Is the Law of Diminishing Returns to Capital Operating in the Indian Industry? Evidence from Cross-section Data

This paper examines the empirical validity of law of diminishing returns to capital across 127 Indian industries (factory sector) for the year 1999-2000 by fitting a quadratic production function. The empirical evidence on the basis of sign, size and statistical significance of the regression coefficients of the capital and square of capital shows that the marginal product of capital is eventually diminishing, confirming that the law of diminishing returns to capital, all else being equal, is operating across the Indian industries