Changing Efficiency Profile of Organized and Unorganized Segments of Indian Garment Producing Units: A Comparative Analysis in the Post-MFA Period

Abstract

National Textile Policy 2000 and interventions in the Indian textile sector around the turn of this century were designed to introduce efficiency-enhancing policy reforms through gradual withdrawal of restrictions on the organized and of protection for the unorganized segments of the industry. Such changes are expected to have affected the relative performance of the organized and unorganized segments of the Indian garment industry by influencing their conducts differentially. Removal of capacity restrictions was expected to initiate optimal restructuring of production. Unorganized firms generally enjoying scope economies and advantage of small batches production are supposed to deal with its problem of market access through complementary linkage with larger units. In this context, the present paper seeks to compare the change in efficiency profile of the concerned segments of selected Indian states between 2001 and 2011. Output-oriented data envelopment analysis indicated that majority of both organized and unorganized firms in most of the states were technically inefficient even at the end of the study period. Use of sub-optimal inputmix turned out to be the important cause of inefficiency in the organized segment while operating on a less than optimal scalepossibly due to typically limited access to market - contributed to the inefficiency for greater part of unorganized garment units. A meta-frontier analysis indicated that the scale-enhancing policy measures possibly favoured the organized sector more than its unorganized counterpart in all the states under consideration. This draws our attention to the need for recognizing the different requirements of these two segments of firms and for adopting a segment-specific support strategy.

Keywords: Garment Production in India, Organized and Unorganized Firms, Production Efficiency, Technology Closeness Ratio

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