Growth and Productivity of Food Processing Industries in Punjab – An Empirical Analysis

Rohin Malhotra

Published on: 2019-03-30


One of the important factors in the success or otherwise of a process of starting a new business and helping the entrepreneur to identify business opportunities is social capital. However, the importance of social capital as a catalyst for the recognition of entrepreneurial opportunities has been little studied. Given this importance, it is certainly possible to question the impact of social capital on the recognition of new entrepreneurial opportunities. To answer the various questions raised, a questionnaire-led and administered interview was conducted with 50 entrepreneurs. For data analysis, different statistical methods were used. First, in order to describe the characteristics of the entrepreneurs and companies studied, we use descriptive statistics. Then, we proceeded to the purification of the measurements by using the method of exploratory factorial analysis. Finally, a passage to the selection of the most revealing variables between the groups was made using the discriminant analysis method.


Social capital; Recognition of new entrepreneurial opportunities; Information resources; Financial resources


Momentum in agriculture (in India) that was gained in 1960s due to the introduction of green revolution started fading away in 1980s and the success story carved began to be hovering around wheat and rice crops only. Later, it was realized that the states which were primarily the beneficiaries of green revolution (Punjab, Haryana, Western Uttar Pradesh and parts of West Bengal etc.) witnessed slow growth in productivity of agriculture due to depleting water table as well as increasing soil salinity and micro-nutrient deficiencies accompanied by rising costs of production thereby leading to stagnating income of the farmers. New farm technology adopted by farmers since mid-sixties required heavy investment of capital in the form of farm machinery, irrigation equipment’s and other inputs like chemical fertilizers, pesticides/insecticides, etc. to maintain pace [1]. Farmers had to spend huge amounts of cash on purchasing market supplied farm inputs and machinery to carry out their production operations [2]. Farmers needed finance for carrying out the cultivation as well as for subsistence. Farmers borrowed money year after year, yet they were not able to clear their loans because the proceeds from agricultural produce failed to commensurate with the amount to be returned [3]. All these factors turned out to be responsible for increasing indebtedness among the farmers and suicides in the farm sector [4]. Thus, Green Revolution of 1960s turned out to be conflict-producing instead of conflict-reducing after almost five decades.

Economic prosperity and the lead of Punjab in terms of per capita income is now history and other states have surpassed this long lead. There is growing need to provide respite to the farmers and bring back the lost glory of the state. Accordingly, there is a need to emulate the growth pattern of out shining states of India. In recent decades, different states like Maharashtra, Gujarat, Andhra Pradesh and Uttar Pradesh etc. have brought substantial changes in the pattern of production, consumption, and trade in Indian agriculture. An important change is the shift in production and consumption from food grains to high value agricultural commodities such as fruits and vegetables, milk and milk products, meat, eggs, fish and processed food products. The trade in these high value products is also increasingly displacing exports of traditional commodities such as rice, sugar, tea, coffee, tobacco, etc.

With an increase in the number of working couples, there is paucity of time to prepare the meals by married females which has necessitated the requirement of ready-to-cook foods. Thus, high value agricultural crops are assuming increasing weightage day by day. Moreover, due to improvement in technology, physical input of the people has decreased because of which their lifestyle has become sedentary which has deteriorated the quality of life [5]. Therefore, people are becoming more diet conscious and relying on healthy foods with lower carbohydrates and cholesterol contents like zero-percent transfer snacks and biscuits, slim milk, whole wheat products, oats, soybean products, cornflakes etc. Consumers are aggressively demanding better, safer and convenient food products for which they are even willing to pay a higher price. This has given an added stimulus to the food processing industry in the recent times [6]. Further, a strong and dynamic food processing sector provides vital linkages and synergies between agricultural and industrial sectors thereby providing a potential for the growth of the economy [7]. Since Punjab’s agriculture is plagued by inherent problems and food-processing industry having been identified as catalyst in transforming the misfortunes of the state into fortune, eminent economists like Johl are strongly advocating the case for developing food processing industries in the state on war footing basis [8-10]. Taking a step ahead, the present study attempts to find out the growth and productivity of food processing industries in the state. Specifically, objectives of the study are:

  1. To find out the dominant and fastest growing food processing industries in Punjab
  2. To analyses the patterns of labor and total factor productivity growth in the manufacturing sector using state-level data from the Annual Survey of Industries for the period 1980/1 to 2007/8

Briefly, the study is divided into five sections. Section I is introductory in nature wherein the relevance of food processing industries is highlighted. In section II, database and methodology is discussed in detail. Analysis pertaining to the dominance and growth of Punjab’s food-processing industries is presented in section III. Productivity of food-processing industries of Punjab is discussed in section IV. Concluding remarks follow section V.

Data Base and Methodology

For the purpose of study, secondary data from various issues of Annual Survey of Industries (ASI) published by the Central Statistical Organization, Ministry of Planning, Department of Statistics, Government of India for the years 1980-81, 1990-91, 2001-02, 2010-11 and 2015-16 is used. Broad classification of industries listed in the group of food-processing have undergone drastic reclassification from 1980-81 to 2015-16. In order to arrive at comparable and meaningful results a concordance is developed  by clubbing the similar industries classified under different codes in National Industrial Classification - 2008 (Annexure I) [11-15]. First of all, we have assessed the share of food processing industries in total food processing group in Punjab in terms of total  output, number of factories, and number of workers, invested capital, and net value added. It is undertaken to examine the dominance of different food-processing industries in Punjab. In  order to study the growth of food-processing industries, compound growth rate of each of the selected indicators have been calculated for different time periods. Trends in growth are studied by computing the compound growth rate through principle of least squares, using following formula.

Log Y = Log a + (Log b)t

The data given in ASI reports is on current prices but for proper comparison, values are deflated with the help of suitable deflator (1993-94 = 100). For finding out the productivity, we have used the non-parametric method of Data Envelopment Analysis (DEA) primarily on the assumption that all food processing industries in Punjab share a common production practice. We have taken gross value added as output and labour and capital as two inputs in the production function. We neutralized the heterogeneity impact of using different production functions for different industries. The Malmquist indices are computed on the basis of annual time series data for the time-period 1980-81 to 2015-16. Using DEA, Malmquist indices of productivity change is decomposed into components of change in pure technical efficiency, technical progress, and scale efficiency. It enables us to identify the sources of productivity growth to make efforts to transform the lagging industries into the leading ones. We assume that all the industries are operating at an optimal scale. The Malmquist input oriented Total Factor productivity (TFP) change index between the base period t & the following period t+1 is defined as:

A value of M greater than unity implies a positive TFP growth

from period t to period t+1 whereas a value of M less than one indicates a TFP decline. Equation above is the geometric mean of two TFP indices. The first index is calculated with respect to period t technology, while the second index is evaluated with respect to period t+1 technology. The advantage of the Malmquist index is that it allows us to distinguish between shifts in the production frontier i.e. Technological Change (TC) and movement of firms towards the frontier Technical Efficiency Change (TEC). The measure of technical efficiency must be between 0 and 1 [16- 20].

Total Factor Productivity Change Index =

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