Impact of Liberalization on Indian Firms—Some Issues

Abstract

This chapter incorporates the resultant implications of the withdrawal of MFA quota on the firm level activity and the industry level output and employment in addition to describing the significant changes brought about in the structure of the textile and clothing Industry of India. The first section, with the help of an analytical structure and its supporting empirical observations, shows the importance of expenditure on sales promotion and marketing activities in enhancing the penetration capacity of the domestic industry in the unleashed global market. The second section of the chapter shows that the industry, since the withdrawal of quota, has witnessed unprecedented concentration of firm level activities not only by size of operation but also by specific regions or states within the country, thereby creating some sort of inequality. Relating trade and labor market outcomes, the firm-level empirical estimates show that the export-oriented firms in India were not affected adversely and that the aggregate wage bill also rose during this period. The firm-level panel is supplemented by a state-level panel to capture the more aggregative impact of the withdrawal of MFA on the level of labor earnings in various regions of India. It is inferred that the aggregate state level wage bill falls as the profit level rises for the industry. The results also show that regional wage disparity has strong relation with regional disparity in firm-concentration at the level of the industry.

Appendices

Documents

Government of India (2008), Annual Survey of Industries 2004–05, Central Statistical Organization, New Delhi.

Reserve Bank of India—Monthly Bulletin for the month of August, 2013 released by the Reserve Bank of India dated 12th August, 2013.

Appendix

Slope of curve I is expressed as $\left( {\frac{{{\text{d}}q_{1} }}{{{\text{d}}x}}} \right)_{I} = \frac{{C^{\prime\prime}q^{\prime}_{2} }}{{R^{\prime\prime} - C^{\prime\prime}}}$

Similarly, slope of curve II is shown as $\left( {\frac{{{\text{d}}q_{1} }}{{{\text{d}}x}}} \right)_{II} = \frac{{(\overline{P} - C^{\prime})q^{\prime\prime}_{2} - C^{\prime\prime}q_{2}^{\prime 2} }}{{C^{\prime\prime}q^{\prime}_{2} }}$

Since the slopes are negative, we take the absolute values

$$\begin{aligned} \therefore \; \left| {\frac{{{\text{d}}q_{1} }}{{{\text{d}}x}}} \right|_{I} - \left| {\frac{{{\text{d}}q_{1} }}{{{\text{d}}x}}} \right|_{II} & = \left\{ { - \frac{{C^{\prime\prime}q^{\prime}_{2} }}{{R^{\prime\prime} - C^{\prime\prime}}}} \right\} - \left\{ { - \frac{{(\overline{P} - C^{\prime } )q^{\prime\prime}_{2} - C^{\prime\prime}q_{2}^{\prime 2} }}{{C^{\prime\prime}q^{\prime}_{2} }}} \right\} \\ & = \frac{{(\overline{P} - C^{\prime})q^{\prime\prime}_{2} - C^{\prime\prime}q_{2}^{\prime 2} }}{{C^{\prime\prime}q^{\prime}_{2} }} - \frac{{C^{\prime\prime}q^{\prime}_{2} }}{{R^{\prime\prime} - C^{\prime\prime}}} \\ & = \frac{{(R^{\prime\prime} - C^{\prime\prime})(\overline{P} - C^{\prime})q^{\prime\prime}_{2} - R^{\prime\prime}C^{\prime\prime}q_{2}^{\prime 2} + C^{\prime \prime 2} q_{2}^{\prime 2} - C^{\prime \prime 2} q_{2}^{\prime 2} }}{{(R^{\prime\prime} - C^{\prime\prime})C^{\prime\prime}q^{\prime}_{2} }} \\ & = \frac{\Delta }{{(R^{\prime\prime} - C^{\prime\prime})C^{\prime\prime}q^{\prime}_{2} }}\;({\text{as}}\;\Delta = (R^{\prime\prime} - C^{\prime\prime})(\overline{P} - C^{\prime})q^{\prime\prime}_{2} - R^{\prime\prime}C^{\prime\prime}q_{2}^{\prime 2})\\ \end{aligned}$$

Now,

$$\begin{aligned} & \frac{\Delta }{{(R^{\prime\prime} - C^{\prime\prime})C^{\prime\prime}q^{\prime}_{2} }} < 0 \quad \left( {{\text{as}}\;\Delta > 0,(R^{\prime\prime} - C^{\prime\prime}) < 0,q^{\prime}_{2} > 0,C^{\prime\prime} > 0} \right) \\ & \therefore \; \left| {\frac{{{\text{d}}q_{1} }}{{{\text{d}}x}}} \right|_{I} - \left| {\frac{{{\text{d}}q_{1} }}{{{\text{d}}x}}} \right|_{II} < 0 \\ \end{aligned}$$

Hence, we can infer that the absolute slope of curve I is less than the absolute slope of curve II. As a consequence, it can be concluded that in Fig. 3.1 curve I is flatter than curve II. Tables 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16, 3.17, 3.18 and 3.19.

Table 3.7 Detailed descriptive statistics for the variables dealt with in Table 3.1

Table 3.8 Detailed descriptive statistics for the variables associated with Eq. 3.8

Table 3.9 Andhra Pradesh

Table 3.10 Gujarat

Table 3.11 Karnataka

Table 3.12 Madhya Pradesh

Table 3.13 Maharashtra

Table 3.14 Orissa

Table 3.15 Punjab

Table 3.16 Rajasthan

Table 3.17 Tamil Nadu

Table 3.18 Uttar Pradesh

Table 3.19 West Bengal

See Figs. 3.2 and 3.3.

Fig. 3.2

Firm concentration over the years

Fig. 3.3

Top percentile concentration over the years