Efficiency and Effectiveness of State Transport Undertakings in India: A DEA Approach

Abstract

The Indian bus transport industry is dominated by the publicly owned State Transport Undertakings (STUs). Most of the STUs have, over the years, accumulated financial losses. However, since STUs offer their services with a social aim, financial losses faced by them may not be bad per se . For publicly owned organizations, efficiency and effectiveness are more important than mere profitability. This paper attempts to measure the efficiency and effectiveness of fifteen major STUs in India for the period 2003-04 to 2013-14 using Data Envelopment Analysis (DEA). The paper also examines STUs’ scale elasticity and its relationship with firm size. It is found that the STUs operating in the state of West Bengal are not only the least efficient but also the least effective whereas Andhra Pradesh state road transport corporation, which is the largest bus transport operator in the world, is the most efficient and effective operator. In general, there is a strong positive correlation between STUs’ efficiency and their effectiveness. On the other hand, there is a negative relationship between size of the STUs and returns to scale; large size firms are showing decreasing returns to scale whereas small size ones are operating on increasing returns to scale. Therefore, a size correction through mergers, demergers or altering scale of operation, as the case may be, will be economically prudent.