The manufacturing sector in India is crucial for two main reasons: It has significant potential to provide modern
employment to a growing labour force, especially that of less skilled type and second by its own healthy growth,
stimulate and provide a foundation for, organic growth in other sectors of the economy. On both these counts,
however, the manufacturing sector has so far not performed to its potential. In an attempt to identify the factors
responsible for this phenomenon, the present study examines in detail the main determinants of factor employment,
their shares, and output growth. The framework used is a CES production function estimated using ASI time-series
data for the organised manufacturing industry spanning a period from 1973/74 to 2001/02. The study also dwells on
the subject of sustainability of high growth in output on the back of raising capital labour ratio.
The findings on the determinants of employment of labour indicate that wages have started playing an equally
important role as that of technology. As the wage rate is found to be smaller than the marginal product of labour,
increasing employment is possible through making technology more labour inductive, which in turn, among other
important measures, call for making labour laws simpler. The results also indicate that both labour and capital have
been paid lower than the marginal product. Job security regulations apparently had less to do with jobless growth of
the 1980s; rather, it was due to sharp rise in wages For capital, the deviation between marginal product and its price
was statistically significant only during the third sub-period, which would mean that capital in post-reforms period
till the beginning of the 2000s has been slightly underemployed.