Benchmarking the Indian Pharmaceutical Industry: A DEA-Tobit Analysis of Performance and Policy Implications

Abstract

India has emerged as a leading global centre for pharmaceutical production, playing a vital role in the global supply of cost-effective, high-quality generic medicines. Recognised as a key contributor to global healthcare security, the sector continues to expand in both scale and strategic importance. The present study evaluates the performance of major Indian pharmaceutical firms by examining their technical efficiency and the organisational attributes that shape it. A balanced panel dataset of 49 firms operating over the period 2010–2024 serves as the empirical foundation for the analysis. A two-stage methodological framework is implemented. In the first stage, Data Envelopment Analysis (DEA) is used to compute efficiency levels based on selected input and output indicators. Both the input-oriented Charnes, Cooper, and Rhodes (CCR) model and the Banker, Charnes, and Cooper (BCC) model are applied to capture performance under the assumptions of constant and variable returns to scale, respectively. Findings from the DEA indicate that most firms underperform the efficient frontier, with overall efficiency levels averaging 68% to 78%. These scores highlight substantial potential for firms to improve their resource utilisation and competitive positioning. Further, a censored Tobit regression model is adopted to determine the influence of organisational determinants on the efficiency outcomes. Results reveal that firms with stronger profitability and higher foreign exchange earnings tend to exhibit greater efficiency. Conversely, firm age and R&D intensity display negative associations, suggesting older firms and those with higher innovation investments may face structural or cost-related inefficiencies. Although foreign exchange spending shows a positive coefficient, its impact remains statistically insignificant. The study underlines the importance of strengthening innovation capacity, enhancing global linkages and formulating supportive policy interventions to boost firm-level efficiency. Improved operational performance in this sector can advance public health and achieve sustainable, inclusive healthcare objectives aligned with SDG-3.