This paper examines the effects of trade and FDI inflows on India’s industrial transformation,
particularly since the onset of economic reforms in the 1980s and early 1990s. Examining the
evolution of the Indian manufacturing sector since the mid 1970s, we find that after a period of
stagnation in the 1970s, Indian manufacturing showed consistent growth in all indicators from the
early 1980s to the mid 1990s. We find that trade reforms in India have had a strong positive impact on
total factor productivity. However, the impact of trade in the net creation of jobs in the manufacturing
sector has been relatively small. There has been a strong growth in inward FDI since the early 1990s,
though mostly to capital-intensive manufacturing. Our analysis suggests that foreign firms in India in
the post-reform period are more productive and exhibit greater export orientation than domestic firms,
but do not show stronger growth , higher investment rates and higher R and D intensity. The overall
finding is that while trade and FDI have had major positive effects on efficiency in Indian
manufacturing, they may not have had similar positive effects with respect to equity outcomes,
especially in contributing to the growth of a labour-intensive export-oriented segment of the
manufacturing sector.