ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Growth in India's States in the First Decade of the 21st Century: Four Facts

This paper is the first attempt at examining the growth performance across Indian states during 2001-09, a period also marked by the global financial crisis. We report four key findings. First, consistent with the fact that the decade was the best one for Indian macroeconomic performance, growth increased across almost all major states in 2001-09 compared to 1993-2001. Second, nevertheless, we continue to see the phenomenon of divergence or rising inequality across states: on average the richer states in 2001 grew faster in 2001-09. Third, during the crisis years of 2008 and 2009, states with the highest growth in 2001-07 suffered the largest deceleration. Since high growing states were also the most open, it seems that openness creates dynamism and vulnerability. Finally, although the demographic dividend - a young population boosting economic dynamism - was evident before 2000, there is little evidence that there was any dividend in the 2000s. Demography alone cannot be counted on for future economic growth.

Unit Labour Costs as a Tool for Competitiveness and Policy Analysis: A Reassessment

The analysis in this paper shows that while India's unit labour costs in organised manufacturing displays a clear upward trend since 1980 with a decline since the early 2000s, this is exclusively the result of the increase in the price deflator used to calculate the ulc. The labour share in value added of India's organised manufacturing sector has been on a downward trend, from 0.6 in 1980 to 0.26 in 2007. The study also finds that real wages have increased minimally during the period analysed - well below labour productivity - while the real profit rate and unit capital costs have increased substantially. The analysis questions policy recommendations that advocate wage moderation, which result from simply looking at the evolution of the ulc, and that blame the loss of competitiveness on high or increasing wages.
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