Efficiency, productivity dynamics and determinants of productivity growth in Indian telecommunication industries: An empirical analysis

• Published date: 01 February 2022
• Author: Dhirendra Kumar Sahoo,Pradipta Kumar Sahoo
• Date: 01 February 2022
• DOI: http://doi.org/10.1002/pa.2353

ACADEMIC PAPER

Efficiency, productivity dynamics and determinants of

productivity growth in Indian telecommunication industries:

An empirical analysis

Dhirendra Kumar Sahoo

1

| Pradipta Kumar Sahoo

2

1

School of Social Science, University of

Hyderabad, Telangana, India

2

Department of Liberal Arts, Indian Institute of

Technology Hyderabad, Sangareddy,

Telangana, India

Correspondence

Pradipta Kumar Sahoo, Department of Liberal

Arts, Indian Institute of Technology

Hyderabad, Sangareddy, Telangana, India.

Email: pradiptaiith@gmail.com

This paper examines the efficiency and productivity dynamics of the Indian telecom-

munication sector with the help of non-parametric Data Envelopment Analysis

approach for the period 2008–2015. The study finds that the year-wise mean Total

factor productivity (TFP) growth is positive in 2011 and 2013 only, where the overall

TFP growth is negative. From the components of TFP growth, we find that the nega-

tive growth of the firm is due to the negative technology change, not due to the

change of inefficiency of the firms. However, the mean efficiency score is positive

and is backed by a scale efficiency change. Further, from the dynamic-GMM model,

the study ascertains that the determinants of TFP growth are positively affected by

profit intensity, advertisement intensity, import intensity and capital intensity and

negatively affected by the firm's debt ratio in case of Indian telecommunication

forms. This finding suggests to the policymaker that by increasing the key determi-

nants, the performance of telecommunication firms can be increased.

JEL CLASSIFICATION

D24; D61; L96

1|INTRODUCTION

Over the last two decades, the telecommunication industry has

established its identity in the world market due to the constant devel-

opment and adoption of new technology in the field of information

and communication services. It helps to allow the cross-border infor-

mation flow with low transaction costs and accelerate the diffusion of

knowledge with improving the market information. In recent times,

telecommunication is considered as an essential part of human life

and for the rapid development of the global economy. As a result, for

the structural transformation of the various sectors, the importance of

communication services has increased by the industry people and

government agencies.

In the present era, the telecommunication sector in India is con-

sidered as a highly demanded service sector. After the liberalization

period, it has changed drastically and become the world's second larg-

est extensive network of telecommunication subscribers. It accounts

for 70% of the rural population are using the telecommunication facili-

ties, and the rural market would be the significant growth drivers in

the recent future (IBEF, 2018). The government of India announces

the National Digital Communication Policy in 2018. Through this pol-

icy, the government targeted to invest an amount of USD 100 billion

and to create 4 million jobs by 2022 (IBEF, 2018). For the develop-

ment of the Indian telecommunication sectors, the telecommunication

industries are rapidly using new technologies. The recent substantial

change of technology with the increased use of fiber-optic cables,

microwave, satellite, radio wave technology and cellular services

strengthens the future sustainability of telecommunication sectors. In

this regard, we try to measure the performances of the telecommuni-

cation firms in India by measuring their productivity and efficiency. As

various studies by Biancini (2011), Narayana (2011) and Bacchiocchi,

Florion, and Gambaro (2011) highlight that the growth of the econ-

omy is dependent on the development of the telecommunication sec-

tor. Other studies by Gordon and Gupta (2004) and Eichengreen and

Gupta (2011) illustrate that in the case of service sector, information

communication services are the prime drivers of India's economic

growth. So, the development of the telecom sector is only possible

with the higher productivity and efficiency of this sector. To

Received: 31 March 2020 Revised: 22 June 2020 Accepted: 31 July 2020

DOI: 10.1002/pa.2353

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https://doi.org/10.1002/pa.2353