Capital Intensity, Productivity and Returns to Scale In Modern Small Industries in India

The paper examines three hypotheses regarding small-scale manufacturing units, namely, 1) Small firms use more labour per unit of capital 2)They produce more output per unit of capitaland 3)Do small firms use resources more efficiently than large firms in terms of Total Factor Productivity(TFP)? The establishment level data from the Reserve Bank of India Survey of small-scale industrial units (1977) has been used. Analysis is confined to four industry groups-namely Motor vehicles parts, Agricultural machinery and parts, Machine tools and parts and Plastic products. The analysis indicates that capital intensity and partial productivities are sensitive to alternative measures of firm size. Firm size and TFP are not found to be systematically related.