Structural Reforms and Technical Efficiency in the Indian Electricity Distribution Sector

Abstract

This paper examines the impact of electricity reforms on the technical efficiency of the power distribution sector in India, using state-level panel data for the period 1995–2012. We use a two-stage data envelopment analysis (DEA), where DEA efficiency estimates obtained in the first stage are regressed on policy reform variables and some external environmental variables in the second-stage analysis. The bootstrap method is applied to analyze the statistical properties of the nonparametric estimates. First, we find that the partially unbundled structure of the electricity industry, where generation and distribution sectors are integrated but the transmission sector is separate, had significant positive impact on the technical efficiency of the distribution sector. Second, our result indicates that the legislation of electricity reforms had a significantly negative effect on technical efficiency. Third, we find that small-sized electricity distribution sectors/states experienced significant positive gain in technical efficiency when interacted with partial or full unbundling.