Academic journal article Indian Journal of Industrial Relations

Efficiency in Agro-Based Consumer Goods Industries of Tamil Nadu

Academic journal article Indian Journal of Industrial Relations

Efficiency in Agro-Based Consumer Goods Industries of Tamil Nadu

Article excerpt

The competitiveness of a firm can be enhanced either by adopting better technology or by increasing efficiency in the use of existing technology, i.e. through technical progress and changes in technical efficiency (Rashmi Banga 2004). Since the cost of developing or acquiring better technology is usually prohibitively high for a firm in a developing country, the major thrust in increasing competitiveness has to take the route of increasing efficiency. Tybout (2000) reported that the mean technical efficiency level is 60-70 per cent of the best practice frontier in LDCs. Srivastava (2001) estimated the technical efficiency of Indian manufacturing firms and found that the mean technical efficiency declined in the 1990s compared to in the 1980s. Saon Ray (2004) found that ownership of domestic firms by multi-national enterprises has clearly helped in enhancing the efficiency of these firms. This seems to indicate that Indian firms are relying more on acquiring best practice knowledge from foreign firms rather than developing it indigenously. Aggregate studies indicated a long run decline in efficiency in Indian industry as reflected by the negative growth of total factor productivity (Goldar 1986, Ahluwalia 1991). This decline in productive efficiency could have been general or 'disembodied' and / or input-specific or 'embodied'. Any fall in efficiency, whether general or labour-specific, lowers the marginal productivity of labour and, ceteris paribus, pulls down the employment. Thus, declining productive efficiency could well have kept the growth of employment down in Indian manufacturing sector. To reverse the process, the production structure should be made flexible and enable easy substitutability between labour and capital (Lakhwinder Singh & Sighal 1985).

In his pioneering work, Farrell (1957) introduced three major efficiency concepts, two at the firm level and one at industry level viz., technical efficiency, price efficiency and structural efficiency. The estimation of Farrell's efficiency is known as deterministic frontier production function based on inter-firm differences. The work of Farrell was extended by Kopp (1981), which is known as the scale efficiency. This work was followed by Aigner and Chu (1968), Timmer (1971), Arfiat (1972), Richmond (1974) and Schmidt (1976). Followed by Farrell, the stochastic frontier production function (SFPF) was developed by Aigner et al., (1977) independently to measure mean efficiency of the firm. Meesusem and Vanden Broeek (1977) and Battese and Coeli (1992) have directly applied this model. This was followed by DEA models (1978) to measure technical, scale, cost and allocative efficiencies.

There have been visible changes in the overall economic and industrial climate of the state of Tamil Nadu. Coinciding with the new economic and industrial policy of the Government of India, the state government too has announced its own policy, which outlines the main objectives and strategies to achieve them. The state government is concentrating on promoting the development of industries in which the state has a competitive edge. The agro-based industries have been identified as thrust sector for further industrial growth.

Selection of Industries

From the list of two-digit manufacturing industries (table 1) we have selected groups 15,16,17,19, 20 and 21 except 18 which did not match with earlier years' classification of NIC. To bring comparability and uniformity in data product groups 15 and 16 were merged and classified under one heading as 'Food Products, Beverages and Tobacco. Similarly till 1997-98, product group 17 was split into manufacture of Cotton Textiles, Wool, Silk and Manmade Fibre Textiles, Jute and Other Vegetable Fibre Textiles. The data relating to these product groups were aggregated into one category as manufacture of Textiles in order to match with the classification given in NIC 98. For the other product groups relating to manufacture Wood and Wood products and Paper and Paper Products, no aggregation was done since there was no problem of comparability with preceding years'. …

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