India’s Mysterious Manufacturing Miracle∗

Using data on formal manufacturing plants in India, we report a large but imprecise acceleration in productivity growth starting around the mid-1990s (e.g., 1993-2004 compared to 1980-1992). We trace the acceleration to productivity growth within large plants (200 workers or more), as opposed to reallocation across such plants. As many economists believe Indian reforms during this era improved resource allocation, the absence of a growth pickup from reallocation is surprising. Moreover, when we look across industries we fail to robustly relate productivity growth to prominent reforms such as industrial de-licensing, tariff reductions, FDI liberalization, or lifting of small-scale industry reservations. Even under a generous reading of their effects, these reforms (at least as we measure them) seem to account for less than one-quarter of overall productivity growth. ∗We are grateful to the Stanford Institute for Economic Policy Research (SIEPR) and the U.K. International Growth Centre (IGC) for financial support. The Indian Ministry of Statistics and Programme Implementation provided access to the Annual Survey of Industries, Chang-Tai Hsieh and Robin Burgess helpful comments, and Alejandro Molnar able research assistance. Contact info: Bollard ([email protected]) and Klenow ([email protected]) 579 Serra Mall, Stanford CA 94305-6072; Sharma ([email protected]) 118 Professional Building, 909 University Avenue, Columbia MO 65211.