Review of Industrial Organization 15: 165–182, 1999.
© 1999 Kluwer Academic Publishers. Printed in the Netherlands.
Comparative Organizational Characteristics of
Indian State-Owned Enterprises
SUMIT K. MAJUMDAR
The Management School, Imperial College of Science, Technology and Medicine, London SW7
Abstract. This article evaluates the organizational characteristics, deﬁned as returns to scale and
most productive scale size, for a sample of 67 Indian state-owned enterprises in comparison with 63
private and 27 foreign-owned enterprises. State-owned units suffer from decreasing returns to scale
with diseconomies being associated with their large size. The average most productive scale size of
the state-owned ﬁrms is considerably smaller than average actual size, establishing the need for a
break-up of existing units into many smaller units so as to gain efﬁciencies. A policy of restructuring
these organizations before privatization will enable privatization to be eventually more successful.
JEL Citation Index: D 24 (Production: Capital and Total Factor Productivity); L 32 (Public Enter-
This paper reports the results of a comparative study evaluating the organiza-
tional characteristics of a set of Indian state-owned enterprises. The study provides
enterprise-level estimates of returns to scale and most productive scale size char-
acteristics for each state-owned ﬁrm analyzed. A review of these data provide an
indication of the direction and magnitude of restructuring that may be required for
state-sector ﬁrms to be economically viable. The ﬁrms studied account for a very
large proportion of all Indian state-owned enterprises. The results shed light on the
characteristics of ﬁrms which are signiﬁcant in the Indian industrial context, and
the privatization of which is a top policy priority if the Indian reforms process is
to succeed. The paper unfolds as follows. In the next section the background and
theoretical issues are discussed. The section that follows describes the empirical
details. The penultimate section contains a discussion of results, and the last section
concludes the paper.