An Assessment of the Performance of Indian State-Owned Enterprises

Abstract

We examine the determinants of performance of 68 Indian state-owned enterprises in the manufacturing sector for a five-year period: 1987 to 1991. Relative performance is determined using data envelopment analysis, with variations in performance patterns subsequently explained using regression analysis. We note that the performance of firms in the Indian state-owned sector is characterized by both, low performance, as well as significant and systematic variations in the performance parameters. Size is positively associated and age negatively associated with efficiency. Further, economic liberalization and reforms aimed at improving the performance of state-owned firms induces efficiency gains over time. This heterogeneity within the state-owned sector has policy implications, which we discuss. In countries which have privatized large numbers of their state-owned firms, it is often the larger establishments which have been sold to the public. The state-owned firms in the manufacturing sector that can be candidates for privatization are the smaller and older manufacturing firms. These firms may also be easier to dispose of to private investors. This finding reinforces our central thesis that firm-level analysis within the state-owned sector is useful and important for generating pragmatic policy guidelines.