Efficiency of Khadi and Village Industries in India- Data Envelopment Approach (DEA)

The measurement of efficiency of an industry is important both for the economic theorist and economic policy maker. If economic planning is to concern itself with particular industries, it is important to know how far a given industry can be expected to increase its output by simply increasing its efficiency, without absorbing further resources. Past studies have shown that productivity can be raised by improving efficiency, which usually is a neglected source of productivity, without increasing the resource base or without developing new technologies.

The major objective of this study was to analyse technical, scale, cost and allocative efficiencies of Khadi and Village industries in India between 2000-01 and 2010-11. The efficiency scores were obtained by applying Data Envelopment Approach (DEA). It could be found that for the entire period, technical, scale, cost and allocative efficient DMUs (Decision Making Units) were more under variable return to scale (VRS) than under constant returns to scale (CRS) production technology. Also it is very clear that inefficiency could be due to the existence of either increasing or decreasing returns to scale.