Towards a better measure of productivity in India: a case of chemical and chemical products industry

What is it about?

This study begins with a brief review of earlier studies on the productivity scenario of Indian industry. Most of the studies analysed are confined to either parametric approach or growth accounting approach of measuring productivity. At the same time, the few studies based on the non-parametric (namely Malmquist productivity index (MPI)) overlook the returns to scale conditions as well as the bias involved in the estimation of distance functions. Given this background, this study empirically tests for the returns to scale that exists in the chemical and chemical products industry in India. The test result suggests that Ray and Desli (1997) approach of MPI is the appropriate one for the present context. Initially, the conventional Ray and Desli (1997) estimation and decomposition of MPI for the period 2001 to 2017 is being used. Subsequently, to correct for the bias in the estimation of efficiency scores used for the estimation of MPI, the bootstrapping algorithm of Simar and Wilson (2007) has been extended into the context of MPI estimation. The former result testifies to an improvement of TFP in seven out of sixteen years under consideration. On the contrary, TFP growth is recorded only in the four years throughout the period after the bias correction. A greater discrepancy between the two measures has been found in the case of scale change factor component of MPI.

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