The Application of DEA for Econometric Inferences Towards the Efficiency & Benchmarking of Indian Industry and Inefficiency Estimation of Indian Cement Sector

Abstract

Present study is an attempt to estimate the level of economic efficiency and benchmarking various States of India who are significantly contributing in Indian Industrial Economy by using Input-Oriented CRS Model of DEA by developing an efficiency frontier through optimizing the weighted output to input ratios of each contributory units of the industry under the assumption that ratios can equal but not exceed unity for any one of the contributor. Besides, this paper presumes the importance of various years of production of cement across India and the combination of forces like demand for cement and installed capacity to generate outputs being measured in terms of actual production and capacity utilization during a period of over 20 years starting from 1991-92 though unconventional, Data Envelopment Analysis is conducted to scale Technical efficiency or inefficiency, per-say. To benchmark the performance of Indian industries during the study period, DEA has been employed where it fundamentally, takes into account the total input and total output of all Indian Industries as Decision Making Units (DMUs) to calculate technical efficiency (TE). TE is treated as an indicator of performance of DMUs and comparison has been made amongst them. The use of DEA to benchmark the years of technical efficiency with judiciously selected inputs and outputs mixes are applied to all India Industries. Input-oriented CRS Model is been used for DEA Econometric inferences. In the case of constant returns to scale, both orientations give close results. A separation into technical and scale efficiencies have been accomplished without altering latter conditions for use of DEA directly on observational data. This paper also takes an account of T.E of Indian Industries being categorized on different basses such as Employment, Capital invested etc.