ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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The Role of Industrial Policy in Market-friendly Economies

The paper surveys the status of vaccine research and development and its manufacture in India and discusses the fact that the country has used industrial policy instruments rather sparingly in jump-starting R&D and manufacturing of vaccines for COVID-19 vaccines. This is despite India’s acknowledged innovation capability. The paper also contrasts the Indian case with that of the United States case discussed in Part 1 of this two-part paper.

The Role of Industrial Policy in Market-friendly Economies

Given the public good characteristics of new technologies and especially those contributing to improved health, there is a strong case for state support for research and development and indeed for converting those research results to commercialise products and processes. The state support to the market is even more vital in developing vaccines for the COVID-19 pandemic, which has engulfed the whole world and has shattered the economies of countries and lives of ordinary citizens. The paper, in two parts, analyses how the state and the market have responded to the development of vaccines for this pandemic in two countries, India and the United States. India is chosen as it is one of the leading manufacturers of low-cost vaccines, and the US is selected as it is the top country where systematic R&D on vaccines is carried out. In this part, the focus is on the renewed debate on the use of industrial policy and surveys the specific policy instruments used by one of the leading market-friendly economies in the world, namely the US, in successfully developing within a short period of time a number of highly effective vaccines for COVID-19.

Pursuing FDI for Technology

The discussion paper on “Industrial Policy 2017” floated by the Department of Industrial Policy and Promotion has stressed promoting the transfer of foreign technology as one of the key priorities with respect to the existing foreign direct investment policy regime. However, the focus remains on ensuring enhanced access to technology. This may not lead to technology transfer owing to several restrictive conditions imposed on the usage of technology by the licensor. For gaining real acquisition of technology, a purposive policy intervention is required through regulatory supervision of costs and conditions negotiated in technology collaboration agreements.

What Causes Agglomeration— Policy or Infrastructure?

How significant are industrial dispersal policy incentives for agglomeration of organised manufacturing in India? Using plant-level data for 1997-98, the locational choices of 66 manufacturing industries in 21 Indian states are investigated. First, the degree of agglomeration (Ellison-Glaeser index) is calculated in each of these industries to ascertain in which states they are clustered, followed by an econometric investigation of industrial dispersal policy after controlling for different factors that affect agglomeration. The analysis yields that the dispersal policy has not been successful in most specifications. Factors like presence of infrastructure, coastlines, and labour market pooling determine agglomeration. The results also indicate that the nature of the product, high electricity tariff, and per capita energy gap have induced several industries to disperse.

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