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

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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. 57
FDI IN INDIA AND ITS GROWTH LINKAGES points of time and some firms may not have reported their latest figures. The cut-off dates, viz., April 2006 and March 2008 have been used to include three consecutive years, viz., 2005-06 to 2007-08. This information has been used to study agglomeration/clustering issues. 6.2 Spatial Spread of FDI Firms and Plants This section is based on the database extracted from Capitaline for the period March 1999 – September 2008. The Capitaline database provides information on 14,292 firms: 4,854 manufacturing firms and 9,438 service firms. These include 501 FDI firms: 401 manufacturing and 100 services firms (Table 6.1). 5 This study provides a detailed analysis of firms in the manufacturing sector, based on the NIC 2004 3-digit classification, as compared with services firms. We discuss details of the manufacturing sector in this section. The information in this section has been used to analyse plant location issues during the period March 1999 to September 2008. A firm has various types of offices including the head office, plants, service facilities, branches, development centres, and zonal offices. In the case of manufacturing firms, plants are the most important centres where the actual manufacturing takes place. However, it is not easy to identify similar office types for service firms, since the various office types might provide services in some way. Our analysis is based on “plants” in the case of manufacturing firms and “all types of office facilities” in the case of services. The term “plant” thus implies an operative unit of a manufacturing firm, while the term “facility” refers to an operative unit of a service-providing firm. There were 4,854 manufacturing firms with 11,938 operative plants spread over 1,119 cities during 1999-2008. These include 401 FDI firms that had 1,273 plants spread over 294 cities. The remaining 4,453 firms are domestic and had 10,665 plants spread over 1,069 cities (Table 6.2). The distribution of office types of 401 manufacturing FDI firms indicates that there are 2,732 types of offices (Table 6.3). These include 1,273 “plants”. The corresponding distribution for the domestic manufacturing firms indicates that there are 10,666 “plants” among 21,011 office types (Table 6.4). 6.2.1 Manufacturing Firms: Registered Offices Before moving to the spatial spread of plants, we looked at the spread of registered offices of FDI as well as domestic manufacturing firms. While 400 FDI firms have registered offices spread over 21 states/Union Territories6 (Table 6.5), 4,449 domestic firms have registered offices spread over 27 states/Union Territories (Table 6.6). Distribution is highly skewed in both the cases. Maharashtra and Gujarat have a high concentration of registered offices of domestic as well as FDI firms; Maharashtra has about 27 per cent of registered offices of domestic manufacturing firms and 33 per cent in the case of FDI manufacturing firms, while Gujarat follows with 12 per cent registered offices in each of the two categories. In the case of FDI manufacturing firms, Maharashtra and Gujarat are followed by Tamil Nadu (10.5 per cent), Karnataka (8.5 per cent), Delhi (8.3 per cent), West Bengal (8.0 per cent), and Andhra Pradesh (5.8 per cent). In the case of domestic manufacturing firms, the five most concentrated states, after Maharashtra and Gujarat, are Tamil Nadu (10.7 per cent), Andhra Pradesh (9.1 per cent), West Bengal (8.2 per cent), Delhi (8.1 per cent) and Karnataka (4.3 per cent). These seven states account for 78 per cent of the registered domestic and 85 per cent of the registered FDI manufacturing firms. 5. Tabels of this chapter are provided on pages 145-239. 6. We use the term "states" in this study for both states and Union Territories. 58
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FDI IN INDIA AND ITS GROWTH LINKAGE
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PROJECT TEAM Study Team Project Lea
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linkages with the economy. The sect
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Contents Executive Summary Chapter
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Chapter 5: FDI: Linkages with the E
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Executive Summary Foreign direct in
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EXECUTIVE SUMMARY petroleum product
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Chapter 1: Introduction 1.1 Backdro
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section industry data. However, the
Page 24 and 25: in India stood at $23 billion, show
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Page 28 and 29: Chapter 2: FDI Scenario in India: T
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Page 32 and 33: Table 2.2 shows that FDI outflows f
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Page 40 and 41: Figure 2.4 Country-wise FDI Inflows
Page 42 and 43: 2.10 Foreign Technology Transfers A
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Page 46 and 47: Table 3.2 Short-term effects of FDI
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Page 54 and 55: in the eight major SEZ’s exports
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Page 72 and 73: FDI: LINKAGES WITH THE ECONOMY S. N
Page 74: Table 5.5 Sector-wise FDI in India
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Page 96 and 97: PRIMARY SURVEY: ANALYSIS AND RESULT
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Page 104 and 105: Table 7.6a Number of Employees in S
Page 106 and 107: Table 7.7a Mode of Transport from F
Page 108 and 109: Table 7.8a Number of FDI-enabled Fi
Page 110 and 111: Chapter 8: FDI Data Reporting and C
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FDI DATA REPORTING AND CLASSIFICATI
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S. No. DIPP DIPP Activity NIC 2-Dig
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FDI DATA REPORTING AND CLASSIFICATI
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Chapter 10: Key Findings and Salien
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Findings � About half the total o
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7. Forex Implications: To understan
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manufacturing firms taken together.
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References Australian Bureau of Sta
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for economic growth and poverty all
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Tables for Chapter 6
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Questionnaires
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