fdi in india and its growth linkages - Department Of Industrial Policy ...

Chapter 6: Secondary Data-Based Analysis
6.1 Backdrop
The study is based on the Capitaline database. 1 It provides fundamental and market data on over 14,000 Indian listed
and unlisted companies classified under more than 300 industries. It contains information on company profile, financial
indicators, ownership patterns, finished products, exports, raw materials and other details. Apart from the firm-level
information, the Capitaline database also provides the addresses of all the plants of the company along with the products
manufactured. 2
There is a debate on the cut-off percentage of foreign equity stake required for a firm to be classified as an FDI-enabled
firm or as an FDI firm. We have considered all firms with foreign equity participation of 10 per cent and above to be
“FDI firms”; these include both domestic firms, with more than 10 per cent foreign equity, as well as foreign/MNC
firms. 3 All other firms, with less than 10 per cent foreign equity, are referred to as “domestic firms”. The analsyis, based
on secondary data, has been undertaken to cover the issues of a) spatial spread and its reasons; b) sectoral clustering; c)
depth of value-added; d) employment generating effects; e) labour and capital intensity; f ) comparative performance of
FDI firms and domestic firms; and g) export potential.
Based on the data compiled in the Population Census 2001, cities/towns have been grouped into three classes based on
size. Class-1 cities are towns with a population of 10,00,000 (one million) and above, Class-2 cities are towns with a
population between 5,00,000 and 10,00,000, and Class-3 cities are towns with a population of less than 5,00,000. For
uniformity, we have used the term “city” and not “town” in our report. Thus the spatial distribution of manufacturing
firms is captured through the distribution of plants and facilities of FDI and domestic firms across states and across cities
of various classes within states. It is assumed that Class-1 and Class-2 cities are relatively more developed vis-à-vis
Class-3 cities, which are likely to be suburban towns that are closer to rural areas of the country. The purpose of
introducing city-size classes is to locate the movement and final plant location of FDI firms. The greater the amount of
FDI that moves into Class-3 cities, the higher its linkage with the suburban/ rural economy of the country. 4
In our analysis of the secondary data, we have adopted a dual methodology which is given as follows:
1. Spatial spread: The information of firms/plants, both FDI and domestic, has been used for the period March 1999
to September 2008, based on the latest reported data, in order to analyse the spatial spread of the firms plants over
a period of time; and
2. Current Scenario: The data of FDI firms/plants for a more recent period have been used to gauge the current
economic performance of these firms/plants. The period April 2006 – September 2008 has been used as the period
of reference to cull the latest reported financial and operative data. This is done because Capitaline cannot report
data for all firms at a single point of time, say March 2008, since it receives financial reports of the firms at different
1. http://www.capitaline.com/new/plus.asp
2. Prowess is an alternative database but does not provide information on plant location.
3. IMF (1996). Balance of Payments Textbook, page 108.
4. As a follow-up to our discussion with DIPP, the major focus of our analysis has been on manufacturing sectors. However, we have also provided descriptive
features of FDI-enabled firms in service sectors in data tables of this chapter. While the penetration of foreign equity, fixed capital, employment and output
of the FDI manufacturing plants is relatively deep in Class-3 cities (around 45 per cent for each category), the same is not true of the penetration of FDI
facilities in service sectors with corresponding shares hovering around 10 per cent. Thus, the reach of the FDI manufacturing plants into Class-3 cities is
much higher than that of FDI firms in services.
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