Does Catching-up or Innovations Drive Total Factor Productivity Growth in Indian Sugar Industry? A Non-Parametric Analysis

The study is an endeavor to identify the sources of Total Factor Productivity (TFP) growth in Indian sugar industry at both aggregated and regional levels using non-parametric Malmquist Productivity Index (MPI). The empirical analysis is confined to the period of 31 years from 1974/75 to 2004/05, which has been further divided into two sub-periods on the basis of changes in macroeconomic policy governing the Indian economy: i) Prereforms period (1974/75 to 1990/91); and ii) Post-reforms period (1991/92 to 2004/05). The analysis reveals that TFP growth is primarily attributable to overall efficiency change in general and managerial efficiency change (PECH) in particular during the entire and pre-reforms period. However, during the post-reforms period, Hicks neutral type of technical progress observed to be the dominant source whereas efficiency change observed to be restricting the potential TFP growth rates in Indian sugar industry. The analysis of factors affecting TFP growth discloses that improved mechanization, profitability, industrial concentration and reduction in government interference are the possible policy alternatives to improve TFP growth in Indian sugar industry.