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

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Does FDI Promote Growth?

The spillover effects of foreign direct investment in the Indian manufacturing sector are examined by analysing the financial performance of foreign firms with domestic business group firms and stand-alone firms for selected sub-periods during 2001–15. The study shows that the sales efficiency of foreign firms is not significantly different from that of the domestic firms in all the sub-periods studied, except during 2008–09. The operational efficiency of foreign firms is better than that of the domestic firms till 2009 and, for the later period, there is no significant difference in operational efficiency of domestic and foreign firms.

Indian Business Groups and Their Dominance in the Indian Economy

Business groups have played an important role in the development of the Indian economy by filling the institutional voids arising from weak markets and institutions. As these economic institutions developed, the need for business groups was expected to reduce. There does exist a reducing trend, but at the same time, average size and average sales of business group firms are increasing. This anomaly raises a question. Are all business groups losing their importance or is it only a few of them? Our results demonstrate that expectation of diminishing importance does not hold true for top group firms. We show that top group firms have been able to capture appropriate growth drivers resulting in economic dominance and concentration of economic power.

Does FDI Contribute to Growth?

This paper investigates if foreign direct investment contributes to the growth of industry by examining the spillover gains in the capital goods sector. It compares the performance of foreign and domestic firms in the sector between 1994-95 and 2009-10 by using the asset turnover ratio (ATO) and the return on capital employed (ROCE). The results indicate that except during the high growth period 2004-08, there is no significant difference between the ATOs of domestic and foreign firms and the ROCE of foreign firms is significantly higher than that of domestic firms. However, during this high growth period, the ATO of domestic firms is significantly higher than that of foreign firms and ROCE of foreign and domestic firms are same. Thus, the spillover effects are very slow to be realised and higher benefits from FDI have accrued to foreign firms. We do not find support for FDI as one of the key drivers for industrial growth in capital goods sector as claimed by the industry captains.

FDI Spillovers and Export Performance of Indian Manufacturing Firms after Liberalisation

The spillovers from foreign direct investment through multinational enterprises have attracted considerable attention in recent times. Existing empirical studies on fdi spillovers largely look at the productivity enhancing effects and horizontal spillovers of foreign firms in the same industry sector ignoring the possibility of spillovers through buyer-supplier or backward linkages. The present study examines the impact of horizontal as well as backward spillovers from the presence of foreign firms, on the export performance of domestic firms in the Indian manufacturing industry during 1993-2008. Increased competition in the domestic market post-liberalisation through sales of foreign firms is forcing domestic firms to look for export markets. The results indicate that domestic firms are not benefited in improving their export performance through any buyer-supplier linkages with the mnes.
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