Technical Efficiency in Agricultural Production and Its Determinants: An Exploratory Study at the District Level

Author: 
K. R. Shanmugam
Atheendar Venkataramani
Description: 
WORKING PAPER 10/2006
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Abstract: 
Given the importance of agriculture to the well being of a large percentage of Indias population, it becomes important to study how improvements can be made in the productivity of this sector. This study attempts to estimate the technical efficiency a measure of how well inputs are being used towards producing output of about 250 Indian districts in 1990-91. It employs the stochastic frontier function methodology. The results indicate that (i) the land elasticity is the highest followed by fertilizer; (ii) the mean efficiency of raising agricultural output is 79 per cent and therefore there is a scope for increasing output by 21 per cent without additional resources; (iii) states such as Madhya Pradesh, Uttar Pradesh, and Rajasthan have the largest number of districts with below average TE and they stand to gain the most from policy interventions towards improving technical efficiency. The results further indicate that health, education, and infrastructure are powerful drivers of efficiency at the district level and the relative importance of the determinants of efficiency across districts depends greatly on environmental factors, such as agro-climatic zones, technological factors, and crop mix. The results highlight the need for developing policy strategies at a more localized level.