This study analyzes the causes of excess capacity through the response
of capital, labor, and capital intensity. Consequently, we use the
three-input CES estimation model. We randomly selected a centralized and
a decentralized industry group for our comparative analysis. By
estimating the elasticity of substitution between (capital, labor) as a
nest, and capital intensity for an industry, we found that the
centralized industry groups are facing the problem of excess capacity.
Through this study, we discuss the current government policies and the
present scenario of a manufacturing plant. And then we suggested to
policymakers, i.e. how to resolve the problem of excess capacity through
the expansion of manufacturing plants with advanced machinery.