This paper approaches the measurement of energy efficiency from a production theoretic framework and uses Data Envelopment Analysis to measure energy efficiency in the Indian manufacturing sector. Using data from the Annual Survey of Industries for the years 1998–99 through 2003–04, the study compares the energy efficiency in manufacturing across states, based on several models. The results show considerable variation in energy efficiency across states. Comparing the results across our models, we find that the relative pricing of energy does not provide the appropriate incentives for energy conservation. A second-stage regression analysis reveals that states with a larger share of manufacturing output in energy-intensive industries have lower energy efficiency. Also, higher quality labor force associates with higher energy efficiency. Finally, the power sector reforms have not yet had any significant impact on achieving energy efficiency.