Perspectives of productivity growth in Indian food industry: a data envelopment analysis

Abstract

PurposeThe purpose of this paper is to measure the Malmquist Productivity Index and its different components such as technological change, technical efficiency change and the change in scale efficiency in the Indian food industry during the period spanning 1988‐1989 to 2004‐2005. Further, it examines the variation in productivity and its components with respect to the factors internal to the firms.Design/methodology/approachThe technique of data envelopment analysis has been used to measure productivity index and its different components under the assumption of variable returns to scale. Further, log‐linear regression model has been used to explain the variation in productivity and its components with respect to certain factors internal to the firms.FindingsIn spite of a strong agricultural base and being the third largest producer of food products in the world, India's food processing industry is far from tapping its full potential as a result of a low rate of technological progress/regress on the one hand and increasing inefficiencies of the firms on the other hand. It is necessary to encourage imports along with R&D to ensure faster technological progress in the Indian food industry. However, the technological possibilities depend on the mode of organization and various economic and institutional factors. Therefore, bold institutional changes are to be made side‐by‐side in order that inefficiency is substantially reduced.Originality/valueThe present study evaluates the contribution of technological change, technical efficiency change and scale efficiency change to total factor productivity growth in the Indian food processing industry by using the firm‐level data, collected from the Centre for Monitoring Indian Economy (CMIE). It further examines the impact of some common factors internal to the firms on their performance.