RIEB, Kobe University

Identification of Factors Behind Performance of Pharmaceutical Industries in India

The changes in various policies related to trade and entry of multinational companies in Indian pharmaceutical industries have started during early seventies. However, the pace of growth of this industry have shown a remarkable upswing only after 1991 and it shows a major jump after 2005. The introduction of pharmaceutical product patents brings new business opportunities to the Indian pharmaceutical industry. On the other hand the increase in competitive pressure has possibly induced the exit of small and inefficient firms and plants from the markets. In this backdrop it is necessary to assess the performances of pharmaceutical industries during the recent years and to find out the factors responsible behind the variation of industries efficiency and productivity. In this paper Stochastic Frontier Analysis (SFA) have been used to estimate the efficiencies of firms using the unit level panel data (2000 to 2005) of Indian pharmaceutical industries. Also, Total Factor Productivities (TFP) have been estimated using the same data. Finally, some analysis have been made to find out the forces of variation of efficiencies and productivities of these industrial units. It has been observed that the firms with low efficiencies and low TFP cannot survive and either they merged with other firms or they are compelled to discontinue their operation. Managerial skill and wage rates have significant positive effect on performance of these firms and some of the newly identified areas with special facilities are found conducive for the better performance of pharmaceutical industries.