Fuel substitution possibilities, factor productivity, and technological progress in the industrial sector of India

Abstract

India is often referred to as the next development superpower, and generally, becoming a large-scale industrialization center is seen as an achievable goal for the country. This article investigates the output elasticity, substitution elasticity, and technological advancement between the various factors (i.e., labor, capital, and energy use) in the industrial sector of India. To investigate the factor's productivity, a trans-log production function was applied; however, ridge regression was used to analyze the various parameters to check the multicollinearity issue. The results show that (1) the analyzed inputs are optimistic and return-to-scale averages of 1.18, 1.41, and 1.24 between labor, capital, and energy, respectively, are increasing; (2) the pairs substitution between labor–industrial energy utilization and capital–industrial energy consumption is found to be 0.96 and 0.98, respectively, on average, indicating that capital, labor, and energy are good substitutes that need more attention in the production process; and (3) the technological progress between factors ranges from −0.4 to 0.02, in which labor–energy and capital–energy utilizations provide quicker outcomes than a capital–labor utilization. Finally, the industrial sector can attain maximum productivity if capital and skilled labor are improved under the sustainable development goals, as energy and capital are optimized for maximum efficiency. Finally, energy substitution and low-carbon technological efforts can be better suited for attaining dual-carbon goals in the industrial sector.