[Forthcoming in the Journal of Developing Areas]

The liberalization process underway in the Indian economy in recent times has thrown up many challenges. This paper investigates the factors explaining industrial efficiency in India and whether there has been a change in these factors since liberalization was ushered in during 1991. Since the economy and in particular the industrial sector has been besieged by recession in recent years it is pertinent to investigate the changing role of the determinants of the efficiency of firms. This paper investigates the efficiency of firms during the period 1991 to 2001, using the concept of frontier production functions. Estimates of inefficiency have been obtained for 23 industry groups using the Capitaline Ole ¢ database for three years 1991, 1995 and 2001. We find that the variables relating to external competition and technology flow from outside such as royalty payments, exports and import of raw materials have become significant in the year 2001 which was not the case in the year 1991