Cost structure of India's iron and steel industry: Allocative efficiency, economies of scale and biased technical progress

This paper analyses the structure of costs in the Indian iron and steel industry. Using aggregate data for the period 1960-1961 to 1982-1983 we discover that the factor combinations have been cost minimizing. Estimation of a generalized cost function reveals that (1) production is characterized by increasing returns to scale; (2) technical progress has, over time, increased the use of some factors and reduced that of others, all else remaining the same; and (3) there exist considerable opportunity for substitution between factors. Several policy conclusions emerge: in particular, the inappropriateness of visualizing a fixed relation between additions to capacity and additional output.