where Sg is CARG of gross value added (GVA) of individual SMEs of all the three
sectors during 2001/2–2005/6. Similarly, Kg and Lg are CARG of capital and labour,
respectively, during 2001/2–2005/6 and ISp is average percentage of innovated products
in total sales of individual SMEs during 2001/2 to 2005/6. We have used deflated values
for both GVA and capital (at 2001/2 prices). The analysis covers both innovative and
non-innovative SMEs. For non-innovative SMEs, ISp is taken as zero. To ascertain the
influence of initial firm size, we have used a size dummy (Ds) which assumed the value
of 0 for all SMEs which had investment in plant and machinery up to Rs.1 million and 1
for the rest (since the investment limit for an enterprise to be considered small was Rs.1
million, as per the law of the Government of India, then). Since we have clubbed all the
three sectors together for the analysis, we have used two sector dummies, namely, Ds1
representing auto components and Ds2 representing machine tools. Since we did not find
any statistically significant interaction effects of industries/sectors with the explanatory
variables of labour and capital, we have not used any interaction term for the present
analysis.