Efficiency and Productivity in Indian Agriculture: A

Stochastic Frontier Approach∗

Ayan Kumar Pujari†

January 2005

Abstract
This paper addresses the issues of technical efficiency, total factor productivity and
its convergence for cereal crop production in Indian agriculture using district level
data over a period of twenty-five years from thirteen major states. We estimate a
Stochastic Frontier model to analyze technical efficiency after controlling for the
district specific and climatic impact in the production of cereal crops. Our result
documents that infrastructural (physical as well as social) development can raise ef-
ficiency in cereal production. The policy of license raj (1:4 policy) introduced in the
banking sector has reduced efficiency. The estimated average efficiency scores for
the Indian states show the varying nature of the relative performance of the states.
The result from the calculated Malmquist index of total factor productivity (TFP)
provides the evidence that efficiency change results in fluctuation of TFP change, al-
though the share of technical change is substantial. The tests for conditional as well
as unconditional convergence show that productivity in Indian districts tend to con-
verge in case of wheat, rice, bajra and jowar; but not in case of maize and aggregate
cereal crops.

Key words: Efficiency, Total Factor Productivity, Convergence, India

JEL Classification: D24, O13, Q10

∗ The author is grateful to Prof. Kirit Parikh and Dr. Kausik Chaudhuri for their valuable suggestions
during the preparation of this paper.
† Research Scholar, IGIDR, Gen. A. K. Vaidya Marg, Goregaon (East), Mumbai - 400 065, INDIA.

Phone +91-98924 27401, E-mail: ayan@igidr.ac.in

1 Introduction

This paper analyzes the production scenario in Indian agriculture from the efficiency and
productivity point of view. Agriculture plays a pivotal role in Indian economy. Around
one-fourth of total GDP comes from agriculture and allied activities, which makes it the
largest contributor. This sector provides employment to nearly 70 percent of total work-
force.1 In terms of export earnings also, the share of this sector is substantial. Apart from
these, it provides raw and intermediate inputs to many industries. Thus, analysis of agri-
cultural productivity and performance is important from the standpoint of economy-wide
impact and hence it deserves to be one of the foci of policy makers. On the other hand,
many of national objectives like poverty alleviation, eradication of unemployment and
inequality are also interlinked with the development of the agricultural scenario in India.
After the initiation of Five Year Plans, a number of agricultural policies have been
proved to be helpful in improving the agricultural growth rate which was as low as 0.5
percent per annum prior to 1950 [Bhalla and Singh, 2001]. Large investments in irriga-
tional infrastructure (though not sufficient for India as a whole) and the introduction of
new seed-fertilizer technology during mid-1960s are two such policies that have altered
the patterns and methods of agricultural production. The HYV (High Yielding Variety)
technology was initially confined to Punjab, Haryana and some districts in western Uttar
Pradesh. However, it became popular throughout India later. The same is the case with the
use of fertilizers. During the inception of agricultural reforms, fertilizers were used only
in the irrigated areas, but over time, the rain-fed areas also started using large amounts of
modern fertilizers. The agricultural output in India largely depends on monsoon as nearly
60 per cent of area sown is dependent on rainfall. The introduction of new technology
and machines, such as tractors, also has its own importance in the development of Indian
agriculture. Increasing diversification of the cropping pattern has also contributed to the
improvement in agricultural growth.
1 India 2004, Publication Division, Ministry of Information and Broadcasting, Government of India.
 India, spanning a huge geographical area, comprises of different agro-climatic envi-
ronment and resource endowments. These regional differences tend to get aggravated
further because of the varying levels of investments in infrastructure and technological
innovations. Several studies2 have mentioned the importance of regional differences in
Indian agriculture. Despite these regional differences, it is observed that policies are not
differentiated according to the need of the respective regions. A homogenous policy may
not be effective due to these fundamental differences. This necessitates to analyze such
differences which may provide more insights in making of appropriate policies. It is also
important to observe how efficiently the resources are being used in different regions,
considering the differences in terms of natural resources and endowments.
Traditionally, production functions were used as tools for analyzing the production
structure. The use of production function to analyze the role of inputs is strongly sup-
ported by the mainstream economists. However, due to problems in resource allocation,
some of them feel that the cross sectional production functions are “under rewarding” in
analyzing for which they do not hesitate to call it as “vulgar econometric work” [Kata
[1990] pp 1]. An alternative approach, known as frontier approach is more general than
a traditional production function approach, which postulates that the traditional system
of analyzing production function is not appropriate since it assumes that all individual
firms are technically efficient. Frontier production function relaxes the assumption of
perfect efficiency in the production process and hence it is more realistic than an ordinary
production function.
Given the above situation, our paper is an attempt to estimate a stochastic frontier pro-
duction function for five major crops in India using a district level data set. Apart from
providing the input-output relationship, estimation of a stochastic production function at
least serves two purposes: first the estimation of the efficiency scores highlight the effi-
ciency part of Indian agriculture.3 Second, it also helps to analyze the role of those factors
2 Please see Tedesse and Krishnamurthy [1997].
3 For detail on this, please see Kalirajan and Shand [1999].

2
which may be directly involved in the production process. However, these factors can ex-
ert some impacts in terms of the reducing inefficiency of the production purposes.After
getting the estimates from the stochastic production function, we have constructed the
total factor productivity and analyzed the issue of convergence in terms of total factor
productivity.
Our results document the following: first, apart from the conventional factors of pro-
duction, the inter-regional disparity is substantial and climate has a major role to play in
cereal production. Second, the physical and social infrastructural indicators like market
density, road density, rural bank branch and literacy rate are found to have impact on tech-
nical efficiency. The policy of license raj (1:4 policy) in the banking sector, introduced
in 1977, has reduced efficiency in our model. Third, the efficiency change results in fluc-
tuation of TFP change, although the share of technical change is substantial. Finally, the
tests for conditional as well as unconditional convergence show that Indian districts tend
to converge in case of wheat, rice, bajra and jowar; but not in case of maize and aggregate
cereal crops.
The paper is organized as follows: Section 2 reviews the existing literature. Some of
the conceptual issues regarding the production frontier are analyzed in Section 3. Section
4 discusses the data and the methodology. The empirical results are reported in Section 5.
Section 6 concludes.

2 Literature Review

Efficiency measurements have been attempted in Indian agriculture since 1970s [please
see Lau and Yotopoulos [1971], Sidhu [1974], Junankar [1980], Battese and Coelli [1992,
1995], Datta and Joshi [1992], Shanmugam and Palanisami [1993], Tedesse and Krish-
namurthy [1997], Kalirajan [1997] etc.]. Efficiency has been measured and decomposed
into various components using both parametric as well as nonparametric methods. The
two principal methods that have been employed to analyze the efficiency are Data En-

3
velopment Analysis (DEA) and Stochastic Frontier Analysis (SFA), which involve math-
ematical programming and econometric methods, respectively. Kalirajan [1981, 1985],
Battese and Coelli [1992, 1995], Tedesse and Krishnamurthy [1997], Mythili and Shan-
mugam [2000], Shanmugam [1994, 2000] are some of the studies that use SFA to analyze
efficiency in Indian agriculture. Kalirajan [1981] points out that given the same access to
inputs, the responsiveness of the small farmers to economic opportunities is the same as
the case with the large farmers. His study is based on seventy farmers from Coimbatore
district in the state of Tamil Nadu. Datta and Joshi [1992] document that the technical ef-
ficiency stands at eighty-four percent and sixty-six percent for wheat and rice respectively
using the data on 120 farms from the district of Aligarh in Uttar Pradesh. Shanmugam
[1994], using the data from Ramanathapuram district in Tamil Nadu, estimated a Cobb-
Douglas production function for rice. He suggested that strengthening the farm extension
services is necessary to bridge the gap between the farmers. Battese and Coelli [1995] per-
formed a stochastic frontier analysis using a panel data for ten years. They documented
that schooling increases efficiency while the age decreases it. Kalirajan [1997] suggests a
methodology to obtain economic efficiency of firms using returns to scale. He documents
that half of the rice sample farmers in Karnataka are economically efficient. Mythili and
Shanmugam [2000] estimated a stochastic frontier production function for 234 rice farm-
ers in Tamil Nadu. They obtained wide variation in technical efficiency, ranging from
46.5 percent to 96.7 percent. Shanmugam [2000] used the same methodology in case
of rice farmers for Bihar. He shows the high elasticity of both: land and fertilizer. The
technical efficiency ranges from 36.7 percent to 98.1 percent.
As evident, most of the previous studies have analyzed single crops and the models
are region specific, i.e., confined to one village or one district or one state using farm level
dataset. Our study in an exception in this regard, namely, we use the SFA to analyze the
inefficiency effects of districts in the production of cereal food grains in Indian agriculture
using a panel data for two hundreds and eighty-one districts over a period of twenty-five
years. We also try to model explicitly the role of some of the factors that may affect

4
inefficiency.
Ranade [1986], Sidhu and Byerlee [1991], ?, Kumar and Rosegrant [1994], Rosegrant
and Evenson [1992, 1993], Evenson et al. [1999], Desai and Namboodri [1997], Murgai
[2001], Murgai et al. [2001] etc. are some of the important studied for analyzing the
productivity in Indian agriculture. Almost all of them use the Tornqvist-Theil index to
obtain productivity. Sidhu and Byerlee [1991] estimate a growth in TFP of 1.7 percent
per annum using data from Punjab over the period 1972-1984. ? using the data from
Haryana, Madhya Pradesh, Punjab, Rajasthan and Uttar Pradesh over the year 1970-71
to 1988-89, document that the research and extension services, share of machine labor in
total labor, rainfall etc are positive contributor to TFP growth. However, literacy rate has a
negative coefficient in explaining growth in TFP. Rosegrant and Evenson [1992] estimate
1.01 percent growth in TFP for India. Public research and extension and private inventions
are the most important sources of growth in TFP in case of India. Rosegrant and Evenson
[1993], using the data from 271 districts over the period 1956-87 shows that the growth
in TFP for India stands at 1.01 percent per annum. Decomposition exercise presents that
output growth contributes one-third of the growth in TFP. The remaining can be attributed
to input growth, presence of markets, irrigation facility, literacy rate, use of HYV seeds
augment TFP. Murgai [2001], correcting for bias in technical change measurement in case
of Hicks non-neutral technology, shows that growth in TFP lies between 4 to 5 percent
per annum. Evenson et al. [1999] show that the public agricultural research explains
30 percent of TFP growth. Investment in agricultural extension programs had substantial
effect on growth in TFP. Improved rural markets, irrigation investments and modern inputs
have also contributed to the growth in TFP.
However, the Tornqvist-Theil index needs information about both: quantity and price.
The alternative popular index in this area is the Malmquist index. In case of Malmquist
index, it is possible to calculate productivity only with information on quantity. The other
advantage of Malmquist index comes from the decomposition exercise, namely into tech-
nical change and efficiency change [Färe et al (1994)]. Suhariyanto and Colin [2001] use

5
this approach to analyze agricultural productivity in 18 Asian countries. Coelli and Rao
[2003] also use Malmquist index to analyze productivity in 93 developed and developing
countries. In case of Indian agriculture, our study is the first attempt in this direction.
McCunn and Huffman [2000] document the evidence for the β-convergence and clearly
reject the presence of σ-convergence with the US agricultural data. Suhariyanto and Colin
[2001] document evidence against convergence of agricultural TFP for for eighteen Asian
countries using the data from 1965 to 1996. Coelli and Rao [2003] have considered 93
countries over the period 1980-2000 to analyze TFP. India posted a growth in TFP of 1.4
percent per annum. For India, they found that efficiency change to be 1.008 and technical
change to be 1.006. In the context of convergence, they found that the countries that were
below the frontier in 1980 have a TFP growth of 3.6 percent as against 1.2 percent for
those countries that were on the frontier during the same period. Mukherjee and Kuroda
[2003] address the convergence issue of TFP in 14 major states in India. They document
the evidence for the β-convergence and clearly reject the presence of σ-convergence. They
suggest that elimination of differences in infrastructure, research and development expen-
diture, spending on social services etc. would have a significant impact on the rate of
convergence across different regions in India. Studies regarding the convergence issue
in Indian agriculture at disaggregate level is absent. Our paper is also an attempt in this
direction. Specifically, we address the following questions:
How does the system of cereal production work in India? In other words, what are
the important factors of production that govern the cereal production? Do the regional
differences matter? What is the efficiency level of the system of cereal production in
India and what are the factors that affect efficiency? What is the pattern of total factor
productivity (TFP) and do the Indian districts converge in terms of their productivity?
In the next section, we briefly explain the conceptual issues regarding technical inef-
ficiency, productivity, their respective measurement procedures and convergence.

6
3 Conceptual Issues

Performance is a relative term which is measured by comparing it with a benchmark.

This paper analyzes performances of districts in terms of technical efficiency and pro-
ductivity for cereal production in India. Since the term ‘firm’ is more common in this
kind of analysis, we will use it interchangeably with ‘district’. This section consists of
two subsections. The first one deals with the concepts and measurement of efficiency and
productivity, whereas the second subsection explains the concept of convergence.

3.1 Technical Efficiency and Productivity

Efficiency and productivity are two important aspects to analyze performances of firms.
Here, we briefly discuss their concepts and explain how they are different from each other.

3.1.1 Technical Efficiency (TE)

The concept of frontier is the core substance in analyzing efficiency/inefficiency, which

is used as the benchmark to evaluate the performances. A frontier production function
represents the maximum level of of outputs that can be produced conditional on various
input levels. Therefore, this can be regarded as the underlying technology in the produc-
tion process. The frontier production function postulates the existence of inefficiency in
the process of production.
A firm is said to be technically efficient if it operates on the frontier. The level of
inefficiency is measured by the gap between the realized output and the corresponding
frontier output, conditional on a particular level of input. A formal definition of tech-
nical efficiency would be ‘the ability and willingness of firms to produce the maximum
possible output with a specified quantity of inputs, given the prevailing technology and
environmental conditions. Figure 1 explains the concept of technical efficiency for a one
input-one output case where x and y denote input and output respectively.
In Fig. 1, OF 0 is the production frontier, all points on and below which are feasible.

7
The firms operating on OF 0 are considered as technically efficient (e. g., point B and point
C), where as the firms operating below (e. g., at point A) are technically inefficient. TE
Ax0
at point A would be measured as TE= Bx0 . Alternatively, technical inefficiency would be
TI= 1 − Ax 0
Bx0 =
AB
Bx0 . Note that 0 < TE, TI < 1, since no firm can practically operate above
the frontier and TE+TI=1.
Theoretical works of Koopmans (1951), Debreu (1951) and Shepard (1953)4 are the
initial studies which discuss efficiency. However, productive efficiency was first mea-
sured empirically by Farrel (1957). The empirical research on efficiency involves in con-
structing a frontier (which envelops the data), as compared to production function (which
intersects the data). There are two popular approaches to measure TE, such as Data En-
velopment Analysis (DEA) and Stochastic Frontier (SF) Analysis. The basic idea behind
both the approaches is to construct a frontier and then to obtain TE score on the basis of
the gap between the realized output and the corresponding frontier output for each input
combination. However, the fundamental difference between them is that the former is a
non-parametric approach (uses mathematical programming), where as the later one is a
parametric approach (uses econometric technique). The choice among these two alterna-
tive approaches depends upon the nature of problem at hand. The main advantages of SF
over DEA is that DEA assumes all deviations from the frontier are due to inefficiency and
it ignores the random factors affecting production process. Since the random factors are
taken into account by SF models, it can accommodates the firms operating above the fron-
tier (point D in Fig. 1) also. Here the random errors are greater than the corresponding
inefficiency effects. Additionally, we can perform several statistical tests in SF analysis.
In the present context, we have selected SF model to analyze efficiency in Indian
agriculture for the simple reason that agriculture data, particularly in developing countries,
are heavily influenced by measurement error and the effects of weather, natural calamities
etc.5 However, this has been tested subsequently in our study.
4 Kumbhakar and Lovell [2000], page 6.
5 Coelli, Rao and Battese (1998), page 219.

8
3.1.2 Productivity

Productivity is defined as the ratio of outputs to inputs, where larger value of this ratio are
associated with better performance. In the presence of a single input and a single output,
productivity is a trivial measure, which is expressed as a ratio of output quantity to the
respective input quantity. However, when there are more than one input (which is often
the case) and output, we need an aggregative measures (as indices for inputs and outputs)
to obtain a productivity ratio. Here, by productivity, we mean total factor productivity
(TFP), which is a productivity measure involving all factors of production. In contrast to
this, we can measure the partial productivity, such as labor productivity, land productivity
(yield) etc. which are the traditional measures of productivity. These partial measures
of productivity may provide a misleading indication of overall productivity if they are
considered separately. In Figure 1, we can measure productivity at a particular data point
as the slope of a line from the point to the origin. For example, productivity at point A is
Ax0
equal to the slope of the line OA, i. e., Ox0 . The more the slope, the more the productivity.
There are many ways to calculate productivity, however, we have used the most popular
method (known as Malmquist index of TFP) to analyze productivity in our set up.
Often, the terms productivity and efficiency are used interchangeably. However, they
are not the same thing. It can be seen that even if all points on the frontier are technically
efficient, there would be only one point (where a straight line from the origin is tangential
to the frontier) that has the maximum productivity. Given a technology, each input level
has a efficient point, where as we have only one point with highest productivity for that
technology. In Fig. 1, point A is inefficient. The efficient point with same level of inputs
is B. If there is a movement from A to B, there would be rise in both productivity as well
as efficiency. However, with this technology, there is only one point, i.e., point C, where
productivity is maximized. Moving from point B to C does not add to efficiency, but there
is an improvement in productivity. Point C, in this case is known as the point of maximum
possible productivity or the point of optimal scale. This difference between efficiency and

9
productivity needs to be taken care of.

3.1.3 Modeling Inefficiency

As we have mentioned earlier DEA and SFA are two popular ways to measure efficiency.
DEA was first used by Charnes, Cooper and Rhodes (1978). Since then a large number
of papers have been extended and applied the DEA methodology. On the other hand,
the stochastic frontier was independently proposed by Aigner and Schmidt (1977) and
Meeusen and van den Broeck (1977). While the DEA approach postulates that all devia-
tions of the realized output from the frontier level is are due to inefficiency, SF considers
the effects of random factors also. The key difference between between an SF and a
standard stochastic production function is that SF includes an additional non-negative er-
ror component to explain inefficiency which the standard production function does not.
Several distributional assumption can be made regarding the one sided error term. The
general practice has been to assume an exponential or a half normal distribution.6
SF approach has been extended to model the inefficiency effect also, where one can
identify the factors governing the inefficiency of firms. Pitt and Lee [1981], Kalirajan
[1981], Kalirajan and Shand [1989]7 adopt a two step procedure where the first step in-
volves the estimation of frontier and prediction of efficiencies of the firms. The second
step involves the estimation of a model where the predicted efficiencies are set to be
a function of some explanatory variables. However, recently, developments have been
done to estimate the production frontier along with the inefficiency model with the help
of maximum likelihood (ML) approach. Kumbhakar, Ghosh and McGuckin (1991) and
Reifchneider and Stevenson (1991) specified SF models where inefficiency effects were
expressed as functions of some firm specific variables. Battese and Coelli [1995] extended
these approach to accommodate panel data. Coelli et al. [1998] explain the efficiency
and productivity analysis with DEA, SF as well as various indices to measure productiv-
6 In our study we have assumed a half normal distribution.
7 Coelli et al. [1998].

10
ity. Kumbhakar and Lovell [2000] provides an excellent exposition to stochastic frontier
analysis.
Consider an SF production function for panel data, defined as8

Yit = exp(xit β +Vit −Uit ) (1)

where

Yit is the output of ith firm at t th observation,

xit is a vector of inputs for ith firm at t th observation,

β is a vector of parameters to be estimated,

Vit s are random errors which are i.i.d. ∼ N(0, σ2v ),

Uit s are the non-negative random variables distributed independently, associated with
technical inefficiency,

Vit and Uit are independent of each other and of the explanatory variables.

Equation 1 alone does not explain the factors governing inefficiency. So we need to
specify the inefficiency effect, Uit which is as follows in our analysis.

Uit = zit δ + ωit (2)

where

zit is a vector of variables which explain the inefficiency effects in the model,

δ is a vector of parameters to be estimated,

ωit is defined by the truncation of the normal distribution with zero mean and variance
σ2 , such that, the point of truncation is −zit δ; i. e., ωit ≥ −zit δ. These assumptions
are consistent with Uit s being non-negative truncation of the N(zit δ, σ2 ) distribution.
8 Coelli et al. [1998] have explained this model in more detail.

11
 Since TE of a firm is the ratio of realized output to the corresponding frontier output,
conditional on the level of input, it is derived as follows

Yit
TEit = (3)
exp(xit +Vit )
exp(xit +Vit −Uit )
=
exp(xit +Vit )
= exp(−Uit )

= exp(−zit − ωit )

The parameters of the SF model, defined by Equation 1 and 2 can be estimated simulta-
neously by the method of ML.9

3.1.4 Measuring TFP

The Malmquist approach is the most popular approach to obtain TFP in the literature,
which is based on the concept of distance functions. We can define an output distance
function with period-t technology for a given output vector, y, and input vector, x, as

dot (x, y) = min{δ : (y/δ, x) ∈ Production Set}, δ ≤ 1 (4)

The distance, δ, here represents the smallest factor, by which output needs to be deflated
so as to be feasible with a given input vector, x, under period-t technology. Following
Färe et al (1994),10 the Malmquist TFP change index between period-s (base period) and
period-t is given by

1
d s (yt , xt ) dot (yt , xt )

2
m0 (ys , xs , yt , xt ) = os . (5)
do (ys , xs ) dot (ys , xs )
9 You can find the derivation of the likelihood function and its partial derivative with respect to the
parameters of the model in Battese and Coelli (1993).
10 Coelli, Rao and Battese, 1995, page 223.

12
This can be expressed as the product of efficiency change (EC) and technical change (TC)
as follows:

1
dot (yt , xt ) dos (yt , xt ) dos (ys , xs ) 2

m0 (ys , xs , yt , xt ) = s . = EC. TC (6)
do (ys , xs ) dot (yt , xt ) dot (ys , xs )

It is important to note that constant returns to scale (CRS)be imposed , otherwise the
resulting measures may not properly reflect the TFP gains or losses resulting from scale
effects [Coelli et al., 1998].

3.2 Convergence

There are two concepts of convergence, such as conditional and unconditional. The for-
mer is related to a cross-section study which focuses on the tendency of cross-sections
with relatively low initial levels of productivity to grow faster than the cross-sections with
higher level of initial productivity. On the other hand, unconditional convergence assumes
cross-sections to have the same steady state over time.
Conditional convergence is tested with the coefficient of the regression of growth rates
on the initial levels of productivity, which can be expressed as follows:

gi,t = α + βyi,0 + εi,t (7)

where gi,t = T −1 (yi,t − yi,0 ) is the average growth rate of productivity of cross-section i,
yi,0 is the initial level of productivity of cross-section i, εi,t is an error term with zero mean
and constant variance and α and β are parameters to be estimated. If the estimate of β is
found to be negative and significant, there is said to be Beta convergence (β-convergence).
Another test for convergence, known as Sigma convergence (σ-convergence), holds if
the cross-sectional standard deviations of the log of productivity index decrease over time.
This investigates the tendency of productivity difference between countries to narrow
over time. This can also be done be regressing the standard deviations of the cross-

13
sections over time on a trend variable. A significant negative coefficient would provide
the evidence of the σ-convergence.
The test for conditional convergence is performed through the β-convergence, where
as unconditional convergence test is done through the σ-convergence approach. The
above two approaches are related to each other even though they illustrate different phe-
nomenon. Sala-i-Martin [1996] shows that β-convergence is a necessary, but not the
sufficient condition for σ-convergence.

4 Data and Methodology

The data that we use in the paper comes from multiple sources. The main source is
the International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) dataset.
The ICRISAT provides informations for 281 districts (the smallest administrative units
in India at which consistent and reliable data are available) in 13 major states in In-
dia. Two major states, Kerala and Assam are not covered in the dataset. The time span
covered is from 1966-67 to 1994-95. The other sources we depend on data are Census
India Info 2001 CD-ROM, http://www.indiastat.com, http://www-esd.
worldbank/indian, Statistical Abstracts of several statesi and Statistical Tables Re-
lating to Banks in India. A detailed description has been provided in the Appendix.
We have used the the yields of the aggregate cereal crops and major cereal crops indi-
vidually (wheat, rice, maize, bajra and jowar),11 as the dependent variables in the frontier
estimation. We have also used informations on GIA (Gross Irrigated Area), GCA (Gross
Cultivated/sown Area) and area under crops crops are measured by thousand hectares.
Quantity of labor is the number of rural males whose primary job classifications are agri-
cultural labor and cultivation. Fertilizers (consisting of nitrogen, Phosphorous and Potas-
sium) are expressed in terms of tonnes. Quantity of bullock is the sum of cross-bred and
11 Yieldsof crops are measured as the ratio of production of the crops to their respective area planted
(tonnes/hectare).

14
indigenous breeds cattle.12 Quantity of tractor is the number of four-wheeled machines
(not tracked or walked behind two wheeled ones). All the inputs used in our analysis are in
aggregate level.13 However, the crop wise data for yield of major crops only (wheat, rice,
maize, bajra and jowar) have been used in this analysis. Some climatic variables has been
introduced. The first one is the length of growing period (lgp).14 We have used monthly
normal rain fall information normalized by their corresponding monthly potential evapo
transpiration (pet).15
The output and the input variables (namely, irrigation, labor, fertilizers, bullock and
tractors) are expressed in natural logarithms. The dependent variables are crop, wheat,
rice, maize, bajra and jowar; which are obtained as log(Yieldc ), where c={total cereals,
wheat, rice, maize, bajra and jowar} respectively. The independent variables have been
normalized (to have a proper comparison) with respect to the gross cropped area (GCA).
After transformation, the final set of inputs consists of irrigation index (I), labor index
(L), fertilizer index (F), bullock index (Bu) and tractor index (Tr).
Given the presence of regional heterogeneity as discussed previously, we have also
used district dummy for each of the crops. The set of inputs are in aggregate level and
same for all the crops.16
To model the inefficiency, we have considered several infrastructural variables, such
as market density (ratio of total number of principal and sub-markets to district area), road
density (ratio of road length to district area), rural bank branch density (ratio of rural bank
branch to total bank branch) and literacy rate (for the population over 6 years). The data
on bank branch is at the state level.17 The literacy rate data is from Census of India. We
12 For cross-bred cattle, an adult is over 2.5 years and for indigenous it is over 3 years.
13 Available only for all crops, not crop wise.
14 lgp is a state variable which means that it has been observed once for each districts, i. e., for a district,

it is constant over time.

15 pet is the amount of water transpired in a given time by a short green crop, completely shading the

ground, of uniform height and with adequate water status in the soil profile. Under high rates of pet,
relatively high amounts of soil moisture needs to be available to crops, else a water deficit occurs, reducing
crop growth rate. Irrigation rates can be lowered if pet is low, i. e., where the rainfall index in our analysis
is high.
16 Since crop-wise information are not available for these inputs.
17 This is collected from various issues of Statistical Tables Relating to Banks in India, published by

15
linearly interpolate the data for in between Census years.
After the nationalization of banks in 1969, the Reserve Bank of India in 1977, intro-
duced a policy (which we term as License Raj) in order to promote rural banking. This
licensing policy was aimed at forcing the banks willing to open a branch in an already
banked location to open four branches in unbanked locations. The policy came to an end
in 1991. In order to capture the impact, we have introduced a dummy variable, taking the
value 1 between 1977 and 1991. In order to find out whether this policy has time varying
impact or not, we construct a break trend which starts at 1977 and ends at 1991 (following
Burgess et al. [2004]). The motivation of using this trend break is to capture the differen-
tial impact of pre-licence raj, licence raj and post-licence raj policy period. In line with
Burgess et al. [2004], we also introduce an interaction term (trendbranch), which is the
product of the break trend and the bank branch variables. This linear trend relationship
between state’s initial financial development and rural branch expansion has been used
as an instrument for the number of rural bank branches created in unbanked location as
a result of the 1:4 policy. Burgess and Pande [2003] find that rural branch expansion
has stimulated secondary and tertiary sector output at the expense of agricultural output
and employment. We also incorporate a trend component in the inefficiency equation to
analyze the overall change in efficiency over the covered period. A brief description of
variable construction has been presented in Table 1.
A Translog specification has been used here to estimate the stochastic frontier produc-
tion function which takes the following form:

n
1 n n n
y = β0 + βt t + βtt t + ∑ βi xi + ∑ βii xi + ∑ ∑ γi j xi x j
2 2
(8)
i=1 2 i=1 i=1 j=1

where y is the output index and xi is the ith input used for the production. Note that all y
and xi are in logarithmic terms. The above relation approaches to a CD form if and only if
βii = γi j = 0 and hence is more general than the popularly used CD form. In this model,
Reserve Bank of India.

16
t is the time trend, which is supposed to capture the technical change during the study
period. We also use t 2 to take into account the non-linear impact of the trend variable.
The trend variable in this function accounts for Hicksian neutral technological change.
A Translog function is quadratic in nature, as it is clear from its specification. A
significant coefficient of the square of a particular input would mean that it affects the
production in a non-linear fashion and similarly a significant coefficient of an interaction
term (say, xi x j ) implies that the ith and jth inputs can affect the output by interacting with
each other.
Given the nature of the translog production function, we calculate the marginal effects
(ME) of any input xi on any dependent variable Y as follows:

δy n
= βi + βii xi + ∑ γi j x j (9)
δxi j=1

These ME are the respective partial elasticities. A positive coefficient of βii means that
the ME of xi on y increases with an increase in xi , i.e., the additional y for one per cent
increase in xi is higher with an already high level of xi as compared to a low level of
xi . In other words, the effect of xi on y increases at an increasing rate. With the above
expression, we can measure the ME exhibited by different factors of production on the
output in our system.
Our inefficiency model uses a linear specification which can be expressed as follows:

n
Uit = δ0 + δ1t + ∑ δi Zit + ωit (10)
i=2

where t is the overall trend. The vector Zit consists of the variables explained above.
With the above specification, we have estimated the SF model (Equation 1 and 2
simultaneously) by the method of ML using FRONTIER 4.1c.18 Subsequently a number
of hypothesis have been tested with likelihood ratio (LR) test, which provides justification
18 A computer program, developed by Coelli [1996].

17
for our study. As we have mentioned earlier, six different models have been estimated,
one for each crops and an aggregate model.

5 Empirical Results

In this section, first we will present the hypotheses testing which have been performed to
select our models. The summary of LR tests for the general models for all the crops has
been given in Table 2. We have presented the test results only for the aggregate cereal
crop model.19 The null hypothesis that the inefficiency effects are absent in the model
(i,e,. H0 : γ = δi = 0 for i = 0, 1, · · · , 7) is rejected. Further, the null hypothesis H0 : γ = 0
(inefficiency effects are not random) is also rejected. This signifies the use of SF approach
over a deterministic approach. This also supports the presumption of uncertainties (due
to irregular monsoon, drought, flood etc.) in Indian agriculture.
The rejection of the null hypothesis H0 = δi = 0 for i = 1, · · · , 7 clarifies that they are
well explaining the inefficiency model. Rejection of the next hypothesis (H0 : No dummy
effect) suggests the use of district dummy to control for the district specific unobserved
effects. Finally, the last hypothesis gives the evidence for using Translog specification in
stead of a CD specification in our model. All hypothesis are rejected at all conventional
level of significance.
On the basis of the above results, we estimate our models and report the results in
the next sub-section. This section has been divided into four subsections. Subsection 1
reports the estimation results. The marginal effects at the mean level has been discussed
in Subsection 2. Subsection 3 presents the inefficiency comparison among states. TFP
calculation and its growth have been explained in Subsection 4 and Subsection 5 deals
with the convergence result.
19 The results are same for all the models.

18
5.1 Estimation Results

Table 3 presents the estimation results of the stochastic frontier models. It is observed
that time trend has positive impact in most of the cases both in linear as well as non-linear
sense. The variable ‘lgp’ is found to be an important factor in the production process. The
indices for the climate variable are also found to play an important role in our models. To
save space, the coefficients for dummy variables are not reported here.20 We have also
calculated the marginal effects of the conventional inputs in the next subsection.
In the inefficiency model, a negative sign suggests negative impact on inefficiency
(alternatively, positive impact on efficiency). Table 4 reports the coefficient estimates
of the inefficiency models in each of the cereal crops. The coefficients of time variable
show that there has been significant improvement in efficiency over time.21 In the cereal
production, it is observed that the physical infrastructure variables such as presence of
markets, road length and bank branches do have increased efficency. All of them are
found to have negative coefficients which are significant. This is true for individual crops
also, with some exceptions. The social infrastructural variable (literacy rate) in the case of
aggregate cereal production is showing positive sign, however, the impact is insignificant.
This is also true in case of bajra and jowar. However, in case of rice and maize, it yields
negative significant coefficient. In case of the wheat, the sign of the literacy rate variable
is postive and significant.
The impact of license raj dummy is of mixed nature. Although, the coefficient is
negative and significant in case of aggregate crop, it is positive in four out of five cases
in crop-wise estimation. The break trend is clearly showing that there has been a decline
in efficiency during this period in case of all the crops. This kind of negative impact on
efficiency can be attributed to the pressure on banks due to this 1:4 license policy. The
banks were being set up in those areas where there was hardly any scope or incentives
for the banks. This result is consistent with that of Burgess and Pande [2003]. The
20 Interested readers are requested to obtain them from the author.
21 Except in the case of wheat production.

19
interaction of the break trend with the rural bank branch, however, has shown positive
impact on efficiency. This shows that although the policy of 1:4 reduces efficiency, the
expansion of rural branches in unbanked location as such raises efficiency in cereal crop
production, may be by easing the credit availability source for the rural farmers. This
positive impact of the interaction of the trend break with the rural bank branch is the
result of the incentives and scope being provided to the farmers. Burgess et al. [2004]
also provide the evidence that the instrument for number of rural bank branches have
reduced poverty. Therefore, licence raj policy has influenced Indian agriculture in two
different ways. The direct (negative) impact may not be so strong to eliminate the indirect
(positive) impact on efficiency. However, this issue is beyond the scope of our paper.

5.2 Marginal Effects

Using Equation 2, we have calculated the marginal effects (ME) for all the conventional
inputs (i.e., I, L, F, Bu and Tr) used in the system. We compute the ME using the mean
values of the inputs. It is clear from Equation 2 that the ME are nothing but the cor-
responding partial elasticities. Therefore, ME of an input xi on the output Y gives the
responsiveness of the output Y to one percent change in the input xi .
We have presented the marginal effects (or partial elasticities) in Table 5. It is clear
from this result that ME are more or less same in all the models in terms of their sign.
Irrigation has positive impact on yields. The sign is found to be negative in case of bajra
and jowar. This might be due to the fact that irrigation is not a major factor in the produc-
tion of these crops. Other inputs like fertilizer, bullock and tractor show their respective
marginal effects to be positive, except few cases. This implies that thee inputs have been
helpful in raising the yields of the cereal crops.
The only variable which has a consistent negative impact throughout is labor.22 This
result indicates that there is a need to shift a part of labor force from these activities to
some other productive activities. Dev [2002] also suggests that there should be shift of
22 In case of rice, however, it is positive.

20
labor force from agriculture to non-agriculture sector as the labor productivity in the later
sector is 6.7 times that of the former one. Such shift can help to reduce the gap among the
sectors and hence can be a solution to remove inequality from the Indian economy.

5.3 Efficiency Comparison

The state ranking has been presented in Table 6. Looking at the state ranking in the
aggregate crop model, we find that Punjab, Uttar Pradesh and Haryana are among the
best performers, where as Rajasthan, Maharashtra and Gujarat are the states having low
efficiency scores.23 The ranking of the best performer states is more or less same in the
production of wheat. This clearly shows the efficiency improvement of these states due to
Green Revolution. However, in the case of wheat production, Andhra Pradesh, Karnataka
and Tamil Nadu are the states with low efficiency scores. The ranking in case of rice
reveals that the rice growing states like Tamil Nadu, Andhra Pradesh and West Bengal are
found to have more than the average efficiency. Punjab has also performed well in rice
production.
In the production of bajra and jowar, states like Madhya Pradesh, Karnataka and
Andhra Pradesh are performing well, where as states like Uttar Pradesh, Haryana, Ra-
jasthan etc. are among the poor performers.
The average efficiency in the case of aggregate cereal crop is reported to be 0.82,
where as these figures stand at 0.83, 0.78, 0.74, 0.72 and 0.73 for the production of wheat,
rice, maize, bajra and jowar respectively. The mean efficiency in rice production is re-
ported to be 0.83 by Tedesse and Krishnamurthy [1997]. We found few farm level studies
related to efficiency in Rice production (please see Datta and Joshi [1992], Shanmugam
and Palanisami [1993], and Shanmugam [1994], where as other crops have hardly been
studied individually. These studies report the mean efficiency in Rice production for farms
in Tamil Nadu, Uttar Pradesh and Ramanathapuram district of Tamil Nadu as 0.66, 0.75
23 Note that West Bengal has been excluded from estimation in aggregate cereal crop model due to missing

observation problem. Similarly, Bihar is excluded from bajra and jowar.

21
and 0.82 respectively. All the above follow DEA approach to obtain the TE level. So,
our efficiency score for rice production does not deviate much from those of earlier stud-
ies. We are not able to perform such comparison in case of other crops as there exist no
previous studies.
We also found that the percentage of districts below the average level of efficiency are
respectively 43 percent, 38 percent, 41 percent, 49 percent, 53 percent and 40 percent in
the production of cereal crops, wheat, rice, maize, bajra and jowar. This reflects further
scope to raise cereal production without altering the present input structure. Therefore,
policy makers should formulate relevant policies to train the farmers so that they are able
to exploit the existing resources to produce more.

5.4 TFP Index and its Growth

In our analysis we obtain Malmquist index of TFP as the product of EC and TC. Since
TEi,t
dot (xi,t , yi,t ) = TEi,t , we calculate EC = TEi,t−1 . On the other hand, TC can be calculated
from the estimated coefficients as follows:

∆ ∆
  0.5
TC = 1 + f (xis , s, β) 1 + f (xit ,t, β)
∆s ∆t

The indices of EC and TC are then multiplied to get a Malmquist TFP index as defined in
Equation 6. The TFP index along with two components (EC and TC) are shown in Figure
2 for the aggregate cereal crop model. The pattern of TC, EC and TFPC are same across
the crops. From Figure 2, we can infer that both technical change (TC) and efficiency
change (EC) contribute significantly to TFP change in cereal production. But EC only
generates fluctuation in TFPC. TC is almost constant through out the study period.
In figure 3, we show the TFP growth for the same model. It is clear from the figure
that there has been large drop in productivity during a number of years which are the
years of drought as reported in http://www.csre.iitb.ac.in/rn/resume/
drought/subcontinent.html. Rosegrant and Evenson [1993] also find the same

22
kind of result. They attribute the fluctuation in TFP mainly to fluctuation in output, as
they found the total input use to increase smoothly over time. Contrast to their average
TFP growth of 1.3 per cent per annum, we found an estimate of 1.9 per cent per annum.
The difference may be due to the fact that they consider ten more minor crops in addition
to the five major crops that we consider.

5.5 Results of Convergence Tests

Following the findings of Sala-i-Martin [1996],24 we first test for the presence of β-
convergence before testing for σ-convergence. The regression coefficient obtained from
Equation 7 document the presence of β-convergence only in case of rice, bajra and jowar.
In case of wheat, the sign of the coefficient is positive, but insignificant.25 Hence, we
conclude that in case of rice, bajra and jowar, Indian districts are converging conditional
on their initial TFP.
For these four crops (wheat, rice, bajra and jowar), we check for the σ-convergence.
Here we need to regress the standard deviations of log(productivity) to a time trend. This
regression generates an negative but insignificant coefficient for the aggregate model.26
However, the coefficients are negative and significant in case of individual cereal crops
having coefficients -0.002, -0.01, -0.01 and -0.005 for wheat, rice, maize, bajra and jowar
respectively.27 Thus we find evidence in favor of β convergence as well as σ-convergence
in case of wheat, rice, bajra and jowar, but not in case of maize and aggregate cereal crops.
We can compare our convergence with that of Mukherjee and Kuroda [2003]. In their
state level study, they document the evidence for the β-convergence and clearly reject the
presence of σ-convergence. McCunn and Huffman [2000] also document the same result
with the US agricultural data.
24 β-convergence is a necessary, but not the sufficient condition for σ-convergence.
25 The coefficients are 0.108, 0.007, -0.206, 0.051, -0.382 and -0.016 for aggregate cereal crop, wheat,
rice, maize, bajra and jowar respectively.
26 The coefficient is found to be 0.001.
27 The coefficient in case of Jowar is significant at 10 percent level of significance where as all other are

found to be significant at 5 percent or less than 5 percent levels.

23
6 Conclusion

This paper addresses the issues of technical efficiency, total factor productivity and its
convergence for cereal crop production in Indian agriculture using data for 281 districts
from 13 major state. We estimate a stochastic frontier model to analyze technical effi-
ciency, controlling for the district specific and climatic impact in the production of cereal
crops as a whole as well as five major cereal crops (wheat, rice, maize, bajra and jowar).
The marginal effects of factors like irrigation, labor, fertilizer, bullock and tractor have
also been calculated after the estimation. These results show that all the factors other than
labor help to improve production. We also find that climate has a major role to play in
cereal production. Apart from that, the inter-regional disparities (incorporated in terms of
district dummies) are also substantial in Indian agriculture.
In order to explain the factors responsible for inefficiency, we consider some infras-
tructural indicators like market density, road density, rural bank branch and literacy rate.
These factors are found to have positive impact on technical efficiency which implies
that infrastructural development can raise efficiency in cereal production. The policy of
license raj (1:4 policy) in the banking sector has reduced efficiency in our model. This
result is found to be consistent with that of Burgess and Pande [2003].
Further, we have calculated Malmquist index of total factor productivity (TFP) using
the results from the frontier estimation. We find that efficiency change results in fluctu-
ation in TFP change although share of technical change is substantial. We perform tests
for conditional as well as unconditional convergence using the standard techniques of β
and σ convergence respectively. The tests show that Indian districts tend to converge in
case of wheat, rice, bajra and jowar; but not in case of maize and aggregate cereal crops.
From our study, we conjecture that policy makers should try to improve the infras-
tructure base (both physical as well as social), specially in rural areas, which is crucial
for making Indian agriculture more efficient. This can be possible since there is a large
scope for exploiting the available resource base in an optimal way. Investment in techno-

24
logical improvement, research and development would be key to improve the agricultural
situation in India. We also suggest that policy should be differentiated, keeping the inter-
regional differences in mind. This would help not only to make different regions efficient,
but also they will be able to converge with each other in terms of their productivity. This
can help to remove inequalities among regions within agriculture sector as well as across
different sectors.

25
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Tables

Table 1: Construction of the variables

Variables Description
W log(yield of wheat)
R log(yield of rice )
M log(yield of maize)
B log(yield of bajra)
J log(yield of jowar)
GCA Gross Cultivated Area
I log(Gross Irrigated Area/ GCA )
L log(no. of man days/ GCA )
F log(total fertilizers(NPK)/ GCA )
Bu log(no. of bullocks/ GCA )
Tr log(no. of tractors/ GCA )
market density Total no. of markets/ District area
road density Road length/ District area
bank branch No. of rural branches/ Total branches
a The variable bank branch is a state level variable.

Table 2: Hypothesis Testing for Model Selection

Sl. Null LR Degree of p-values

no. Hypothses Statistics Freedom
1. H0 : γ = δ0 = · · · = δ3 = 0 2363.133 10 0.000
2. H0 : δ1 = · · · = δ5 = 0 366.328 7 0.000
3. H0 : γ = 0 458.497 1 0.000
4. H0 : No dummy effect 2938.103 263 0.000
5. H0 : CD is better than Translog 330.042 16 0.000
a This table is for the aggregate cereal crop model. However, the test results are same
for all the individual crops too.

30
 Table 3: Estimates of the Models

variables crop wheat rice maize bajra jowar

cons -0.105 0.939 -0.691 26.000* -35.146* 0.246

time (t) -3.E-04 0.001 0.020* 0.019* 0.020* 0.028*
irrigation (I) -0.216 0.031 0.166 -0.419 -3.041* -0.664
labor (L) 0.166 0.148 -0.101 -1.445* -1.874* 0.317
fertilizer (F) -0.113 0.394* -0.283* -0.489* 0.694* -0.018
bullock (Bu) 0.013 0.437* 0.110 -0.452* -0.063 -0.291
tractor (Tr) 0.196* 0.187 -0.443* -0.019 0.591* 0.236
t2 4.E-04* 0.001 -2.E-04* -3.E-04 -1.E-05 -5.E-04*
I2 0.076* 0.009 0.056* -0.047 -0.166* -0.098*
L2 -0.050 0.060 -0.023 0.134 0.356* -0.109
F2 0.016 0.001 -0.007 -0.030* -0.025 -0.030
Bu2 0.008* 0.013* 0.002 0.001 0.031* 0.017*
Tr2 0.002 0.011 0.010* 0.007 3.E-04 0.005
IL 0.072* 0.033 -0.015 0.095* 0.402* 0.075
IF 0.021* 0.032 0.018* 0.038* 0.046* 0.035
Ibu -3.E-04 0.034 0.009 -0.051* 0.019 -0.027
Itr -0.001 0.002 -0.008 -0.002 -0.032* -0.019
LF 0.017 0.076 0.032 0.067* -0.085* 0.008
Lbu -0.008 0.048 -0.029 0.037 0.011 0.021
LTr -0.027 0.043 0.066* -0.004 -0.075* -0.032
Fbu 0.008 0.022 0.025* 0.036* -0.001 0.027
FTr 0.001 0.003 0.016* 0.006 0.028* 0.028*
BuTr -0.002 0.006 -0.003 0.008 -0.040* -0.021
lgp 0.051* 0.008* 0.008* -0.036* 0.061* 0.001
c1 -2.624* 1.735* -1.313* -15.750* 6.352* -2.709*
c2 -35.855* 1.060* 5.924 * 38.254 * 17.070* 0.344
c3 -111.170* 2.934* -6.360* -34.450* -69.736* -0.968
c4 52.664* 5.097* -0.974 -92.248* 54.300* -0.092
c5 -11.541* 1.309* 1.285 * 60.171* 46.012* -0.838
c6 5.140* 0.378 1.103 * -5.332* -10.117* 0.320
c7 6.920* 0.227 0.154 2.401* 2.322* 0.197
c8 1.414* 0.121 0.207 -4.624* 4.327* 0.076
c9 -8.274* 0.222 -0.324* 2.068* 12.191* -0.720*
c10 -10.030* 0.280 -0.007 -10.321* 1.041* -0.224
c11 11.174* 0.239 -1.543* -3.150* -43.531* -0.439
c12 13.001* 20.267* -3.398* -12.676* 36.855* -1.630*

* indicates that the co-efficient is significant at 5 percent level of significance.

31
 Table 4: Estimates of the Inefficiency Models

variables crop wheat rice maize bajra jowar

constant 1.177* 0.599 -3.130* 1.146* -3.463* -9.384*

time -0.019* 1.294* -0.081* -0.122* -0.099* -0.319*
market density -77.207* 0.056 -74.624* -91.534* -92.850* -4.919
road density -1.412* 195.987* -2.213* -1.381* -2.974* -1.174*
bank branch -4.046* 1.125* 0.942 -6.056* 2.158* 9.233*
literacy rate 0.024 6.575* -0.547* -0.387* 0.210 0.525
license raj dummy -0.570* 0.339 0.658* 0.511* 0.350* -0.590
trend break 0.294* 0.382 0.636* 0.521* 0.522* 1.509*
trendbranch -0.359* 0.008 -1.081* -0.682* -0.760* -2.310*
σ2 0.492* 0.536* 1.532* 1.562* 2.148* 4.012*
γ 0.987* 0.968* 0.990* 0.972* 0.979* 0.992*

log likelihood 929.39 556.37 -546.86 -2074.82 -1979.28 -1930.68

no. of observations 3592 5082 5401 5193 4039 4748
no. of districts 264 259 271 268 212 236
* indicates that the co-efficient is significant at 5 percent level of significance.

Table 5: Marginal Effects

Inputs crop wheat rice maize bajra jowar

Irrigation 0.173 0.519 0.093 0.089 -0.005 -0.080
Labor -0.272 0.991 -0.278 -0.296 -0.433 -0.358
Fertilizer 0.059 0.952 0.020 -0.001 0.017 0.044
Bullock 0.030 0.832 0.001 -0.012 0.125 0.059
Tractor 0.021 0.505 0.028 0.022 0.032 0.035

32
 Table 6: Efficiency scores of the states

State Name crop wheat rice maize bajra jowar

Andhra Pradesh 0.84 0.77 0.83 0.73 0.72 0.78
Bihar 0.87 0.82 0.80 0.77
Gujarat 0.75 0.81 0.71 0.71 0.72 0.68
Haryana 0.90 0.87 0.81 0.75 0.71 0.69
Karnataka 0.84 0.73 0.79 0.78 0.73 0.75
Madhya Pradesh 0.83 0.84 0.77 0.78 0.73 0.78
Maharashtra 0.76 0.77 0.72 0.67 0.72 0.74
Orissa 0.89 0.82 0.82 0.81 0.72 0.74
Punjab 0.93 0.90 0.86 0.81 0.70 0.73
Rajasthan 0.78 0.84 0.67 0.72 0.71 0.65
Tamil Nadu 0.83 0.65 0.83 0.74 0.72 0.73
Uttar Pradesh 0.91 0.87 0.79 0.74 0.71 0.72
West Bengal 0.78 0.83 0.71
Mean Efficiency 0.82 0.83 0.78 0.74 0.72 0.73
a Note that West Bengal is excluded from the aggregate cereal crop model,
bajra and jowar. Similarly, Bihar is excluded from bajra and jowar. This
exclusion is because of missing data problem.

Figures

6
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Figure 1: Efficiency and Productivity

33
 Grwoth Rate (%) 19
7

0.5
1.5
2.5
3.5

0
1
2
3
4
2
19
7

-0.15
-0.05

-0.2
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0.1
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0
19 3
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19 7 4
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19 19
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EC
8 2 19

34
19 8 3
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TC
year
19 8 4
8

Year
4 19

crop
19 8 5
8 5
TFP

Figure 3: TFP Growth

19
19 8 6
8 6
19 19
8 8 7
7
19 19
8 8 8
Figure 2: TFP Change and its components

8
19 19
8 9 8 9
19 19
9 0 9 0
19 19
9 1 9
19 1
9 2
19
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9 3 19
19 9 3
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9 4
Appendix

Explanation for Data

We have made some adjustments to ICRISAT data using data from several State Statisti-
cal Abstract, Census India Info 2001 CD-ROM, http://www.indiastat.com and
http://www-esd.worldbank/indian, which are consistent. The adjustments
are as follows:

• Production and area data are not available for some states for some particular years.
We obtained some of them from various Statistical Abstract of the States and www.
indiastat.com. Then we construct our dependent variables as the yields (ex-
pressed as tons/hectare) of respective crops.

• GIA (Gross Irrigated Area), GCA (Gross Cultivated Area), Area under HYV culti-
vation for individual crops are expressed in terms of thousand hectares.

• The labor data for 1971, 1981 and 1991 (partially) are available in ICRISAT dataset.
We use the labor variable for 1991 and 2001 census from Census Info 2001 CD
ROM. For the observations between the census years, we use the method of linear
interpolation, following ‘India Agriculture and Climate Dataset’. Labor variable is
the sum of male agricultural labor and male cultivators.

• Fertilizers are expressed in terms of tons which is the sum of nitrogen, phosphorus
and potassium used for cultivation.

• The recent data for bullocks and tractors are obtained from Statistical Abstracts of
the States and www.indiastat.com. Note that that livestock census years are
not the same across states. In case of missing observations, we use the method of
linear interpolation. Bullock is defined as the sum of cross-bred (adult over 2.5
years) and indigenous (adult over 3 years).

• lgp (length of growing period) is the period when the moisture in the soil is adequate
enough to support plant growth.

• ‘pet’ (potential evapotranspiration) is not available for Kanyakumari district. There-

fore, ‘pet’ for an adjacent district (Tirunelvelli) is used for it. In our analysis,
monthly ‘pet’ is used to normalize respective rainfall to get the monthly climate
variables (c1 to c12 in our paper).

• Information on bank branches have been collected from various issues of ‘Statistical
Tables Relating to Banks in India’, published by Reserve Bank of India.

35