Productivity Dynamics of the Indian Food Processing Industry: A Total Factor Productivity Approach

Abstract

Indian food processing sector, with its significant contribution to the value addition, employment generation, and in international trade, is still at nascent stage of development processing only 10 per cent of total agricultural output. Hence, to gain insights into the productivity improvements, the study attempted to assess Total Factor Productivity of Indian food processing industry by employing the data collected from Annual Survey of Industries for its various sub-sectors from 2008-09 to 2019-20. Widely used technological framework of Cobb- Douglas production function was utilized to analyse the data. The results revealed that, India’s organized food processing sector was continued to be dominated by traditional sectors with blooming non-traditional sectors. Analysis of output elasticities revealed that most of the sub-sectors were largely driven by capital expansion and further, results on TFP growth unveiled heterogeneity pattern of productivity gains with macaroni processing units registering highest productivity improvement. The dairy sub-sector showed negative TFP growth and coupled with decreasing returns to scale, indicated efficiency gaps while meat and bakery sub-sectors with positive TFP growth and increasing returns to scale exhibited untapped scale potential. This mixed productivity pattern highlighted the need for targeted policy interventions focused on technological diffusion, strengthening supply chain efficiency, skill development, and sustainability rather than merely on augmenting production. While the current study analysed the productivity dynamics of the organized food processing sector, the same can be extended to unorganized processing units, which hold significant potential for rural employment generation and income diversification. Further, exploration on policy impact, supply-chain constraints, technology adoption and resource use efficiency can provide deeper insights into the sector wide productivity.