This paper aims at identifying various determinants of labour productivity using a panel data analysis for 15 major states of India over the period 1979-80 to 2000-01. The evidence shows that labour productivity is largely determined by capital-intensity, firm size, skilled manpower, capacity utilization and real wage rate. The positive impact of capital intensity on labour productivity signifies the degree of mechanization. The wage rate has a positive effect on labour productivity, which acts as a powerful incentive for the labour to contribute greater efforts and skills. In turn, states with higher labour productivity range have strong financial strength to offer better wages and finally it leads to better standard of living of the workers. Capacity utilization of the industry has a significant positive effect on labour productivity, which implies that given input resources have been used at the optimum level.