Decomposition of Technical Efficiency and Productivity Growth in Indian Pharmaceutical Industry: A Non-Parametric Analysis

Abstract

This paper analyzes the technical efficiency and total factor productivity growth of Indian pharmaceutical sector for the period 1991 to 2011, using Data Envelopment Analysis. Cross sectional data for 30 major Indian pharmaceutical firms have been culled out from the reports of Centre for Monitoring Indian Economy, Economic Survey of India and Annual Survey of Industries. The technical efficiency of 30 major Indian Pharmaceutical firms have been calculated at five points of time, whereas the TFP growth has been calculated four periods. Three inputs have been considered, viz., net fixed assets, raw material and total expenses and one output, i.e., net sales. Average performance of the selected firms was suboptimal and the inefficiencies were enlarged in the post-TRIPS period. Decomposition of total factor productivity growth into efficiency change and technological change reveals that productivity growth was positive in the Pre-TRIPS period, but became negative thereafter. Technological change contributed towards the growth of productivity whereas efficiency change restricted the potential productivity growth. There is a need to reduce the managerial, technical and scale inefficiencies and ensure efficient capacity utilization.