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Latest Working Papers

WP194: Bottled Drinking Water Industry in India: An Economic Analysis, Swadhin Kumar Mondal, September 2016

Abstract: While safe drinking water is an effective defence against the infection of water borne diseases, a large number of populations suffering from these diseases do not have access to safe drinking water due inadequacy of supply. Private entrepreneurs entered this sector and made bottled drinking water available by supplying various kinds of bottled water. In this study we found that the bottled drinking water industry has experienced a spectacular growth over the past two decades and it has a huge growth potential because of rising demand for safe drinking. High profit margin (217%) is the main attraction to the entrepreneur to invest in this industry. Health awareness, lack of safe drinking water facilities, rising income, urbanization, migration and rising trend in tourism industries are the major influencing factors of demand for bottled drinking water (BDW). This industry also partially fulfils the demand for drinking water. More than 2 per cent of household’s demands were met by this industry and many more households (additional 4%) coping with BDW during water crisis. Poor households spend around 4 per cent of their total monthly household’s consumption expenditure on BDW which may have an adverse impact on household because households could have spent this for purchasing other goods. Like other developed counties, a large section of Indian households are shifting from their traditional sources of water to BDW. However, there are some concerns about the quality of BDW. Many cases, BDW contains chemical toxins at more than permissible level that can be harmful for health. Hence, there is an urgent need for appropriate intervention to regulate price, reduce potential harm and improve the quality of water provided by this industry.

WP193: An Analysis of Foreign Acquisitions in India’s Manufacturing Sector, Beena Saraswathy, August 2016

Abstract: Globally cross-border mergers and acquisitions (CM&A) are an important component of FDI. Though CM&A is less significant in India compared to the global scenario, its contribution is gradually increasing. This study throws light on the current foreign acquisition scenario in India and the emerging concerns. The study observed that across various sectors, many leading foreign firms are trying to eliminate competition in the domestic market by taking over competent firms with high growth potential. The major aim behind the takeover of Indian firms is to expand their Indian operations through acquisition route and to exploit the capabilities built by domestic firms through years of effort. The recent trend in the CM&A scenario is the acquisition of start-ups. The study suggests a look into the Chinese experience, where, in certain areas, foreign acquisitions are scrutinised to ensure compliance with the national security concerns.

WP192: Impact of Trade Liberalisation on the Indian Electronics Industry: Some Aspects of the Industrial Policy Dynamics of Global Value Chain Engagement, Smitha Francis, July 2016

Abstract: This paper examines the interplay between trade liberalisation and industrial policies and its implications for industrial restructuring in order to understand how trade liberalisation has influenced Indian electronics firms’ engagement in global value chains. The domestic electronics industry’s pre-liberalisation development trajectory shows that there were inadequate government-directed efforts for creating technological capabilities and scale in domestic firms, and for developing synergies at the industry level. As a result, the industry’s premature exposure to severe external competitive pressures with rapid trade liberalisation of the computer and telecommunications industries under the WTO’s ITA-1 from 1997 became a major obstacle in its subsequent development. A significant part of the learning process required for technological catch-up and potential for systemic synergies was further lost because direct imports took over and domestic manufacturing was avoided in the case of a large number of products in the absence of strategic industrial policy support. Moreover, under successive governments’ liberal FDI regimes, there were nil or ineffective industrial policy measures in place linking foreign-invested firms and the domestic supplier base to ensure positive spill-over effects. These policy failures to correct for market failures were compounded by India’s FTAs with East and Southeast Asian countries, with the latter extending tariff liberalisation to consumer electronics and professional, medical, and scientific instruments. The deep and broad trade liberalisation, the liberal FDI regime, and the absence of vertical industrial policies have together removed tariff-hopping and other policy-driven incentives for MNCs and domestic firms to undertake local production. The consequences are revealed in the continuously growing electronics imports and in the particular nature of India’s two-way trade in electronics products. In the case of all the major trade partners, analysis of India’s bilateral intra-industry trade (IIT) undisputedly established that the rise in intra-industry trade involving both horizontal and vertical differentiation has only contributed to India’s rising trade deficit with each of them. The paper argues that along with vertical industrial policies for upgrading firm- and industry-level productivity and improved infrastructure, a calibrated approach towards trade and FDI policies such that they do not negate incentives for value adding local production is an imperative for enabling domestic firms to engage in global value chains in a sustainable manner.

WP191: Pharmaceuticals, Product Patent and TRIPS Implementation, Dinesh Abrol, Nidhi Singh, et. al., March 2016

Abstract: The article examines the impact of delayed TRIPS implementation on: (i) the introduction of new drugs by domestic and foreign firms, and (ii) the position of foreign firms and competition in the retail pharmaceutical market in India. Data on the impact for the purpose of evidence building is taken from a database created on the status of patents granted on new chemical entities (NCEs) by the authors for the drugs introduced in India since 1995. The data set uses the priority year of basic patents of all new drugs and NCEs on which patents were accepted in the mail box after 1995 and for which foreign firms were granted products patents under the amended patent law from 2005 in India. Consequently, the changes that have taken place in the structure of Indian pharmaceutical market at the product level are assessed with regard to the nature and extent of participation of the originator companies in the case of two hundred sixty eight new drugs. Results suggest that while the market power of foreign firms is on the rise, their market power would have been greater had India opted for early TRIPS implementation like many of the countries in Latin America did and have suffered. However, the study suggests that the looming threat of patent monopolies should not be underestimated by policymakers in India. The study points out that the share of patented compounds is fast increasing in some of the therapeutic groups such as anti-cancer, cardiovascular, central nervous system, diabetes, urology and a few more groups where foreign companies are in a better position to control the market and production.

WP190: FDI, Technology Transfer and Payments for Know-How: A Case Study of Automobile Sector, Swati Verma & K.V.K. Ranganathan, March 2016

Abstract: Technology transfer is largely considered as the most important contribution of FDI by the Indian policy makers. However, the process of acquiring technology through FDI route involves severe ambiguities mainly related to the complex forms and mode of technology transfer and its pricing. The paper explores this issue by evaluating the intra-firm cross-border royalty and technical fees payments of select listed and unlisted foreign invested automobile firms of India mainly during 2010-11 and 2011-12 and identifies a range of concerns. Identification of technology payments from company disclosures is very difficult owing to the various direct and indirect forms of transactions. The study noted that the susceptibility of such transactions to transfer mispricing seems to be quite high. The appraisal of such intangible assets using the arms-length criterion of comparability involves various complexities and practical challenges. Where perpetual technology linked outflows of substantial values have happened over the years especially after the recent deregulation, the grounds on which such payments are justified by the foreign firms are dubious. The pricing and rationale of these payments have been disputed as being inappropriate by revenue authorities in several instances. Also, very few firms engaged in any local R&D and perpetual technological dependence was suggested in many cases. A number of unlisted firms reported losses in two study years with negligible dividend distribution. While far more transparency is required in the disclosure of intra-firm technology payments by firms, the paper primarily argues for a critical evaluation of the gains to the economy through these transactions and advocates caution in relying on FDI as a source of technology.

WP189: Pharmaceutical Innovation and Contribution of In-house R&D of Domestic firms after TRIPS in India, Dinesh Abrol and Nidhi Singh, March 2016

Abstract: The article examines the changes in the pattern of contribution of domestic pharmaceutical firms to product and process innovation in India after the implementation of Trade related Intellectual Property Rights (TRIPS) Agreement. The assessment focuses on the impact of the public policy framework devised by the Indian government to approach the challenge of complementarities of the post-TRIPS patent policy with industrial, innovation and health policies. The policy was devised based on the understanding that learning by global integration is a self-sustaining process leading to not only success in the exports of generic medicines, but also to the development of capabilities for product innovation, for which incentives build up automatically. The analysis focuses on the contribution of in-house R&D activities of domestic pharmaceutical firms to the making of product and process innovation. Results indicate that the contribution of domestic firms to product, process and manufacturing innovation is embedded in a heroic conception of learning, competence building and innovation making. Domestic firms have been practicing investment in innovation thinking that their own in-house R&D efforts when combined with contribution from strategic alliances and collaborations being entered into will enable them to develop new products and processes and to remain competitive in the emerging domestic and global pharmaceutical markets. Analysis indicates that the innovation patterns using the path of global integration of pharmaceutical sector with the big pharmaceutical business is not working for the benefit of product innovation and manufacturing of new pharmaceutical products in India. The links of domestic firms with public sector research organisations are the weakest link of national sectoral innovation system for product innovation in the sector of pharmaceuticals in India. The contribution of domestic firms to pharmaceutical innovation activity landscape needs indigenous innovation to be prioritised by the government, industry, clinicians and public research system.

WP188: Impact of Mergers on Competition in the Indian Manufacturing: An Assessment, Beena Saraswathy, March 2016

Abstract: The Competition Commission of India has taken over the functions of the MRTP Commission from 2009 onwards. This marked a paradigm shift in the competition regulation in India. The latter dealt with competition issues in India for more than three decades. In general, the approval of combinations has been distrusted by the academic circles, mainly due to its potential to create or strengthen the market power of the firms, which in turn affect consumer welfare adversely. In this study, an attempt was made to examine the role of mergers in changing the level of market competition across various industries since it reduces the actual number of firms in the industry, which in turn is likely to allow the merged entity to derive and strengthen the benefits out of the increased market power. Various indicators such as disappearance rate and survival probability were adopted to examine the effect of mergers. In the Indian context, it has been the first attempt to empirically examine the impact of mergers on competition across sectors over a long period. The study found that in most of the merger intensive sectors, the disappearance rate was significant and thus would have influenced market competition. However, in the case of surviving firms, the increase in market shares is not sustained in the long run as expected, which was mainly due to the absence of synergy creation during the post-merger period.

 

 

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