Returns to Scale and Elasticity of Substitution of Labour in Unorganized Food Processing Sector of India

The paper has estimated the returns to scale and elasticity of substitution for different subsectors of unorganized food processing sector by using Cobb Douglas and constant elasticity of substitution functions. The study has found that the unorganised food processing sector is transforming from labour to capital intensive structure and therefore, there is a tendency to employ more skilled labour to manage the increasing capital. Most of the subsectors in the unorganized food processing are facing decreasing returns to scale. Two subsectors — production, processing and preservation of meat, fish, fruits, vegetables, oils and fats (Code 151); and manufacturing of grain mill products, starches and starch products and preparation of animal feeds (Code 153) — have been found to have substitutability of labour for capital which implies that still there is a scope for employment of skilled labour force. To boost processed food manufacturing, two policy areas require immediate attention, viz. infrastructure and entrepreneurship development.