Analyzing the technical and scale efficiency of small industries in India: state‐wise cluster study

Abstract

PurposeThe purpose of this paper is to examine the relative production efficiency of state‐wise clusters in the registered small‐scale sector in India.Design/methodology/approachFor this, data envelopment analysis under the assumption of variable returns to scale is used. Using BCC model, technical and scale efficiencies for 23 states and three union territories are estimated.FindingsSeven states namely, Delhi, Meghalaya, Uttranchal, Haryana, Punjab, Andaman and Nicobar and Tamilnadu are found to be technically efficient whereas Delhi and Meghalaya came out to be the only scale efficient states. Most of the states are found to be operating at decreasing returns to scale, which signifies the scope for investment and further employment generation.Practical implicationsSince the results indicate massive scope for expansion and employment generation in small industries in India, therefore, policy makers can use it as a tool to achieve the goal of inclusive and sustainable growth.Originality/valueOriginality lies in providing, for the first time, an inter state technical and scale efficiency analysis for small scale industries in India which in turn reflects the performance efficiency of the state level policies for the small scale industries.