Abstract:
This paper examines the performance of Indian manufacturing
sector in terms of economic capacity utilization (CU), over 1974-1998.
An attempt is also made to understand the impact of policy changes,
inter alia, on the observed movements of CU. The economic CU, defined
as the realization of output at which the short run average total cost is
minimized, is estimated using a translog cost function. We observe
cyclical movements in CU over the period. Three distinct phases have
been identified with regard to the movements in CU. While phase one
(1974-1984) is characterized by relatively wide fluctuations, phase two
(1985-1990) witnessed a roughly stable level of utilization. In the third
phase (1991-1998), a variant of the fluctuations witnessed in the first
phase is seen to have resurfaced. Interestingly, there has not been any
significant correspondence between the observed phases of CU with the
corresponding policy environment. While supply and demand side factors
are significant in determining CU in Indian manufacturing, the impact
of economic reforms per se is not remarkable
