Productivity growth and policy changes: A decomposition analysis of Indian metallic mining

• Date: 01 August 2020
• DOI: http://doi.org/10.1002/pa.2118
• Author: Auro Kumar Sahoo,Dukhabandhu Sahoo,Naresh Chandra Sahu
• Published date: 01 August 2020

ACADEMIC PAPER

Productivity growth and policy changes: A decomposition

analysis of Indian metallic mining

Auro Kumar Sahoo

1

| Dukhabandhu Sahoo

2

| Naresh Chandra Sahu

2

1

Department of Humanities, Veer Surendra Sai

University of Technology, Burla, India

2

School of HSS & M, Indian Institute of

Technology Bhubaneswar, Bhubaneswar, India

Correspondence

Auro Kumar Sahoo, Department of

Humanities, Veer Surendra Sai University of

Technology, Burla, Sambalpur 768018, India.

Email: aks11@iitbbs.ac.in

Indian mining sector adopted the National Mineral Policy in 1993 and fully open up

for foreign direct investment (FDI) in 2005. Prior to 1993, private participation in

mining operation was restricted, and public sector played a dominant role in mineral

exploration. Metallic minerals hold a vital position in the Indian mining sector and ful-

fil the input demand of industrial sector by supplying basic raw materials. This paper

attempts to estimate and analyse the productive performance of the Indian metallic

mining sector by decomposing the total factor productivity (TFP) growth into differ-

ent components using firm-level data for the period 1988–89 to 2014–15. Further-

more, the possibility of changes in productivity and its constituent components in

different policy regimes have been unravelled. The analysis shows that the average

TFP growth of the metallic mining is 0.07% during the study period, which is largely

due to technological progress and technical efficiency change. However, TFP growth

has declined from 0.28% in 1989–2005 to −0.33% in the period during complete

allow of FDI. The decomposition of TFP growth using stochastic production frontier

reveals that decline in productivity is due to change in scale efficiency and allocative

efficiency components. It could be suggested that to improve the productivity

growth further, metallic mining should upgrade to advance technology in operation

and take the benefit of the scale factor.

1|INTRODUCTION

Metallic minerals are used as the basic input to the industrial sector of

an economy. Indian economy experienced a strong backward linkage

of industrial sector with metallic mining in terms of its huge demand

for iron ore, manganese ore, bauxite, chromite, etc. Historical over-

view of Indian mineral sector shows a paradigm shift in the purview of

the adoption of National Mineral Policy (NMP) in 1993. The strict pol-

icy towards mining operation has been liberalised in view of strong

and vibrant requirement of minerals for manufacturing and industry

sector for the economic growth of the country.

The production statistic reflects a tremendous growth in the pro-

duction of metallic minerals soon after the adoption of NMP in 1993.

The trend of the total value of metallic mineral produced in India has

shifted from Rs. 2,970 million in 1981 to a higher level of Rs

16,340 million and Rs. 39,780 million in 1991 and 2001, respectively

(Indian Mineral Yearbook [IMY], 2018). Furthermore, the total value

of metallic mineral produced in India has increased to

504,399.96 million in 2017–18 (IMY, 2018). Similarly, metallic mineral

accounted for 7.87% of the total value of mineral production in

1990–91, which rose up to 44.78% in 2017–18 (IMY, 2018). The

upward trend in the mineral production after the adoption of eco-

nomic reforms as well as the adoption of NMP requires the attention

of researcher for in-depth investigation.

An unprecedented upward shift in output growth of metallic min-

ing is most likely achieved through stimulation of investment in mining

activities or adoption of advanced technology through a liberal policy

towards mining. However, the effect of the shift in the scale of opera-

tion due to policy changes is likely to have an impact on the output

growth. Production and productivity growth are an important aspect,

which need careful attention while discussing the unparalleled shift in

output growth of metallic mining in the context of India.

Being an important part of the mining industry, metallic mining

supplies raw materials to the industry sector uninterruptedly, which

Received: 2 December 2019 Revised: 28 January 2020 Accepted: 9 March 2020

DOI: 10.1002/pa.2118

J Public Affairs. 2020;20:e2118. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons, Ltd 1of12

https://doi.org/10.1002/pa.2118