A Cobb-Douglas Analysis of Mining & Quarrying Sector in India

This study investigates the production relationship within the Indian mining and quarrying sector using the Cobb-Douglas production function. The study aims to achieve three key objectives, including describing the production relationship, analysing returns to scale, and determining factor shares. The Indian mineral industry plays a vital role in the economy, with a significant increase in the mineral production index and total value in 2021-2022. The sector consists of metallic and nonmetallic minerals, driving industrial growth. The mining and quarrying sector contributed about 2.40% of Gross Value Added, with 93% of mines concentrated in eleven key states in India. The paper aims to estimate the function’s parameters and analyse returns to scale and factor shares within the industry. By utilizing industry-level data from 1981 to 2023, the study explores the impact of labour, capital, and energy inputs on value added. The study utilizes linear regression and robust models to analyse the data, addressing issues such as normality, autocorrelation, and heteroskedasticity. The findings reveal that, a 1-unit consumption in energy leads to a -.402 percent point decrease in value added, highlighting the importance of reducing energy consumption for efficiency in the mining and quarrying industry. This also indicates energy used inefficiently, possibly more energy consumed without proportional increase in the value added or there is more wastage of energy or industries using outdated technology. The aggregate value of the coefficient is positive, suggesting increasing returns to scale. Most explanatory variables are significant at the 99% level, indicating their substantial contribution to defining the production model. The goodness of fit measure R2 indicates that approximately 96% of the variations in the data can be explained using the specified model. Moreover, it was observed that a higher capital-to-labour ratio leads to a decrease in the rate of substituting capital for labour, indicating diminishing marginal returns to capital or increasing costs of substitution. This research underscores the importance of understanding production dynamics and resource allocation in the mining and quarrying sector to inform policy and investment decisions for sustainable economic growth in India.