Institute for Social and Economic Change
Working Paper: 449
Technical Efficiency of Unorganised Food Processing
Industry in India: A Stochastic Frontier Analysis
The Indian food processing industry, which is labour-intensive in nature, plays a crucial role in the absorption of manpower essential for economic development of the country. The industry is, however, often labelled as a sink for unskilled masses to be absorbed without contributing substantially to the national income. Given this backdrop, the present study adopted the Stochastic Frontier Analysis (SFA) as part of examining the efficiency of the unorganised food processing industry using NSS 73rd (2015-16) round unit-level data. The analysis is carried out by grouping the entire industry under six sub-sectors. The study reveals that although capital plays a significant role in enhancing the output levels of firms, a disproportionate increase in the capital accumulation doesn’t necessarily enhance the efficiency of the firms in terms of improved output levels. The efficiency scores reveal that the industry has been unable to realise its full potential. The inefficiency model suggests that lack of skilled labour handling capital goods, under-provision of credit and absence of full-time workers are the major sources of observed inefficiency of enterprises.