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

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SECONDARY DATA-BASED ANALYSIS 6.3.9 FDI in Service Sectors Market capitalisation of the FDI-enabled service firms is less than two-fifth the combined market capitalisation of manufacturing and service firms. However, it has insignificant reach in Class-3 cities compared with the impressive presence of FDI-enabled manufacturing firms in Class-3 cities. Only one-tenth of output and value-added of the FDIenabled service sectors originates in Class-3 cities (Tables 6.44 to 6.45). Market capitalisation of the FDI-enabled service firms is Rs. 2,956 billion compared with Rs. 4,870 billion of the FDIenabled manufacturing sectors. Sectors with high market capitalisation include telecommunications; software publishing and consultancy; transport services; and construction activities. FDI in service sectors has an insignificant presence in Class-3 cities. The share of market capitalisation in Class-3 cities accounts for about 5 per cent of the total market capitalisation of the FDI-enabled service sectors. The share of foreign equity in Class-3 cities accounts for about 8 per cent of the total foreign equity of the FDI-enabled service sectors. The share of net fixed capital in Class-3 cities accounts for about 14 per cent of the total net fixed capital in the FDI-enabled service sectors. Only 10.4 per cent of the output of FDI-enabled service facilities originates in Class-3 cities and only 10 per cent of value-added FDI-enabled service facilities originate in Class-3 cities. 6.4 State-wise Details of FDI in Manufacturing Sector Details of the spread of FDI firms and plants have been discussed in Section 6.2. The focus of Section 6.3 is on sectoral details of FDI in manufacturing sectors. This section provides details of the spread of FDI across various states in India, and highlights the breakdown into large and small cities. The variables under consideration include net fixed capital, total equity (domestic and foreign), total output and market capitalisation (Table 6.46). As discussed in Table 6.23, the all-India total equity capital in FDI firms is valued as Rs. 113 billion in FDI firms, which includes foreign equity worth Rs. 49.4 billion, i.e., 44 per cent of the total equity in FDI firms. The market capitalisation of all the FDI firms is valued at Rs. 4,870 billion. The corresponding value of the net fixed capital and output in FDI firms is Rs. 788 billion and 2795 billion, respectively. Small cities account for 46 per cent of market capitalisation, 44 per cent of foreign equity, 49 per cent of output and 50 per cent of the net fixed capital of FDI firms. Maharashtra accounts for the maximum shares of market capitalisation, total equity, FDI equity and net fixed capital in FDI firms. About one-fourth of the market capitalisation of the FDI firms in India originates in Maharashtra. The same holds true of total equity, foreign equity and net fixed capital. Maharashtra has become the top state in attracting FDI into India (Table 6.46). The major indicators, viz., FDI equity, total equity, net fixed capital, output and market capitalisation, for other states are less important than in Maharashtra. In the case of total equity, other states with significant shares are Gujarat (13 per cent), Andhra Pradesh (10 per cent) and Tamil Nadu (9.5 per cent). Other states have lower shares of total equity. The share of small cities in state-level equity is 42 per cent in Gujarat, 31 per cent in Andhra Pradesh and 32 per cent in Tamil Nadu. The share of foreign equity in total foreign equity is 15 per cent in Gujarat, 11 per cent in Andhra Pradesh and 8 per cent each in Karnataka and Tamil Nadu. The share of small cities in state-level foreign equity is 38 per cent in Gujarat, 28 per cent in Andhra Pradesh and 25 per cent each in Karnataka and Tamil Nadu. These are followed by the other states. 67
FDI IN INDIA AND ITS GROWTH LINKAGES Market capitalisation is significant in Karnataka (11 per cent), Haryana (9 per cent), Gujarat (6.4 per cent) and Tamil Nadu (5.5 per cent). The share of small cities in state-level market capitalisation is 14.4 per cent in Karnataka, 86.4 per cent in Haryana, 45 per cent in Gujarat and 44 per cent in Tamil Nadu. The share of net fixed capital in total net fixed capital is 11 per cent each in Gujarat and Tamil Nadu, 10 per cent in Andhra Pradesh and 8 per cent in Haryana. Other states have lower shares. The share of small cities in state-level net fixed capital is 30 per cent in Gujarat, 45 per cent in Tamil Nadu, 25 per cent in Andhra Pradesh and 94 per cent in Haryana. In the case of total output, significant contributions are made by the states, namely, Tamil Nadu (16 per cent), Haryana (11 per cent), Karnataka and Gujarat (each 8 per cent), along with the share of small cities in state-level output of 46, 90, 28 and 44 per cent, respectively. 6.5 Agglomeration and Locational Choice In this section we focus on agglomeration and locational choice of industrial plants in India. While such analysis is available in the literature with reference to the overall industrial location, a corresponding analysis of FDI-enabled industrial plants is scarce. While many industries tend to be agglomerated in a few states/regions others have wider dispersal. We have discussed the issue of industrial agglomeration of FDI-enabled plants in India against the backdrop of overall industrial agglomeration. We have also provided analytical information on the locational choice of FDIenabled industrial plants in the country. The measure of agglomeration used in our analysis is similar to the one used by Ellison and Glaeser (1997) and Kathuria (2009). The determinants of locational choice of industrial plants have also been worked out using econometric estimation techniques. While agglomeration estimates have been based on state-level data, the determinants of locational choice are analysed at the state level as well as at the city level. Apart from this, we have discussed variations across geographical regions like north, east, west and south. 6.5.1 Agglomeration One important concern in India’s industrial policy is the dispersal of industrial plants across various states of the country. There are two types of agglomeration forces, viz., natural advantage and spill-overs. Natural advantage refers to factors of production that provide enabling conditions for producing certain goods, e.g., tea, wine, photographic films, etc. Locational spillovers refer to physical as well as intellectual spillovers, e.g., the brass industry in Moradabad, sports goods industry in Jalandhar, hosiery in Ludhiana and software in Hyderabad and Bangalore. We use the Ellison-Glaeser (E-G) index to calculate the degree of industrial (NIC 3-digit) agglomeration/dispersal across various states/Union Territories of India. 14 The index is computed using employment and output information for all plants, both domestic and FDI. This index controls for industry characteristics regardless of the causes of concentration. The E-G index can be estimated either by using concentration of output of industrial plants or using concentration of employment data. While the E-G index derived from the employment data, E-G-L, attributes industrial agglomeration solely to labour market pooling and information of spill-overs through labour, the same cannot be said of the index derived using the output data (E-G-O). In this study, the agglomeration index has been computed using the value of output attributes agglomeration to labour market as well as capital/technology spill-overs or a combination. However, geographical concentration by itself does not imply the existence of spill-overs or natural advantage indicators. 14.For details of the E-G index, refer to Ellison and Glaeser (1997). The index varies between 0 and 1. An E-G index above 0.05 for an industry connotes high agglomeration, between 0.02 and 0.05 is moderate agglomeration, and between 0 and 0.02 a dispersed industry. E-G values less than 0 for a sector indicate excessive dispersion. 68
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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
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in India stood at $23 billion, show
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viii) Backward and Forward Linkages
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Chapter 2: FDI Scenario in India: T
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Secretariat for Industrial Assistan
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Table 2.2 shows that FDI outflows f
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at about 2 per cent or less of the
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Page 38 and 39: Table 2.7 FDI in India in the Servi
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 60 and 61: SPECIAL ECONOMIC ZONES (SEZS) AND F
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Page 70 and 71: construction (4200); fuels, includi
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Page 74: Table 5.5 Sector-wise FDI in India
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Page 94 and 95: the North and South zones, whereas
Page 96 and 97: PRIMARY SURVEY: ANALYSIS AND RESULT
Page 98 and 99: Table 7.1a Distribution of Surveyed
Page 100 and 101: Table 7.2b Zone-wise Distribution o
Page 102 and 103: Table 7.3b Zone-wise Distribution o
Page 104 and 105: Table 7.6a Number of Employees in S
Page 106 and 107: Table 7.7a Mode of Transport from F
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Page 122 and 123: Table 8.5 DIPP Classification of FD
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Page 128 and 129: S. No. DIPP DIPP Activity NIC 2-Dig
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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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