Estimation of Production Function and Productivity of Indian Cement Industry

Abstract

Productivity is referred to as faculty to produce or what a man can accomplish with material and capital under the known state of technology. However, in economics, productivity is understood as ratio of units of output to units of input. Alternatively, productivity means a ratio of actual output to expect resources used. In other words, Productivity means how much and how well one produces from the resources used. If more is produced or better goods are yielded from the same resources, increase in productivity is understood. Although the definition of productivity appears straightforward, for three major reasons it is difficult to deal with (Anderson, T.D., 1996; Fitzsimmons, J.A. and M.J. Fitzsimmons, 1997: Witt, C.A. and S.F. Witt, 1989). First, the outputs are usually expressed in different forms to the inputs. Outputs are often measured in physical terms such as units (e.g. cars produced), tones (of paper), kilowatts (of electricity), or value (Euros) for example. However the inputs are usually physically different and include measures of people (numbers, skills, hours worked or costs) or materials (tones and costs) for example. Second, the ratio by itself tells us little about performance. A ratio of 0.75 is of little value unless it is compared with previous time periods, or a benchmark, or the potential productivity of the operation. Third, many different ratios can be used (both financial and nonfinancial, that can be used to create productivity ratios).

The Proposed paper is an attempt to measure the Productivity of Indian Cement Industry through the empirical study for a period of 33 Years starting from 1973-74. ASI data is been used with Price correction at WPI (2001-02) and CPI (2002-03) Bases.

The productivity indices like Technological change measured through Elasticity of Substitution amongst core factor inputs like labour and capital, Total factor Productivity based on Solow Model on Technological Progress, Capital Intensity and DEA technique to measure Allocative and Technical Efficiencies with 18 decision making units (18 States) and Total Outputs- ,Net Value Added ,Gross Capital Formation & Income are considered for analysis. 2004-05 ASI data is been used.