Abstract
This paper presents an analysis of changes in regional concentration of manufacturing industries and the factors driving the change in recent years. Two key questions have been addressed. First, why the regional distribution of Indian industry continues to be dominated by Maharashtra, Gujarat and Tamil Nadu? Second, what are the sources of this uneven spread of industries? Past industrial policies (history) and contemporary factors are found to reinforce the regional concentration of industries. It makes a contribution to the literature by providing evidence on the net entry of new factories by state, the spatial distribution of large factories and the observed tendency of co-location of relatively larger plants in industrially advanced states in the post-reform period. It finds that top three industrialized states of Maharashtra, Gujarat and Tamil Nadu have attracted larger share of the new factories. Nearly 44% of the cohort of large factories with more than 100 workers which began operation in the years 1995–2014 was found to be in the top three states. The key driver of regional concentration is argued to be the agglomeration economies sought by firms to offset other cost disadvantages.
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Notes
- 1.
Environmental pollution and other local use related restrictions was continued.
- 2.
Lall and Chakravorty (2007).
- 3.
The estimation of spatial inequality indexes for the 1970s is not undertaken by us. The estimates of HH index reported by Mohan (1993) are absolute HH indexes and are not comparable with ours by definition.
- 4.
In another context, we had examined the manufacturing distribution in 21 states after including the recently carved out states. The top three states, namely Maharashtra, Gujarat and Tamil Nadu, are found to have a combined share of 44.5% in 2015–16, the latest year for which data for all the 21 states is available. The above-mentioned three states are observed to have dominated way back in the year 1993–94 (Ramaswamy, 2019).
- 5.
GSDP in the manufacturing sector and the aggregate GSDP have been used to measure the respective variables.
- 6.
See Ramaswamy (2019). In the year 2010–11, the number of factories has gone up sharply because of change in the method of recording codes for number of factories. See Pandey & Shetty (2014) for details. This should not affect our results because our focus here is with the distribution of factories across space.
- 7.
The ASI covers the organized (or registered) manufacturing sector. It considers industrial units registered under the Sects. 2m(i) and 2 m(ii) of the Factories Act, 1948 and Bidi and Cigar establishment registered under the Bidi and Cigar Workers (Conditions of Employment) Act, 1966
- 8.
We have used the absolute version because the relative concentration measure is affected by extreme values of small-sized subnational units (states in India).
- 9.
In 2003, the Government of India introduced tax-incentive package in order to induce industrial investments and employment in the states of Uttarakhand and Himachal Pradesh that include 100% excise duty exemption among other things. See Ramaswamy (2019) for details.
- 10.
The state of Haryana with 4339 factories can be classified as the median state in 2004–05.
- 11.
States that maintained their employment shares have been Karnataka, Haryana, Uttar Pradesh and Uttarakhand. See Ramaswamy (2019).
- 12.
This is based on the net entry of factories during 2009–10 and 2015–16 in three selected representative engineering industries (see Ramaswamy, 2019).
- 13.
I have chosen to neglect OAEs as they are mostly household enterprises and dominant in the rural segment of the unorganized manufacturing.
- 14.
This section draws much from Dasgupta (1998).
- 15.
The estimates for the sample sector are those reported by Banerjee (1982).
- 16.
The war with Pakistan in 1965 had led higher defence expenditures and the inflation due to droughts had imposed restrictive fiscal policies.
- 17.
My estimate is based on Dasgupta (1998), Table 10, p. 3055.
- 18.
The freight equalization scheme was in operation for pig iron, steel, cement, petroleum products and nitrogenous fertilizers (Planning Commission, 1978, p. 11). Our focus will be only on iron and steel.
- 19.
A natural question that can be raised is whether the abolition of FES encourages iron and steel industries to move back to states with ISPS. The econometric result based on data covering the period 1990–2014 does seem to support this proposition. The question whether FES has led to irreversible agglomeration economies or not is a difficult empirical question not pertinent to our discussion here.
- 20.
This is more akin to the view build infrastructure first and industries follow!
- 21.
- 22.
- 23.
A no-industry district is one in which there are no licensed or registered industrial units.
- 24.
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The author would like to thank Ritabrata Bose and Leena Bhattacharya for skillful research assistance.
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Ramaswamy, K.V. (2021). Regional Concentration of Industries in India: What Does the Recent Data Say and How to Understand the Implications? A Perspective. In: Mani, S., Iyer, C.G. (eds) India’s Economy and Society. India Studies in Business and Economics. Springer, Singapore. https://doi.org/10.1007/978-981-16-0869-8_4
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