Efficiency Measurement by DEA Approach to Aggregate Manufacturing Sector of India

Abstract

In this paper an effort is made to measure the technical scale, cost and allocative efficiency in the aggregate manufacturing of India by applying DEAP version 2.1. for the reference period between 1998-99 and 2011-12. It was found that both under CRS and VRS technology, the number of technical efficiency scores or levels during the entire period was indicative of the fact that the efficiency of the manufacturing sector of India was not strongly influe11;ced by the size of production. DEA results applied to know the scale efficiency for the entire period revealed that the manufacturing sector of India was not operating at an optimum scale. Indeed, most of the inefficient DMUs presented increasing returns to scale characteristics which indicated that industry can increase the scale to effectively improve that efficiency. Comidering the cost efficient DMU's, it was found to be more under VRS production technology. The average cost inefficiency was more under CRS production technology than under VRS production technology. Hundred per cent allocative efficiency DMU's were observed in VRS production technology compared to CRS production technology.