Comparing Efficiency Across State Transport Undertakings : A Production Frontier Approach

Currently, in India, there are sixty-four State Transport Undertakings (STUs) operating in various states, which play a major role in providing short, as well as medium distance passenger mobility. The regulated environment in which STUs operate imposes many qualitative, as well as quantitative constraints on their production. Therefore, the STUs have relatively few incentives to produce efficiently. This study attempts to answer the question: "How efficient are the STUs?". In this study, an attempt has been made to quantify the technical efficiency (productive efficiency) of twenty-three major Indian State Transport Undertakings mainly providing rural and inter-city passenger transport services for the year 2000-01. This is done by the estimation of stochastic frontier production function using the method of maximum likelihood. We found that there is huge disparity in technical efficiency across STUs ranging from 56.15% for Madhya Pradesh State Road Transport Undertaking to 98.99% for Tamilnadu State Transport Corpn. Ltd. (Kumbakonam Division II). Average of technical efficiency scores of sample STUs was found to be 84.22%. The main conclusion in our analysis is that given the size distribution of the sample STUs and their working environment, the potential gain in productive efficiency for most of them is very high