A Productive Efficiency of Input Uses in the Indian Carpet Industry: Stochastic Frontier Approach

The carpet industry is an important and integral part of small scale and cottage industry of India, making positive contributions to employment, income and foreign exchange. The growth of the industry has been upward and thereby has acquired the first position in the exports of carpet in the global market. This study has tried to empirically investigate the Cobb-Douglas production function and stochastic frontier model for the carpet industry of India. The result shows that the coefficient of capital and labour are 0.38 and 0.56 respectively indicating the labour-intensive nature of the industry as well the decreasing returns to scale of the industry. The efficiency level of the industry on an average is not impressed with 39% average efficiency level, although the most efficient firm has an efficiency level of 89%. The industry needs proper support from government in order to eliminate the inefficiencies and bottlenecks faced by the industry.