Composition of Intermediate Inputs: Detangling Price and Quantity Effect

India’s manufacturing sector reflects a steady growth in the intermediate in- put intensity in the recent time. This paper is designed to examine the rich plant level data on Indian formal manufacturing sector to understand the decomposition of the ratio of input and value of output. These empirical evidences are important to understand the dynamics of manufacturing sector and understand what has driven the rise of expenditure on inputs. In literature there has been a long-standing interest in obtaining the decomposition of input expenditure and revenue into quantity/price indices for explaining the growth in input intensity. Motivated by literature, the paper relies on Balk (Empirical Productivity Indices and Indicators, Oxford University Press, Oxford, 2018), Diewert (Decompositions of Productivity Growth into Sectoral Effects, School of Economics, University of British Columbia, Vancouver, 2013), and Tang and Wang (Canadian Journal of Economics 37:421–444, 2004) to construct indices for understanding quantity and price effect of input expenditure and revenue of plants in Indian formal manufacturing sector. The pattern of quantity and price growth for plants’ revenue on an average show that the associated growth of quantity sold is much higher compared to the rise in the prices in the first panel and afterwards the series mirrors a sharper price growth of output sold by plants. The main conclusion emerging from this study is that, over long time periods, changes in the growth of intermediate input (material inputs) in terms of quantity purchased have been relatively large for both domestic input purchases and imported input purchases. However, in case of energy input the growth in quantity purchases has been more or less constant for years.