Did India's Economic Reforms improve Efficiency and Productivity? A Nonparametric Analysis of the Initial Evidence from Manufacturing

In this paper, state-level input and output quantity data constructed from the Annual Survey of Industries, for the period 1986-7 through 1995-6 are analysed, to measure levels of technical efficiency for each state, for each of the sample years using the non-parametric method of Data Envelopment Analysis (DEA). The resulting information is used to examine (i) whether the post-reform years show any improvement in efficiency compared to the years prior to the reforms and (ii) which of the states have shown the most gain in efficiency. We also measure both Tornqvist and Malmquist indexes of multi-factor productivity for each state for individual years treating the preceding year as the base. This permits us to compare the average annual rates of multi-factor productivity growth before and after the reform. Both measures show that, on average, the annual rate of productivity growth has been higher in the post-reform period than in the pre-reform years. However, some states have actually experienced a slowdown in the productivity growth or even productivity decline after the reforms. Decomposition of the Malmquist productivity index shows that improvement in technical efficiency as well as faster rates of technical progress contributed to the observed acceleration in the growth rate. A subsequent regression shows that there is a tendency towards convergence in productivity growth rates across states.