Efficiency of Indian Textile Manufacturing Sector and its Determinants: Evidence Based on Non Parametric Data Envelopment Analysis

Abstract

This paper estimates technical efficiency (TE) of Indian textile firms (ITF) using nonparametric Data-Envelopment- Approach and exploring CMIE data for the period 1995-2016. It finds out the determinants of TE considering the effect of R&D- intensity, firms-size , export-intensity, marketing-intensity, advertising-intensity, total import-intensity and its different components like import of raw materials, stores and spares , capital goods in a panel regression framework. Whether TE improves after the withdrawal of multi-fiber-trade-agreement since 2005 is tested. The average level of TE over the sample years is 0.864, only 17% of the total sample firms are efficient, indicating prevalence of high technical-inefficiency. After 2005, the TE level increases but the TE curve became flatter, implying a decline in the rate of change of TE. Since ITF import a lot of textile-yarn and also re-export it, export and import data are correlated. Separate panel regressions are resorted with export and import as separate regressor. Considering all the factors, the impact of (i) Advertising is positive and linear,(ii) R&D, export and firm size are non-linear with positive marginal effects, (iii) total-import is positive;(iv) imports of capital goods (IMCAP) is insignificant, with significant positive and negative marginal effects of import of stores and spare (IMSTR) and raw materials (IMRAW) respectively; implying positive effect of IMSTR dominates over negative effect of IMRAW, so that on balance total import produces positive effects, (v)net export is negative implying effect of imports dominates over exports.