Efficiency evaluation of the state owned electric utilities in India

This paper presents a framework for accessing comparative efficiencies of Indian State Owned Electric Utilities (SOEU), which have been mainly responsible for the generation, distribution and transmission of electricity in India. Performance of 26 utilities was evaluated using the non-parametric technique of Data Envelopment Analysis (DEA), and the impact of scale on the efficiency scores was also evaluated. The results indicate that the performance of several SOEUs is sub-optimal, suggesting the potential for significant cost reductions. Separate benchmarks were derived for possible reductions in employees’ number, and the results indicate that several utilities deploy a much larger number of employees than that required by a best practice utility, and significant savings are possible on this account. It was also found that the bigger utilities display greater inefficiencies and have distinct scale inefficiencies. Exploiting scale efficiencies by suitable restructuring and unbundling of SOEUs are therefore crucial measures that may foster efficiencies in the SOEUs. The paper discusses these results in the context of related policy issues.