Estimating Factors Affecting Technical Efficiency in Indian Manufacturing Sector

Abstract

Existing studies could not estimate the technical efficiency (TE) of firms and it's affecting factors in the Indian manufacturing sector. So, the present study examines the TE of firms using a stochastic frontier production function approach. Thereupon, it examines the impact of S&T and IPRs related factors on estimated TE of firms using a linear regression model. Estimated values of TE of firms show that most firms have a TE of 94%; thus, firms are efficient in producing surplus production in the manufacturing sector. It is acclaimed that firms can improve production scale using more technological upgradation and advancement. Furthermore, empirical results indicate that process innovations of firms, quality certification of firm, firm acquired process/product patents, in-house R&D expertise of firms, public-technology support institutions of firms, proficiency to improve processes of firms, new or improved products of firms, waste management capabilities of firms, and skilled workforce of firms are appeared effective activities to increase the TE of firms. It is proposed that there is a requirement to increase R&D expenditure, a collaboration of industries with research academia, incentive to researchers and scientists to do extensive research in emerging sectors of technologies and appropriate financial support to firms to boost the growth of Indian manufacturing sector.

Factors Affecting Firm’s Annual Turnover in Selected Manufacturing Industries of India

“…Small and medium-sized enterprises in the manufacturing sector have effective contributions to the socio-economic development of a nation (Patnaik & Satyaprakash, 2015;Kaur, 2016;Singh, Ashraf & Arya, 2019;Kapoor, 2018;Etim, Umoffong & Goddymkpa, 2020). It is a crucial sector to absorb the skilled and unskilled workforce at a larger-scale as compared to other sectors of a country (Sen & Das, 2016;Singh, Ashraf & Arya, 2019). Thus, the manufacturing sector is an option to create jobs for the present and future population in agrarian economies (Kapoor, 2018).…”

“…Also, research institutions could generate enough revenue through technology transfer and commercialization, thus, the manufacturing sector could create extensive jobs for skills and unskilled laborers in these countries. STD works as a vital driver to increase the technological advancement and skills of people in a country (Singh, Acharya & Chavda, 2017;Singh, Ashraf & Arya, 2019;Singh, Arya & Jyoti, 2019;. Technological development is useful to reduce human effort and to complete their desired goals in various sectors (e.g., education, health, employment generation, transport, shelter, food security, and others) .…”

“…Thus, technological development is required for the socio-economic development of a country . In India, Micro, Small, and Medium Enterprises (MSMEs) are useful to increase social and economic development (Kaur, 2016;Singh, Ashraf & Arya, 2019). Around 80% of Indian workers are engaged in the unorganized manufacturing sector which adds around 16% share in India's GDP (Vrajlal, 2015;Sen & Das, 2016).…”

“…Thus, aforesaid policies could not show a positive impact on the performance of the manufacturing sector in India. Indian manufacturing sector has a low global value chain, low R&D spending, poor quality of products, extensive dependency of firms on foreign technologies, low innovative ability of firms, ineffective IPRs regime, low association across firms, low applications of advance technologies, low trust of entrepreneurs on domestic technologies, insignificant association of research institutions with industries, low technology transfer and commercialization, low financial support from banking sector and financial institutions for small-scale firms, inadequate public-private co-operation, low productivity of human resource, poor infrastructure, stringent and complex labor law, technological backwardness and scarcity of skilled workforce, and others (Deolalikar & Röller, 1989;Mazumdar, Rajeev & Ray, 2009;Ray & Saha, 2010;Iyer, Koudal & Saranga, 2011;Srivastava & Chandra, 2012;Vrajlal, 2015;Kaur, 2016;Singh, Ashraf & Arya, 2019;. India has the 2 nd largest population in the world.…”

“…Also, several studies have assessed the impact of socio-economic and policy factors on growth, profit, and other characteristics of the manufacturing sector in India (Tripathy et al, 2016;Tyagi & Nauryal, 2016). Also, several studies have estimated the impact of various activities on a firm's output, sales growth, employment rate, TFP, TE, and performance of the Indian manufacturing sector (Mazumdar, Rajeev & Ray, 2009;Kumar & Arora, 2012;Kathuria, Raj & Sen, 2013;Pattnayak & Chadha, 2013;Sahu, 2015;Bhatia & Mahendru, 2015;Chaudhuri, 2016;Kumar & Sharma, 2016;Mitra, Sharma & Véganzonès-Varoudakis, 2016;Singh, Ashraf & Arya, 2019). Though, limited studies could examine the firm's annual turnover affecting factors using firm-level information of the Indian manufacturing sector.…”