143 Does Ownership Affect Firms Performance • CHANDAN SHARMA Does Ownership Affect Firms Performance Evidence from Large Firms of the Indian Machinery Industry? Chandan Sharma Machinery industry is one of fastest growing industries and it is also instrumental for various other industries’ growth in India. In this study, we compare technological progress and technical efficiency of large machinery industry firms. TFP of firms is estimated using the innovative technique of Levinsohn and Petrin (2003), while technical efficiency is measured by using Battese and Coelli (1995) technique. This study focuses only on the post-reform period (1994 to 2006). The findings are robust, however, surprising in many aspects. The results suggest that public sector firms are on an average equally productive as private sector firms in the sample. A comparison between domestic (Indian) firms and foreign firms in terms of TFP suggest that the latter group has an edge over the former group, and more importantly this edge has been growing over the period. In terms of efficiency also, results are similar. Overall results suggest that foreign firms are the best performers in the industry, while domestic private firms are the worst performers. SECTION I INTRODUCTION Ever since the beginning of economic reforms (1991) in India, privatisations of public sector units and encouragement to foreign firms to operate in the country have been important parts of successive governments’ industrial policy. Major reasons cited for the privatisation and globalisation policies in the industry include poor technology and efficiency level of public sector units; and superior technology and efficiency level of foreign firms which help domestic firms through spillover. However, several economists and political groups are not convinced with these arguments, which have led to a debate on the issue both in economic literature and in political arena. The outcome of the debate is very relevant from the perspective of a policy standpoint for the Indian industry. In the existing literature, theoretical models suggest that foreign-owned firms perform better than domestically-owned firms (for instance see, Helpman et al. (2004)) and private COMMUNICATION FOR DEBATE & RESEARCH / 2 Chandan Sharma, Faculty Member, ICFAI Business School (IBS), Gurgaon, India, and Research Scholar, Department of Financial Studies, University of Delhi, New Delhi. E-mail- chandanieg@gmail.com