Changes in various policies related to trade and entry of multinational companies in the Indian pharmaceutical industry were initiated in the early 1970s. However, the pace of growth of this industry has shown a remarkable upswing only after 1991, and particularly after 2005. The introduction of pharmaceutical product patents brought new business opportunities. But the increase in competitive pressure has possibly induced the exit of small and inefficient firms and plants from the market. Against this backdrop, it is necessary to assess the performance of the pharmaceutical industry and find the factors responsible for the variation in industry efficiency and productivity. In this paper, stochastic frontier analysis has been used to estimate the efficiencies of plants using unit-level panel data (2000-05). An analysis of the forces of variation in the efficiencies and productivities of these industrial units has been conducted. Plants with low efficiencies have not survived - they have either merged with other plants or been compelled to discontinue their operations. Managerial skill and wage rates have had a significant positive effect on the performance of these plants. Some of the newly identified areas, with special facilities, are conducive to better performance.
