Industrial Productivity and Efficiency


Industrial productivity (or efficiency) can be defined or measured in three different ways. They are:

(i) Incremental Capital-output Ratio. Incremental capital-output ratio means how much capital is required to increase one unit of output. Suppose to increase one unit of output if we require 4 units of capital then the incremental capital-output ratio will be 4 : 1. This means, the higher the ratio, the lesser will be the productivity of capital investment.

The incremental capital-output ratio in Indian industries has risen over many years. It indicates decline in industrial productivity. But for the last few years it is showing signs of falling again, which is a good indication.

(ii) Total Factor Productivity (TFP). Total factor productivity measures the increase in output by adding a little of all factors in a combination of various factors of production. There are some indications which suggest that TFP is increasing in many Indian industries.

(iii) Domestic Resource Cost (DRC). When we compare the price of the product concerned in the international market with the cost of domestic resources for its production, it is called Domestic Resource Cost at international prices. It measures the industrial productivity (or efficiency) in comparison to rest of the world. On the basis of this measure many capital goods such as electric machinery and some of the machine tools produced by Indian industries have high efficiency. But in most of the areas of advanced technology Indian industries are less efficient.

Causes of Inefficiency and Low Productivity in Indian Industries

Keeping in view all the three above-mentioned criteria, the productivity (or efficiency) in Indian industrial sector is generally low. Following are the main causes of this low productivity


(i) Lack of incentives and facilities for technology up-gradation.
(ii) Lack of facilities for Research and Development activities.
(iii) Lack of incentives and support for modernisation of plant and machinery.
(iv) Lack of adequate infrastructural facilities like power supply
(v) Lack of financial resources.
(vi) Industrial disputes and lack of work-culture.

To improve industrial productivity we have to tackle the above- mentioned causes effectively and urgently.