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.