The Changing Role of Technological Factors in Explaining Efficiency in Indian Firms

The liberalization process undertaken by the Indian economy in recent times has thrown up many challenges. This paper investigates the factors explaining industrial efficiency in India and whether there has been a change in these factors since liberalization was ushered in 1991. This paper investigates the efficiency of firms during the period 1991 to 2001, using the concept of frontier production functions. Estimates of inefficiency have been obtained for 23 industry groups using the Capitaline Ole′ database for three years 1991, 1995 and 2001. We find that the variables relating to external competition and technology flow from outside such as royalty payments, exports and import of raw materials have become significant in the year 2001 which were not so in the year 1991.