Changes in utilization and productivity in a deregulating economy

This paper provides an estimate of the production cost of losses in official working hours and of utilization-adjusted productivity growth using robust methods on a panel of industry-region data for Indian manufacturing in the 1980s. Time losses such as arise on account of power cuts and materials shortages appear to have cost the economy a sixth of its potential manufacturing output in 1979. Concomitant with deregulation and increased public investment in infrastructure in the 1980s, there was a significant recuperation of lost time. Although this contributed 25% of the observed acceleration in output, it has escaped notice so far. Recognizing the increase in factor utilization produces more modest estimates of productivity growth and casts doubt on its sustainability.