Assessment of Technical and Scale Efficiencies of Indian Cement Industry Using Data Envelopment Analysis (DEA)

Abstract

Indian cement industry has grown in terms of capacity over the last two decades after liberalization. Due to the recent emphasis on infrastructural development by the Government of India, the cement industry is growing further in terms of scale and scope of operation. Some cement companies in India are claiming to be the cost leaders, but there are relative differences in technical efficiency and scale efficiency of companies. This paper attempts to examine the technical efficiency as well as the scale efficiency of 32 cement producers in India using data envelopment analysis (DEA) over a panel period of three years (2006–2008). The multiple outputs considered for the model are revenue generation from sales of cement and other variations of cement generic products. The inputs included in the model are raw material, manpower, energy and capital. This analysis brings out a distinct classification of cement producers in terms of relative efficiencies. This paper demonstrates, there are some cement producers whose technical and scale efficiencies are continuously increasing and strategically positioned in the capital market.