This paper attempts to measure the overall technical, pure technical and scale efficiencies in the Indian textile industry and provides target setting analysis for the same using cross-sectional data of 101 companies for the year 2014-15. For the purpose of analysis, we used a non-parametric linear programming technique named Data Envelopment Analysis (DEA) conceptualizing two outputs and five inputs technology. The empirical results showed that the level of Overall Technical Inefficiency (OTIE) in Indian textile industry is to the tune of about 16.44%, and out of this 11.79% points are principally attributed to managerial inefficiency rather than inappropriate choice of the scale size. The study underlines the need for concrete steps on the part of policy makers to withstand successfully the pressure of foreign competition by eliminating the managerial inefficiencies in the process of resource utilization and correcting the scale of operations through concerted efforts of technology infusion.

The Indian textile industry is one of the oldest manufacturing industries of India. The industry considerably contributes to India’s industrial production, Gross Domestic Product (GDP) and export earnings. As per IBEF (2016) report, the Indian textile industry contributes around 14% to the overall Index of Industrial Production (IIP), 5% to India’s GDP and 13% to India’s total exports. The underlying strength of the Indian textile industry is its steady manufacturing base of a broad range of fibers and yarns from natural fibers like cotton, jute, silk and wool to synthetic and man-made fibers like polyester, viscose, nylon and acrylic. According to UN Comtrade (2014) data, India was announced as the world’s second largest exporter of textiles and clothing in the world and Indian textile industry was found to have the highest loom capacity (including handlooms) with 63% of the world’s market share. The Government of India has allowed 100% FDI in the Indian textile industry under the automatic route. Besides, due to the industry’s labor-intensive characteristics, it is also one of the considerable sources of employment generation in India.

The Indian textile industry has two broad divisions, viz., the unorganized sector and the organized sector. The unorganized sector operates through conventional techniques and includes handloom, handicrafts and sericulture segments. On the other hand, the organized sector operates through modern techniques and includes spinning, apparel and readymade garments segments. Although all the industries are directly or indirectly based on agriculture, yet the close association of the textile industry with agriculture (65% of the raw material consumed being cotton) makes the Indian textile industry distinctive in comparison to the other industries.

Operations Management Journal, Investigating the Technical and Scale Efficiencies, Indian Textile Industry, Setting Based Analysis Through DEA