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On-going Research and New Research Initiatives
  • India’s Inward FDI Experience in the Post-Liberalisation Period with Emphasis on the Manufacturing Sector

The study was taken up in the context of absence of detailed information on India’s foreign direct investment (FDI) inflows, despite the fact that in the post-liberalisation period FDI is being seen as a key factor in the country’s economic development. The project aims to analyse India’s FDI experience through (i) identifying India’s relative place in global FDI flows; (ii) a disaggregate analysis of India’s FDI inflows; and, (iii) analysis of specific aspects of functioning of a relatively large number of representative set of companies having FDI. It is also proposed to take up specific sectors depending upon their immediate relevance for FDI policy. The project proposes to use of a variety of data from national and international sources some of which are not known to have been deployed to understand India’s FDI experience and thus seeks to offer deeper insights. This ICSSR-sponsored two-year project was commenced on May 01, 2013.

  1. FDI in India’s Manufacturing Sector and M&As: Some initial results of the study were presented at the IGIDR Silver Jubilee Conference on Trade and Industry organised in Mumbai during October 22–24, 2013. Subsequently a paper titled “FDI Inflows into India’s Manufacturing Sector and M&As: An Exploratory Study“ was presented at the National Conference on India’s Industrialisation: How to Overcome Stagnation? organised by ISID in Delhi during December 19–21, 2013. The study noted that while as per the official estimates, M&As account for less than 30 per cent of the inflows, in reality they accounted for a far greater share of 47 per cent. If only the inflows that could be termed as genuine FDI, the share would be even higher at 54 per cent. Not only the acquisition-related inflows accounted for a significant part of the total inflows into the manufacturing sector, they also seem to have influenced the year-to-year changes suggesting that it was not a one-off phenomenon. The relation was stronger in case of the inflows categorised as genuine FDI. Overall, there would not have been capital formation commensurate with the quantum of reported inflows, especially in what are termed as high and medium technology industries except the automobile sector. Acquisition-based inflows, unaccompanied by substantial capacity expansion, may not help India achieve the objective of increasing the share of manufacturing in GDP. The revised conference paper has been brought out as a Working Paper of the Institute titled “FDI into India’s Manufacturing Sector via M&As: Trends and Composition.”
  2. FDI Definition: While the concept of FDI is well understood, its identification has been a major problem. In this background and in the context of India’s ongoing efforts to distinguish foreign direct and portfolio investments, an elaborate Discussion Note was prepared. The note suggested that mere labelling of an investment as FDI based on the 10 per cent thumb rule will not serve the purpose either in the medium or long term. Just because an investment is defined as direct or portfolio, the basic characteristics will not change. The pressing need is, in fact, to distinguish among the FDI investors themselves.
  3. FDI in Healthcare Sector: Since the main objective of the project was to understand the characteristics of the investments into manufacturing sector at a disaggregated level, a pilot exercise was taken up to study the inflows, greenfield investments and M&As in the drugs and pharmaceutical industry, which according to official data on equity inflows received the maximum investment among the manufacturing sectors. The initial results were presented at the National Conference on Pharmaceutical Policies in India: Balancing Industrial and Public Health Interests organised jointly by ISID, PHFI and TWN during March 06–07, 2014 at ISID. These were also discussed at a training-cum-workshop which preceded the conference and attended by a large number of scholars and practitioners from different parts of the country. Further work on the topic ’FDI in India’s Healthcare Sector’ is underway.
  4. FDI Policy in Defence Industries: While most of the manufacturing sector is open to 100 per cent foreign investment, due to its importance for national security India did not open the defence sector to FDI until 2001. Along with opening the sector to private participation in May 2001, India also allowed FDI up to 26 per cent in these industries. Since then and until August 2013 when the cap of 26 per cent was virtually removed, the reported FDI inflows into the sector at $4.94 mn were almost negligible. No additions took place since then either. This is probably one of the reasons why opening up the defence sector to 100 per cent FDI participation is being discussed once again. It is understandable that a country with large dependence upon imports would like to promote domestic production not only to ensure supplies in critical times, but also to reduce the import burden, besides providing fillip to the local manufacturing sector which has been languishing. The argument for relaxing the limit on FDI in defence industries is based on certain assumptions like diversification of global defence production and higher shares of foreign equity encouraging foreign companies to invest in India and to transfer state-of-the-art technology. The study seeks to examine these assumptions empirically and a draft paper is expected to be ready by September 2014.

The next step is to analyse global greenfield and M&A data. Downloading and collection of data from company annual reports is in progress. It is proposed to hold a workshop during March 2015 in order to discuss the outcomes and to benefit from the deliberations in finalising the overall project report.

  • Constructing an Urban India

It is argued in the ongoing work that whatever the nature of urbanization—‘top heavy,’ tertiarised and sans industrialisation—India needs to promote urbanisation since we can demonstrate that poverty is better fought through urbanisation than by focussing on the population living in 6,00,000 small and scattered villages and hamlets which are unlikely to attract substantial investment in infrastructure. In addition, there is a need to shift the policy focus to promoting urban growth. For this we need to revisit the policy of land acquisition by government vis-a-vis land as a commodity traded in the market.

It is further argued that tertiary sector-led urban growth as experienced in India is not as unsustainable as a segment of research literature makes it out to be, despite increasing regional and interpersonal income disparities, since accelerated reduction of poverty is positively related to level of urbanisation and without much cost to the public exchequer. Recent decades have recorded increased absorption of labour force released from rural economy in the urban informal sector in the developing world including India where the informal sector accounts for over 90 per cent of employment. This has been viewed as a solution to the growing problem of unemployment.

Given the above argument, finding land for urban growth is important. At present, less than around 3 per cent of the country’s land is under urban use. It is possible to locate suitable land for urban-industrial development without hurting agriculture. The role of the government is to facilitate such land use change through land policies. The study is being undertaken by Prof. H. Ramachandran under the ICSSR National Fellowship Programme.

  • Understanding India’s Industrial Development Puzzle through the Interactions between Industrial Policy and Trade Policy: A case study of the electronics industry

Against the backdrop of the discourse on the causes of India’s manufacturing sector growth decline and revival strategies, this study examines the interplay between trade and investment liberalisation and domestic manufacturing sector growth dynamics by focussing on the electronics industry, with a view to drawing implications for industrial policy. There are several parallel processes of trade and investment liberalisation that have had an impact on the Indian electronics industry. Apart from unilateral trade and investment liberalisation, a second channel of liberalisation was under the Information Technology Agreement (ITA-1) signed in 1996, which is a plurilateral agreement of the WTO designed to achieve lowering/elimination of all entry barriers on trade in information technology products. Thirdly, the WTO-plus trade and investment liberalisation carried out by India under its comprehensive Free Trade Agreements (FTAs) with East and Southeast economies such as Singapore, ASEAN, Japan, South Korea and Malaysia has also significantly changed the competitive scenario facing Indian producers in the electronics industry. Through an analysis of the pattern of trade and FDI flows in the electronics industry, the study seeks to unravel the implications of trade and investment liberalisation for the domestic electronics industry’s development trajectory and what this means for industrial policy formulation. The study is being undertaken by Dr Smitha Francis.

  • Foreign Acquisitions and FDI Inflows into India’s Drugs and Pharmaceutical Sector

Pharmaceutical industry in India has been nurtured over a period and it has acquired global recognition as a significant producer of generic drugs. Over the years many Indian companies emerged to reach the top rung of the industry in India displacing some long established foreign manufacturers. Following the liberalisation of FDI policy and change in the Patent Act, however, the situation started changing gradually as major Indian manufacturers are getting acquired by foreign companies thus raising concerns regarding accessibility, availability and affordability of medicines, exports, R&D for diseases in the country’s profile, etc. Concomitantly, other aspects of healthcare like medical equipment, diagnostics, hospitals, etc. too, came under focus. From the point of FDI inflows into India, the pharmaceutical sector emerged as the topmost recipient of FDI among the manufacturing industries. Thus, the developments in sector turned out to be important both from FDI inflows and public health points of view. In this context, the study would focus on the quantum of FDI inflows, nature of foreign investors, the mode of entry and operational aspects of FDI companies in the sector.

  • An Analysis of India’s Merchandise Export Performance during 1999-2013: Existing Competencies and Emerging Policy Challenges

The Department of Commerce, Ministry of Commerce and Industry, Government of India sanctioned a short term study of Macro Analysis for Working out Elasticity of Demand for Top 10 Commodities of India’s Exports. The objective of the study is to work out elasticity of demand for top ten commodities of exports using dataset for the years 1999–00 to 2008–09 and more recent years of 2009–10, 2010–11 and 2011–12 to identify factors typically relevant in the context of exports and build simulations and draw policy implications for export promotion. A draft report was submitted to the Department in October 2013. The Ministry requested to take the Institute to do a sectoral level disaggregated analysis to enhance the relevance of the study and a new proposal was submitted to the Dept. The study examines India’s existing export competencies and weaknesses through an analysis of India’s export dynamics in its major export sectors in order to identify the emerging policy challenges. The study will analyse India’s merchandise export performance at the global level for the last 15 years covering 1999-2013 with a view to suggesting sector-specific export promotion policies. The study is undertaken by Dr Smitha Francis. It is expected to be completed by November-December 2014.

  • Participation of Indian Firms in Global Production Network: Nature and Implications

The current phase of globalisation is distinct from the earlier phases of internationalisation precisely because the latter being referred to as an expansion of capabilities and dominance of a nation or region beyond its boundaries but the former indicates a far more complex network of interdependence between nations. The nature of interdependence although asymmetric entails a new international division of labour which offers greater scope of participation for developing countries in the production process. This is primarily driven by a change in the production structure of global manufacturing that involves a network like structure with large amount of intermediate goods and services sourced from across the world. Regional specialisation of final products is being gradually replaced by specialisation on the basis of tasks. In this milieu it is assumed that such integration not only increases capabilities of participating firms but also has positive spillover effects on other producers in the backward linkage those may not be directly linked to foreign producers. Firstly the study aims to assess the nature and extent of interdependence between domestic and foreign firms. Secondly, participation in the global production network does not automatically give rise to attaining technological capabilities and moving up the value chain ladder. The question therefore is how far the framework of global production network helps us analysing the asymmetry in the distribution of value added and explain the boundaries of value chain while involving domestic producers in the backward linkage. The study is being undertaken by Dr Satyaki Roy.

  • Linkage between Growth and Manufacturing Sector as Reflected by ASI and Growth in Exports

The objective of the study is to identify the linkage between growth of manufacturing sector as reflected in Annual Survey of Industries (ASI) and growth of exports in ITC HS classification, and prepare concordance tables between ASI and ITC classification of commodities of exports at two-digit level. The study was commissioned by the Department of Commerce, Ministry of Commerce and Industry, Government of India. A draft report was submitted to the Department of Commerce in October 2013 and the final report with enhanced scope of study will be completed by February 2015.

  • India: Trade in Health Services

The objective of the study is to assess the advantages of healthcare trade to India in the expanding global trade and to find out ways and means how best it can benefit from health trade. The paper deals with various facets of healthcare services in cross-border trade under the General Agreement on Trade in Services. There are 120 countries participating in the agreement to liberalize trade in healthcare services in which India is a participant. The commitments to the agreement made by the countries are partial and limited to certain segments of healthcare services. However, for India, there is still scope for enhancing trade in this sector.

The paper brings out the various dimensions of India’s trade in the healthcare sector with specific reference to its growth, advantages and disadvantages. The findings indicate that India has a distinct advantage in health tourism (mode 2) and movements of health personnel (mode 4) including physicians, nurses, paramedics, midwives, technicians, and health management personnel. In cross-border delivery (mode 1) which includes shipment of laboratory samples, diagnosis and clinical consultations via e-health services, India has made some progress but is yet to establish its supremacy. In mode 3 the commercial presence of foreign establishments in India is in the initial stages. The flow of foreign investment is slow and halting in spite of high degree of healthcare trade liberalization.

The growing trade in health sector could generate large number of jobs for the skilled and semi-skilled health personnel, besides foreign exchange earnings for the country. There are barriers to healthcare trade, particularly in health tourism and migration of physicians and nurses in many trading partner countries. India is able to cope-up with these obstacles to a considerable extent. The need of the hour is for the government to support the programme. Better institutional support is also required. The government has taken some measures, but they are inadequate. The healthcare trade could also be promoted through regional and sub-regional agreements. Currently, speciality health services are attracting large number of foreign patients to India for treatment. The study is being undertaken by Dr T.P. Bhat.

  • Pharmaceutical Sector: Investment and Innovation

The project addresses how India’s pharmaceutical industry could successfully build its own capacity for innovation during the pre-reform period and why the industry needs to now upgrade its capacity for innovation in pharmaceuticals. Investigations have been undertaken to find out how the drivers or motives, gatekeepers and financial support for innovation have changed in the case of domestic pharmaceutical firms over the years. Considerable progress was made during the year 2013–14.
The study describes the patterns of changes observed in the form of four distinct innovation regimes in order to bring out how the consequences of these regimes have been very different for the development of capabilities for making innovation happen. A detailed assessment of the current innovation regime (2002–2013) is available. The aim was to highlight the achievements and limitations of the current innovation regime with a view to pinpoint the main challenges facing the country in the sphere of industrial policy in respect of fulfilling the goals of industrial upgrading and public health. Also, a preliminary assessment of the emerging barriers to responsible innovation was completed.
During the year 2013–14, some preliminary assessments have been made on: the kind of strategies to be devised for meeting the challenges of access to quality drugs relevant to the burden of diseases and of building a responsive ecosystem, given the dynamic situation in global and national markets both with respect to supply and demand; tracking the emerging impact of acquisitions, takeovers, divestitures and mergers on the industrial performance; impact of strategic alliances, collaborations and PPPs and harmonization of regulation and procurement and other related changes on the upgrading of capabilities for innovation in the pharmaceutical industry; and, the changes in FDI policy to find out what has been the impact on the progress in respect of learning and innovation making in pharmaceuticals for the foreign and domestic firms operating from India to cater to both domestic as well as foreign markets.
Further work is in progress on the tracking of the evolving impacts of the changes in policies and programmes on: i) Pharmaceutical production and market structure, (ii) Private and Public investment in Pharmaceutical Sector, (iii) Medicine Pricing; iv) Compulsory Licensing; v) Bulk drug R&D in public and private sectors, (vi) Status of R&D and Innovation making in TB, Diabetes and Cancer, (vii) Status of patenting on processes, products, formulation and drug delivery systems, (viii) Collaborations, linkages and institution building for innovation making—Response of Indian industry and Research Institutions, ix) Evaluation of impact of India’s WHO Collaborative R&D Centres Programme, and, (x) WHO Global Strategy and Plan of Action for Public Health, Intellectual Property and Innovation. The study is jointly undertaken by Prof. Dinesh Abrol, Ms Nidhi Singh and Ms Bilqeesa Bhat.

  • Growth and Structure of Clinical Trial Industry in India

A study on why India has emerged as the most popular destination of global clinical trials (CTs) is currently underway. The processes of implementation of CTs by the drug companies have raised some critical issues with regard to the prospect of clinical research involving human subjects in a productive and ethical manner. This project aims to examine the prospects and processes of clinical research. Work on the assessment of such aspects of CTs was started by reviewing existing literature as well as various sources of data. Preliminary findings are that while India is the most potential destination for CTs, but recently the industry has faced a serious challenge due to massive government intervention to control the operation. There was a major collapse in the investment in CTs in 2013. Due to uncertainties in regulation, many companies have postponed trials, while many stopped operations permanently and moved to other destinations. In the case of CTs, the main challenge is over the nature of regulation to be undertaken by the government. It is clear that the government needs to create an appropriate regulatory environment without violation of humanitarian ethics and other social norms. The study is jointly undertaken by Dr Swadhin Mondal and Prof. Dinesh Abrol.

  • “A Multi-dimensional Study of Imperial Order and its Journey towards Neo-liberal Imperialism under Globalisation”, a project sponsored by ICSSR. Dr Satyaki Roy of ISID is part of this project.
Last updated Monday, September 29, 2014 11:26 AM

         
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