Sources of Technical Efficiency in Indian Small-Scale Industry: Frontier Production Function Techniques

This paper studies the efficiency trend in the Indian Small-Scale Industry for the period spanning 1973-74 to 1994-95, using alternative techniques of deterministic frontier production function. In spite of an impressive output growth over the period of study as revealed by published data, this sector is crippled with growing Inefficiency after 1978- 79, presumably owing to lack of sound management practice. Underutilization of capacity caused by bottleneck of raw materials, lack of demand and non-availability of finance, government control and policies, etc. However, the efficiency of this sector has been improving since 1985-86 and reached its full potential in 1991-92 through 1994-95, thus providing some tentative evidence of economic reforms being effective to some extent. An enquiry into the sources of efficiency variations over the years shows that capital intensity, capital utilization and labor productivity playa significant and positive role in these industries.