Institute for Social and Economic Change
Working Paper: 489
Ownership of Firms and their Implication for Productivity:
An Empirical Investigation in to Indian Mining Industry
This paper examines the difference in productivity existing between the public and private sector of the mining industry in India. The literature on the effect of firm ownership on productive efficiency stands highly divided hence in this context our study adds to the literature by attempting to study the effect of firm ownership on total factor productivity (TFP) in the four sectors of Indian mining industry from 2000 to 2016. Here, we have sought to compare the productivity difference between the public and private mining firms in the four sectors namely- metallic, non-metallic, coal and petroleum. Our paper uses the Levinson and Petrin (LP) method for estimating the TFP of each firm. The results indicate the superiority of private firms in three sectors – metallic, non-metallic, and coal, whereas the petroleum sector reports quite the opposite result. Highest productivity difference was recorded in the non-metallic sector, where in private firms were two times more productive than that of the public firms. Metallic and coal sector followed suit where private firms registered almost more than one times more productivity than the public firms. The above results suggests that although the liberalization process that started around 1990 entailed opening up of the mining industry to private sector participation, with an aim of building healthy competition to improve the productivity of public sector, this very aim has not been materialized as there exists still a large gap between the public and private firms.