The Impact of Structural Changes in the Indian Manufacturing Industries: 1980-2013

With regard to the importance of the manufacturing, industrial sector for economic growth and its priority for motivating other sectors to development, the paper is aimed to study the structural changes condition in the Indian manufacturing industries. The changing in value-added of industrial activities due to industrial and economic policies is an important indicator for the recognition of manufacturing industries structure. We have analyzed the industrial structure and competitiveness of each industrial activity by using data value-added of manufacturing industries and common indexes such as the structural changes index in the period of 1980-2013. The results of structural index analysis showed that of textile products; leather; basic chemicals and chemical products in the periods of 1980-98 and also in the periods after 2000industries wearing apparel; dressing and dyeing of fur tanning and dressing of leather ; wood and products of wood; motor vehicles, trailers and semi-trailers; recycling; other transport equipment have been the industrial activities that their structural changes indexes has been positive and they have had the highest competitiveness in comparison to other industrial activities and the greatest opportunities to create value-added.


Introduction
Industrial development holds the key to fast economic development. Realizing the political leadership of the economy chose to pursue the path of planned industrial development. The change in the industrial structure is attributed largely to the government policies which have influenced the pattern of industrialization through controls over the composition of investment, the regulation of foreign trade and direct influence on the pattern of income distribution, policies of import substation and export promotion and the composition of demand (Kuar, 1997). The liberalization of Indian economy started gradually in the 1980's and major economic liberalization (structural adjustment programs) began from 1991. Reforms in industrial and trade policy (according with liberalization) were a central focus of much of India's reform effort in the early stages. The 1980s and 1990s have witnessed extensive changes in the industrial policy of the Indian government and the first step toward liberalization was taken by relaxing licensing and various other controls. Reforms in industrial and trade policy (according with liberalization) were a central focus of much of India's reform effort in the early stages. The 1980s witnessed policy liberalizations of small doses (Panagariya, 2004). These included more liberal permission for capacity expansion, rising of investment limit for exemption from licensing, raising of the asset threshold for the application of the MRTP Act, delicensing of a number of industries, broad banding, liberalization of imports, liberalization of policy towards large houses and companies for encouraging industrialization of backward areas, etc. This trend towards liberalization became more pronounced since around the mid-eighties.
The small dose of liberalization has had significant beneficial effects which became visible by way of acceleration of industrial growth, increase in supply and competition and more attention paid by manufacturers for quality, cost and after sales-service etc. Also The Government of India had announced important changes in the industrial and trade policies in its Industrial Policy Statement of July 22, 1991. Also the government of India had announced important changes in the industrial and trade policies in its Industrial Policy Statement of July 22, 1991.The majority of the new industrial policy package of 1991 also added a bold set of measures which included liberalization of foreign investment and technological participation, redefining the role of the public sector, to maintain a sustained growth in productivity and gainful employment and to attain international competitiveness. In pursuit of the above objectives, significant changes have been introduced in the areas, namely, industrial licensing, foreign investment, foreign technology agreements and public sector policy (Singh, 2008). Considering the importance of the Indian industry, we focus on the effects of structural change on the manufacturing sectors as the main purpose of this research and tries to find an answer to this question which industrial branches (activities) in the industrial structure of India have been more impressed by as the consequence of the changes in industrial policies and liberalization in the Indian economy during1998-2013.Therefore, this study tries to survey the industrial changes, the process of the combination of industrial activity of factories and the focus of their industrialized activity. The study is organized as follows. Section 2 will present definition of structural change and review of literature. Section 3 discusses the methods of industrial structure analysis. The sources of data and construction of variables are given in Section 4. Section 5 presents analysis of the growth and structure of Indian manufacturing industries Section 6 discusses the results of structural changes index analysis. Section 7 states conclusion and suggestion.
Defining structural change: The terms "structure" and "structural change" have been widely used in economic research, although with different meanings and interpretations. In development economics and economic history, structural change is commonly understood as "the different arrangements of productive activity in the economy and different distribution of productive factors among various sectors of economy, various occupations, geographic regions, types of product, etc. …". (Memedovi and Apadre, 2010). Some economist and economic theory have given significant attention to structural change. Chenery and Syrquin pointed that although the concept of structural change has been defined in different ways, the most common meaning refers to long-term and persistent shifts in the sectoral composition of economic systems. Adam Smith stated structural features were strongly related to the level of economic development while for Ricardo changing the composition of the productive system was a requisite for economic growth. Structural change is the process by which an economy is progressively transformed over time. Change can occur across industries, within industries or at the level of the firm. The largest changes are occurring at the macroeconomic level affecting all industries and firms but often with a different impact (Downes and Stoeckel, 2006). The most common attributes used for measuring the structural changes are shares of total output and shares of total employment. Other characteristics, including capacity, occupational composition of the work force, size of plants and firms, produce mix, plant location and extent of foreign direct investment could also be used to document structural changes. Based on given definition, the aim of this study is to examine the impact of Structural change concept occurring in the manufacturing industry sector by change in quantity important economic index such as valueadded that it has changed during the change in Indian manufacturing industries after 1990 year. The created value added in the industrial sector is the index which is used to study the industrial structure of countries. Therefore, value added reflects to economic capabilities of the activities of a sector and its higher proportion showing positive changes in industrial structure.

Methods of Industrial Structure Analysis
The industrial policies in any country cause changes in the manufacturing sector structure. Structural changes in the manufacturing sector can be considered by the change in share of industrial value added activities. Positive changes in industrial structure which resulted in strengthening industrial infrastructures of a sector and reinforcing vertical and horizontal relations will definitely increase the share of value added of that activity and that sector. These changes may be due to the increase of production due to the application of better equipment, the increase of productivity, the use of new methods of production or even the number of workshops of an industrial activity. Structural change is a process and also it is a general and common concept that consequently is difficult to capture in a single measure. Different measures are often used in the literature. But, despite the differences in formulation the results of the indexes tend to be relatively close. Several statistical methods can be used for this purpose ranging from simple descriptive indicators, such as the Lilien index to complex econometric techniques, such as non-parametric methods aimed at gauging the dynamics of overall specialization (De Benedictis and Tamberi, 2004). To continue it will be mentioned to several indexes. The index of Lilien was defined in terms of relative growth rates. The Lillian index of structural change in industry employment is calculated as follows: I Lillien = ∑ e i e T × (∆Ln(e i ) − ∆Ln(e T )) 2 (1) Here ei is employment in industry i and eT is total employment. A standard approach for measuring structural changes which proves flexible for comparisons among different distributions over time and across countries, namely the Finger-Kreinin dissimilarity index or OECD index (UNIDO, 2010). The SCI may be defined as half the sum of the absolute value of the differences in variable over time. The calculation is given by the formula: Where X i,t and X i,t−1 represent each industry's share of total value-added at a time (t) and (t-1), respectively. The created value added in the industrial sector is the index which is used to study the industrial structure of countries. Analysts expressed their position to demonstrate structural changes in industries in such a way in which the structure of an industry includes two main components; the technical structure and market structure of the industry. The technical structure of the industry refers to a situation in which technical conditions are more concerned that can produce the maximum output using a combination of factors. Thus, the structure defines the composition and diversity of its production regarding the type of production whether it is applied, capital oriented or knowledge oriented. Generally, structural changes depend on factors such as changes in industrial investment, the removal of competing industries in the industrial market, changes in productivity of production factors, the strengthening of backward and forward linkages, changes in the level of technology on production methods, and changes in the severity of domestic and foreign demands for industrial products. Thus, the changes in any of these mentioned factors can lead to changes in the structure and the level of activity of the industry and the changes value added will be reflected consequently (Darounparvar et al., 2009).
The index of structural changes in the country's manufacturing industries mainly shows the industrial capability and the centralization of value added of an industry for the base year. Consequently, the increase in the index for the base year represents the progress and growth of the desired industrial activities in comparison to other industries. In other words, those industries which had greater growth in industrial activities and could maintain or increase their capability for industrial activities are industries which have been affected more by industrial policies or structural changes. Therefore, in order to analyze the structural change and the share of industrial activities value added will be used, index of change industrial activities value added. This method mainly has been used by experts of the United Nations Industrial Development Organization (UNIDO) and the World Trade Organization (WTO) to analyze the industrial structure. The index of structural changes of a period to the base year can be calculated through the following equation which is based on the relation of the average rate of geometrical growth in a certain period.
In which SCIi is the average index of structural changes of the sector or the Ith activity, Vi is the amount of value added of the ith industrial activity, VT is the total value added of industry sector and n is the number of years in the desired period. The numerator is related to the share of value added of the sector or the industrial activity from the total added value of the sector or the industrial activity in the ith period and the denominator represents the same share in the base year or period. If the numeric amount of SCIi is less than 100, it means that the manufacturing industry under the desired activity cannot concentrate on the former industrial activity during the certain time and its capability to establish added value has been decreased in comparison to other industries. In contrast, the increase of the numeric amount of SCIi more than the base index (100) shows the structural changes has been led to the improvement of the desired capability of the industrial activity. In order to illustrate the structural changes in the manufacturing industries in terms of increasing the share of industrial value added of polygon graphs or spider diagrams are used (Salimifar and Sheirzour, 2006).

Olga Memedovic Research and Statistics Branch Program Coordination and Field Operations Division UNIDO
(2010) in the working paper entitled "Structural Change in the World Economy: Main Features and Trends" have provided a starting point for more specific studies at sector, national and regional level. In this working paper has been presented a quantitative analysis of sectoral trends in the global economy. This analysis has referred to six continental regions and covers a period of 40 years. Constant-market-shares (CMS) analysis has been used to investigate changes in the contribution of regional aggregates to world production. It has been followed by an analysis of the evolution of the manufacturing industry and the intensity of structural change by the use of Finger-Kreinin index of structural change in the manufacturing industry for a sample of 30 countries and 18 sub-sectors. Three main findings resulted from the analysis. First, the long-term rise in the share of services in global value added has been slowing down in the last decade. Second, the upward trend in the global value added share of North America and Asia seems to be partly reverted in favor of other regions. Third, after a setback during the 2000s, structural transformation in the manufacturing sector has been accelerating in the last two decades.

Results
The coverage of the Annual Survey of Industries extends to all Indian manufacturing industries at the two-digit level of classification. Variables are reported for 17 two-digit industry groups (20 to 38) according to NIC-1998 and 24 two-digit industry groups (15 to 37) according to NIC-2004  Variables are factories, gross value added. Therefore, the study analyses the following aspects: share and structure of factories and gross value added. In order to have an idea about the changing structure of the Indian manufacturing industry, various industries have been classified as leading, lagging and moderate industries, in terms of their respective percentage shares of the manufacturing industry.
Growth and structure of factories and gross value added in1980-1998: As it is clear from table (1)    The gross value added further increased to 700160, recording a growth rate of 6.6 percent per annum in 2013-14. The gross value added recorded a growth rate of 9.4 percent per annum for 1998-2013.The leading industries were (24) chemicals and chemical products, (27) basic metal, (15) food products and beverages, (23) coke, refined petroleum products and nuclear fuel, (17) textile products. But their share of gross value added in comparison to 1998 till 2013 has decreased. The share of gross value added in total for (34) motor vehicles, trailers and semi-trailers; (29) machinery and equipment n.e .c; (34) motor vehicles, trailers and semitrailers has placed in part of moderate industries. The (30) -(32) -(33) computing machinery, communication and optical instruments; (31) electrical machinery and apparatus n.e.c; (25) rubber and plastic products; (22) Publishing; Printing and Reproduction of recorded media and the rest of others industries were the lagging industries for the period as a whole. The (20-21) food products experienced negative growth rates. As regards, percentage distribution of the gross value added among manufacturing groups, it is evident that the (24) chemicals and chemical products held the highest share with 15percent share of in gross value added in 2013-14 and followed by (23) coke, refined petroleum products and nuclear fuel with 11 percent and (15) food products and beverages with 7 percent in total. The other manufactures of industry had with some fluctuations in share of gross value added. During the period , the least share of gross value added pertains to (37) recycling.

Table 2: The share of manufacturing industries of factory and Gross value added in 1998-2013
Analysis and Interpretation of changes of industrial structure in manufacturing industries in India: In this section we studied the results of the structural changes index of each of manufacturing industry due to changes in economic condition. In order to consider the differences in the change of the structural changes index after liberalization, the analysis has been done separately for two sub-periods: pre and post-liberalization period, 1980-98and after the period of 1998-2013.

The calculated structural changes index for manufacturing industries with two digit codes in 1980-98:
The table 5 reveals the result of the structural changes index for manufacturing industries with 2-digit codes in 1980-98. According to the calculated structural changes index for manufacturing industries with two digit codes, the manufacturing industries can be classified to below the group: The first group including, (26) textile products, (29) leather, etc., (30) basic chemicals and chemical products (except products of petroleum and coal), (38) Other manufacturing industries, are the industrial activities that their structural changes indexes were higher than 100 in the two periods of 1980s and 1990s.These industrial activities had the highest competitiveness in comparison to other industrial activities and they have had the greatest opportunities to create value-added. The second group includes, (20-21) food products, (24) wool, silk and man-made fiber textiles, (32) non-metallic mineral products are the industrial activities that their structural changes index was higher than 100 in the 1980-1990 period. Despite the acceptable performance in 1980s, these industrial activities have lost their comparative advantage in the next period (1990s) and they could not use of the conditions to create the value added. The third group including (22) beverages, tobacco, etc., (33) Basic metal and alloy industries, (34) metal products and parts, (37) transport equipment are the industrial activities that their structural changes index was higher than 100 in 1990-1998 period. With regard to weak performance in 1980s, these industrial activities could use of the conditions to create the value added for maintaining their proper position and created a comparative advantage in the next period. The fourth groups including (23) cotton textiles, (25) jute and other vegetable fiber textiles, (27) wood and wood products, furniture and fixtures, (28) paper, etc.; printing, etc., (35-36) machinery and equipment are the industrial activities that their structural changes index was less than 100 in the two periods of the 1980s and 1990s. The competitiveness of these of the industrial activities has declined in comparison with other industrial activities. They have had less opportunity and a chance to create value added, especially in the short term. Also, in order to analyze of structural changes in manufacturing industries has used of spider graphs. The graph (1) shows that the impact of economic policies of India on industrial codes in each industry classification before and after 1991 (pre-liberalization 1980-1990 and post liberalization 1990). Also Graphs show that the trend investments and creation of new capacity in which industry codes increases the structural changes and in which industry codes has not had success. The calculated structural changes index for manufacturing industries with two digit codes in 1998-2013: So according with National Industrial Classification (NIC, 2004), in order to consider the differences in the change of the structural changes index after liberalization, the analysis has been done separately for two sub-periods: 1998-2008 and 2008-2013. According to the calculated structural changes index for manufacturing industries with two digit codes, the manufacturing industries can be classified to below the group: The first group including, (18) wearing apparel; dressing and dyeing of fur tanning and dressing of leather; (20) wood and products of wood and cork, expect furniture; (34) motor vehicles, trailers and semi-trailers; (37) recycling; (35) other transport equipment and (38) Other manufacturing industries, are the industrial activities that their structural changes indexes were higher than 100 in the two periods of 1998-2008 and 2008-2013. These, are identified as drivers of industrial growth and they have abilities that will be introduced as the axis of India's industrial strategy. The second group includes, (23) coke, refined petroleum products and nuclear fuel; (26) other non-metallic mineral products; (27) basic metal; (28) other fabricated metal products; except machinery and equipment's and (36) furniture, Manufacturing n.e.c. are the industrial activities that their structural changes index was higher than 100 in the 1998-2008 period. These have lost their comparative advantage in the next period (2008) and they could not use of the conditions to create the value added for maintaining their proper position. The third group including (19) luggage, handbags saddler, harness and footwear; (24) chemicals and chemical products; (25) rubber and plastic products; (29) machinery and equipment n.e.c; (30) -(32) -(33) computing machinery, communication and optical instruments and (31) electrical machinery and apparatus n.e.c are the industrial activities that their structural changes index was higher than 100 in 1990-1998 period. This industrial activity could be used to create the value added for maintaining their proper position and create comparative advantage in the next period. The fourth groups including15) food products and beverages; (16) tobacco products; (17) textile; (21) paper and paper product and (22) Publishing; Printing and Reproduction of recorded media are the industrial activities that their structural changes index was less than 100 in the periods of the 1998-2013.These industrial activities are industry losers. The competitiveness of these industrial activities has declined in comparison with other industrial activities. The graph (2) shows that the impact of economic policies of India on industrial codes in each industry classification in the period of 1998-2013.

Conclusion
This paper has analyzed the effect of structural changes in the Indian manufacturing industry. The analysis has been done separately for the pre-liberalization period, and the post-liberalization period to examine the industrial structure. The analysis has been done using a structural change index method that mainly has been used by experts of the United Nations Industrial Development Organization (UNIDO) and the World Trade Organization (WTO) to analyze the industrial structure. It was observed that the amounts of the structural changes index for some of industrial activities were positive in two periods during 1980s and 1990s and 2000s. So, these industrial activities are identified as drivers of industrial growth and they have abilities that will be introduced as the axis of India's industrial strategy. The increase in the number of factories and rising of the demand society to new appearance manufacturing industry (such as recycling), government supportive policies and tend to high investment and attention to special manufacturing industries (such as steel, iron, cement), the growing domestic demand, the rise in export, the high capital-intensive of some of manufacturing industries, the private sector orientation to investment, using of technological advancement and modernization, the increase in foreign direct investment and reliance to domestic resource are considered as main reasons for being high or increase of structural changes index. Furthermore, despite the acceptable performance in the 1980s, some industrial activities have lost their comparative advantage in the next period and they could not be used as a condition to create the value added. However, some industrial activities with regard to weak performance in the 1980s could create comparative advantage in the next period. At last, the industrial activities and their structural change index were less than 100 in two periods of 1980s and 1990s and 2000s can be considered as loser industries. The use of low of labor productivity due to low capital-labor proportion and decrease of export (such as food), Problem of raw materials, obsolete machinery and need to modernization, high cost and competition in foreign markets such as (textile, paper), governmental restriction on import of raw material and machinery coupled high excise duties and customs duties are considered reasons for being low or decrease of structural change index.