Capacity growth and utilisation performance under econometric framework: a case study on Indian glass industry

This analytical paper attempts to assess and analyse trend growth in the rate of capacity utilisation (CU) in India's glass sector at aggregate level over a period from 1979-1980 to 2003-2004. In this study, optimal output is defined as the minimum point on the firm's short-run average total cost curve and the rate of CU is merely ratio of its actual output to capacity output level. Choice theoretic framework is adopted to estimate the optimal capacity output. The empirical findings suggest that there exist considerable variations in the CU rates over years within same industry. There has been declining trend in the growth rate of CU in this industry during post-reforms period due to sluggish growth in actual output resulting from stagnated demand probably and rapid expansion of capacity output as a result of abolition of licensing rule consequent to economic reform.