The Evolution of Manufacturing Efficiency: Evidence from Indian States

The paper investigates the patterns of variations in Indian industrial performance at both industry and state levels. Applying stochastic frontier analysis to an unbalanced panel of 15 Indian states, 22 industries at the 2-digit level, and an 11-year period spanning 1992-2002; the paper estimates, for each industry group, the relative ranking of states based on their technical efficiency scores, and how these rankings have changed over time. The results represent novel contributions to the growing debate on Indian industrial productivity, albeit from a different perspective. Three primary sets of conclusions arise. First, there is considerable variation across industries in terms of their aggregate efficiency performance. However, overall industrial performance appears to be driven more by input growth, with technical efficiency having a marginal effect at best. Second, results also show considerable regional variation in efficiency patterns, with southern and western states outperforming northern and eastern states in terms of their overall manufacturing efficiencies. Punjab is surprisingly the worstperforming state in the country in terms of this yardstick. Finally, detailed analysis at the state-industry level allows creation of state profiles, which summarise the relative strengths and performances of different industries across those states.