Analysis of Technical Efficiency of Major Indian Ports Using Markov Chain Montecarlo Based Stochastic Frontier Analysis and Malmquist Index

In the last two decades, the Indian government has implemented several port reform programs to increase the efficiency of the major Indian ports. Operational efficiency of the major Indian ports over the period 2011–2023 has been evaluated by framing three research questions: Have port reforms improved port operational efficiency (RQ1)? What are the directions of Technical Efficiency change (Catch-up) and Technological change (Frontier Shift) (RQ2)? And whether the government reforms have an equal or partial impact on ports (RQ3). Most efficiency studies of Indian ports use data envelope analysis (DEA) as a tool. A major drawback of DEA is its inability to consider deviations in output from its frontier due to random exogenous shocks. DEA does not consider two crucial characteristics of the port industry: heterogeneity in production technology, the time-varying nature of operational efficiency, and the influence of random shocks which are uncontrollable by the port authorities. This paper suggests using Markov Chain Monte Carlo-based Stochastic Frontier Analysis to overcome the drawbacks of DEA. Malmquist productivity index is used for further analysis. The analysis indicates that the central government has been able to increase the overall productivity of all the major ports (except Chennai port) homogenously through technological and infrastructure upgrades at a fast pace. However, the major ports are still struggling to keep up with this pace and have been unable to upgrade their technical and operational efficiency as expected.