Factors affecting technical efficiency of Indian fabrics industry : a fresh look using non-parametric method

The present paper aims to access the performance of the Indian Fabrics Industry (IFI) across firms through estimating its efficiency scores covering the period 1991 to 2015 considering Centre for Monitoring Indian Economy (CMIE) firm level data using Nonparametric Method of Data Envelopment Analysis (DEA). It also attempts to find out the factors affecting the efficiency scores of IFI by employing panel regression, which allows for the possibility of simultaneity among the regressors. The present paper uses two-stage methodologies. First, the OTE scores are estimated using DEA. Secondly, the factors influencing TE scores are found out. The result suggests that on average IFI produces 76% of the maximum producible output and that most of the firms’ performance is above average. The relationship between Technical Efficiency (TE) and some variables is found to be nonlinear; the relation between advertising intensity of the previous period and TE is inverted U-shaped. Firm Size, Research and Development Intensity, Net Export Intensity and Marketing Intensity are positively related to TE. It is observed that the effect of dismantling the Multi-Fibre Agreement has a negative effect on Technical Efficiency. The paper recommends policy changes leading to increases in Firm Size, Research and Development Intensity, Net Export Intensity, Advertising Intensity and Marketing Intensity to promote TE of IFI.