  Purpose: The objective of this research was to show the response of the
potential reduction of excess capacity in terms of capital intensity to the
growth rate of labor productivity in the manufacturing industrial sector.
Design/Methodology/Approach: The research was carried out in 2019 in 55 groups
of Indian manufacturing industry within six major Indian industrial states.
Mainly, the research used the modified VES (Variable Elasticity Substitution)
estimation model. The research focused on the value of the additional
substitution parameter of capital intensity (mu > 0). Findings: Almost all
selected industry groups with in six states need capital-intensive production.
The results found additional parameter of capital intensity (mu) is greater
than zero for all industry groups. It means that a higher product per man can
be obtained by increasing the capital per worker. Practical Implications:
Research shows that an increasingly need for capital investment in need for
higher labor productivity is likely to induce the manufacturing unit to use
more capacity in existence. It reveals that investors in these selected six
states can increase their capital investment. Originality/Value: The analysis
of the result allowed to determine the fact that capital intensity is an
essential variable for reduction of excess capacity which cannot be ignored in
explaining productivity.
