Role of transaction cost on financial performance of sugar industry of India
by
Pratapsinh Chhauhan
MBA Department, Saurashtra University, Rajkot(Gujrat), INDIA

Agriculture is still the backbone of Indian economy as it contributes a considerable 30% share to the total national income and provides employment to 2/3rd population of the country. Sugar industry has a very importance place in the agriculture sector. There are as many as 426 sugar mills in the country. The Indian sugar industry also deals with 45 million farmer families as the second largest Agro-processing industry. These sugar mills are not properly managed as far as their performance is concerned. The heavy losses, sickness and poorer performance lead to analyse the financial performance of the sugar mills in India. The heavy losses, sickness and poorer performance lead to analyse the financial performance of the sugar mills in India.

The study has the following precise objective to examine the role of transformation vis-à-vis transaction cost in economic and financial performance of the Indian private sugar industry and Second, to bring out the policy implications of transaction cost analysis for future development of this industry.

General hypothesis was that the transaction cost role was closely related to financial performance in terms of profitability. Operational factors were also affecting to transaction cost and financial performance of the sugar industry.

The analysis concluded that the financial variable related to transformation cost and transaction cost and it also includes the operation variable for i.e. return on net sales based on cane quantity crushed and sugar produced in quintals influencing financial performance of sugar industry. Transaction cost (TC cane-2) on cane crushed, percentage of transaction cost in advertising, marketing and bad debts (PTC Cane-2) and transaction cost (TC Sug-2) based on sugar produced were highly statistically significant. Whereas operational variable capacity was also statistically significant (Ecapa). Remaining variables are not statistically significant on return on net worth between two groups.

The overall conclusion of the regression model was the transaction cost influencing the financial performance at greater extent where as transformation cost leads to increase profitability up to optimum level of production but after that it negatively influence the financial performance. The recovery positively influences the financial performance. Where as the Pdaylos (Working day losses) is highly statistically significant in all models. It means that working day losses lead to decrease overall efficiency of sugar industry.

Date received: July 19, 2003