China's industrial growth rate is close to one and half times that of India's over the entire period, with the gap widening gradually. But Indian growth has been more stable. China's superior performance seems understandable in terms of its faster agricultural and exports growth. Does it mean there is little prospect of India catching up with China in the foreseeable future? China seems to suffer from huge excess capacity, misallocation of resources and a gross wastage of capital - as evident from the persistently high capital-output ratio. China's impressive industrial edifice seems to be built on somewhat shaky microeconomic and institutional foundations. In comparison, India's relatively strong foundations and domestic entrepreneurial capital seem to have the potential to improve performance, with a sounder macroeconomic environment: a step up in fixed investment to augment infrastructure supply and agricultural productivity, revival of long-term finance to boost industrialisation, and easier credit delivery to small and medium enterprises.

Since 1980-81, manufacturing sector output has grown at 7 per cent per year, with economic reforms making little difference to the trend in the 1990s. But growth has decelerated over the last seven years, after peaking in 1995-96. Why is this so? The reforms have narrowly focused on policy-induced restrictions on supply, ignoring the demand constraint due to the cut in public infrastructure investment since the late 1980s, and indifferent agricultural performance in the 1990s. These issues have to be squarely addressed to revive industrial growth, and to reap the benefits of the investment boom in organised manufacturing in the last decade.

It is widely accepted that the quality of official industrial statistics has deteriorated. Why did this happen? This study argues that the administrative mechanism for recording the inception and closure of factories and firms and gathering their production and investment information on a regular and reliable basis has gradually decayed over the years - in response to industrial change and a variety of policy initiatives. This problem needs to be squarely addressed to make any tangible difference.

It is widely believed that India's economic growth in the 1990s accelerated - in response to the orthodox economic reforms initiated in 1991 - mainly on account of a faster growth in the tertiary sector. There is also a growing consensus that (i) the improved growth since 1980-81 reduced poverty, and (ii) the reforms in the 1990s increased the growth rate further, without dampening the process of poverty reduction. This study seeks to verify these propositions. Further, it examines some dimensions of income distribution - a neglected issue in the recent times - to assess if the developments during the last two decades led to a diffusion of growth - or a polarisation in the economy.

There is a growing perception of a steady deterioration of the quality of India's industrial statistics. Is this perception justified? To find out, this study examines the quality of the Index of Industrial Production, and some aspects of the Annual Survey of Industries, and the National Accounts Statistics. The study also examines if (a) the popularly used financial indicators really reflect the underlying investment trends, and (b) the expected association between electricity consumption and industrial output holds. Though exploratory, the findings reported seem to support the growing perception.