Total Factor Productivity Growth in the Indian Textile Sector: A Panel Data Analysis of Technical Progress, Allocative Efficiency and Scale Effects

Abstract

This study examines the Total Factor Productivity Growth (TFPG) and its key components—technical efficiency, technological progress, scale efficiency, and allocative efficiency—within the Indian textile sector, using firm-level panel data spanning from 1998 to 2018, sourced from the Annual Survey of Industries. The frontier production function is estimated through the Error Component Model (ECM), while the Divisia Tornqvist index is employed to decompose TFPG into its constituent components. Our findings reveal significant variability in productivity growth across the observed period, characterized by both positive and negative phases of growth. The fluctuations in TFPG indicate that firms in the Indian textile industry have faced considerable challenges in achieving consistent productivity improvements. These inconsistencies can be attributed to a range of factors, including market volatility, technological limitations, and inefficiencies in resource allocation. Additionally, our results suggest that while some firms have managed to achieve technical efficiency and scale economies, others have struggled, contributing to the overall variability in productivity growth. The study highlights the importance of targeted policy measures to foster technological innovation, improve resource utilization, and stabilize productivity growth within the sector. Strengthening these areas could enhance the competitiveness and sustainability of the textile industry in India.