Relative Efficiency of Manufacturing Companies in India Using Data Envelopment Analysis

Abstract

Manufacturing holds a key position in the Indian economy, accounting for nearly 16 percent of the real GDP in FY 12 and employing about 12 percent of the country’s labour force. Growth in the sector has been strong, outpacing overall GDP growth since the past few years. For example, while real GDP expanded at a CAGR of 8.4 percent over FY 05–12, growth in the manufacturing sector was marginally higher, at around 8.5 percent over the same period. Consequently, the sector’s share in the economy increased (albeit marginally) to 15.4 percent from 15.3. An attempt has been made in this study to evaluate the relative performance of selected manufacturing companies ((decision making units) DMUs) in India through data envelopment analysis (DEA) for the period 2014–15. DEA is typically used to measure the technical efficiency (TE) between 0 and 1 range. A careful study of DEA analysis of the selected companies under study highlights the fact that by improved handling of operating expenses and interest costs and thereby boosting companies’ incomes, the less efficient companies can successfully achieve optimum performance level. Since this study attempts to minimize input, so input oriented data envelopment analysis is used. The result of the study shows that nine banks are found efficient when their efficiency is measured under CRS, VRS and SE method.