With a view to generate empirical information, an attempt is made in this paper to estimate the elasticity of labour productivity so as to find the substitution possibilities of labour for capital in the Indian manufacturing sector covering the period 1973-74 to 1989-90. The results of this exercise show that Indian manufacturing (factory) sector is capital intensive and is operating under decreasing returns to scale. The elasticity of labour productivity is found to be significantly more than unity implying that substitution possibilities in favour of labour are quite high. Therefore there is need to redirect the Indian manufacturing sector towards greater use of labour intensive technology until the marginal productivity of labour is equal to marginal wage rate.