The proximate cause of the increase in productivity since 2003 is the increased efficiency of private-sector firms in the face of growing competition. The gradual liberalisation of the economy introduced a competitive dynamic that forced the private sector to restructure during the relative slowdown in growth and corporate profitability during 1997-2002. After the restructuring, the private sector emerged leaner, fitter and more productive. The presence of constraints, including the lack of adequate infrastructure and a set of demanding, value conscious consumers, forced companies to innovate on products, processes and distribution, which, in turn, created companies that are more efficient and competitive.
In our view, the underlying causes for the increase in efficiency of private firms have been trend acceleration in international trade, financial deepening and investments in and adoption of information and communication technology. The process that tentatively began after the onset of reforms in 1991 is also the cumulative effect of a decade of liberalisation, a vital component of which was the gradual deregulation and de-licensing of industry.