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Some Aspects of FDI in the Indian Corporate Sector1

K.V.K. Ranganathan & M.R. Murthy


I Introduction

At the beginning of the 1990s India opened up the economy for freer flow of private foreign capital with multiple expectations from it. From a regime of selective approach to foreign investment with emphasis on transfer of high technology and promotion of exports, since then India has gradually expanded the scope for foreign direct investment (FDI) by progressively increasing the number of eligible sectors as also the limits for FDI in an enterprise. Simultaneously since July 1991, following the announcement of the new Industrial Policy, Indias industrial regulatory framework has undergone major transformation. Prior to this a number of heavy investment and infrastructure industries were reserved for the public sector. Except for defence, atomic energy and railway transport, all the sectors have since been de-reserved. Further, a large number of industries have been freed from the obligation of obtaining an industrial licence. The few industries, which still require an industrial licence under the Industries Development & Regulation Act, 1951 (IDRA), are mainly governed by pollution control, defence and public health considerations. Since 1991, not only the areas open to foreign direct investment have been expanded but also the limits on FDI have been raised progressively. In many cases, foreign investors can establish wholly-owned ventures. Since much of the foreign investment can now take advantage of the automatic approval route, in most cases prior Central Government permission is no longer required for making the investment. In spite of this change in attitude and Indias FDI policy being quite open and comparable to many others, till a few years back its record in terms of attracting large amounts of FDI has been some what unimpressive. Of late, however, the country is being seen as an attractive destination and has remained among the top three most favoured countries, the other two being China and the United States of America (Table-1). Following this, FDI inflows are reported to have increased substantially. 2 The stock of FDI in India jumped from $ 1.66 billion in 1990, to a little above $50

This paper is based on a larger study on Imapct of Foreign Direct Investment on Selected Sectors of India A Comparative Study with Selected Countries, submitted to the Office of the Economic Adviser, Department of Industrial Policy and Promotion, Ministry of Commerce & Industry, March 2007 prepared by the authors in collaboration with Professor K.S. Chalapati Rao. For a long time India did not include reinvested earnings and other capital in the reported FDI inflows. Indias FDI statistics have, however, started incorporating such inflows since 200001 and these explain a substantial portion of the inflows subsequently.

billion by 2006 (Table-2). Indias share in world inflows of FDI too increased. It appears that India is catching up some other developing countries. (Table-3)
Table-1 Most Attractive Global Business Locations 2005-06: Responses from Experts and TNCs* Responses from Experts Responses from TNCs (1) (2) 1. China (85%) 1. China (87%) 2. United States (55%) 2. India (51%) 3. India (42%) 3. United States (51%) 4. Brazil (24%) 4. Russian Federation (33%) 5. Russian Federation (21%) 5. Brazil (20%) 6. United Kingdom (21%) 6. Mexico (16%) 7. Germany (12%) 7. Germany (13%) 8. Poland (9%) 8. United Kingdom (13%) 9. Singapore (9%) 9. Thailand (11%) 10. Ukraine (9%) 10. Canada (7%) Source: (http://www.unctad.org/Templates/webflyer.asp? docid=6301&intItemID=1528&lang=1). * Countries are ranked according to the number of responses that rated each as the most attractive location. Table-2 Stock of Foreign Direct Investment in India Year US $ Billion (1) (2) 1980 0.45 1990 1.66 1991 1.73 1992 1.98 1993 2.52 1994 3.49 1995 5.64 1996 8.17 1997 10.63 1998 14.07 1999 15.43 2000 17.52 2001 20.33 2002 25.41 2003 30.83 2004 38.68 2005 44.02 2006 50.68 Source: UNCTAD, FDI Statistics.

Table-3 FDI Inflows and Inward Stock in Selected Countries Region/Country (1) Amount (million dollars) World Developed Economies Developing Economies * China India Malaysia Thailand Brazil Mexico Shares (%) Average Inflows 1990-1995 2004-2006 (2) (3) 225,321 145,019 80,302 19,360 703 4,655 1,990 2,000 8,080 997,930 622,222 375,708 67,501 9,776 4,883 8,190 17,331 20,390 Inward Stock of FDI 1990 2006 (4) (5) 1,768,589 1,404,411 364,178 20,691 1,657 10,318 8,242 37,243 22,424 100.00 79.41 20.59 1.17 0.09 0.58 0.47 2.11 1.27 11,998,838 8,453,853 3,544,985 292,559 50,680 46,291 48,598 150,965 182,536 100.00 70.45 29.55 2.44 0.42 0.52 0.55 1.70 2.05

World 100.00 100.00 Developed Economies 64.36 62.35 Developing Economies * 35.64 37.65 China 8.59 6.76 India 0.31 0.98 Malaysia 2.07 0.49 Thailand 0.88 0.82 Brazil 0.89 1.74 Mexico 3.59 2.04 Source: Based on: UNCTAD, World Investment Report, 2007. * Including South East Europe & CIS.

In the context of low level of FDI inflows for a long time China has been the one which is most often discussed about for its success in attracting large inflows on the one hand and their significant contribution to output and exports. This is not withstanding the fact that a large part of reported FDI flows into China consist of the round-tripping variety and that Chinese diaspora have contributed significantly to inward FDI.3 While volume of FDI inflows remains an important issue, there are strong arguments against unqualified faith in the role of FDI in development. For instance, Balasubramanyam and Mahambare argued: India has the potential for attracting increased volumes of FDI. She can do so with a set of policies which are in the interests of not only foreign investors but also domestic investors. It is though a bit far fetched to argue that FDI is a panacea for the development problem and India should throw all doors wide open to FDI. It would also be a folly to woo FDI if only because China attracts relatively high volumes of FDI. 4 (emphasis added)
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On its part, UNCTAD noted that in addition to economic policy-related factors, and round tripping, important explanation for larger FDI flows into China were attributed to its position as destination of choice for FDI by Chinese businesses and individuals overseas, especially in Asia. Compared to India Overseas Chinese are more in number, tend to be more entrepreneurial, enjoy family connections(guanxi) in China and have interest and financial capability to invest in China and when they do they receive red-carpet treatment. See : UNCTAD, World Investment Report: FDI Policies for Development: National and International Perspectives, 2003, p. 45. See: V.N. Balasubramanyam and Vidya Mahambare, Foreign Direct Investment in India, paper presented at a workshop on Foreign Direct Investment in Developing Countries held at the

They even ridiculed: Even more vacuous are econometric exercises which regress current FDI flows into specific countries on variables such as growth rates, per capita incomes and corruption indices, and suggest that let alone India not even China has fully exploited her potential for inward FDI . These sorts of exercises are vacuous because they fail to recognise the interdependence between FDI and growth, they ignore the composition and quality of FDI countries are able to attract, their stage of development, the co-operant factors they are endowed with, and above all they rely on dubious estimates of levels of corruption.5 (emphasis added) It is more than a decade and half since the economy has been opened to FDI in a big way. There is optimism that FDI into the country is poised for take-off. It is time to take a closer look at what is happening in different sectors instead of limiting oneself to the generalities. The paper seeks to address this issue, within the limitations of data availability, by studying the significance of FDI in the economy in its various dimensions, especially in the private corporate sector. An attempt has also been made to present the experiences of food processing, pharmaceuticals, engineering industries and computer software and related services. II Place of FDI in the Economy

Information on size and composition of investment are the minimum prerequisites for assessing the impact of FDI on an economy. If the amount is too small, one cannot expect it to contribute meaningfully to the economy. On the other hand, even if it is relatively small but well-focused, it could be expected to exert perceptible influence on the related sectors. Going by the often referred to criterion, i.e., the ratio of inward FDI stock to gross domestic product (GDP), India seems to have done reasonably well since the process of liberalisation was initiated in the early 1990s. The ratio increased from 0.5 per cent in 1990 to 5.7 per cent in 2006.6 Compared to some of the important developing countries, especially China and the major Latin American countries of Brazil and Mexico, the relative position of FDI in the Indian economy is, however, quite low (Table-4). In terms of the contribution of FDI flows to gross fixed capital formation (GFCF) another often referred to measure the country stands quite low. The position, however, improved during 2006 and the gap with others seems to be narrowing down.
Table-4

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Lake District, September 13th 14th, 2002. ibid. UNCTAD, World Investment Report, 2007. Since, however, the method of compiling inflows data has been revised and now the reported inflows include reinvested earnings and other capital, the figures for the two periods may not be fully compatible. This is especially because reinvested earnings account for nearly half of the reported FDI inflows during 2003-04.

FDI Flows as a Percentage of Gross Fixed Capital Formation and FDI Stocks as a Percentage of Gross Domestic Product (Percentages) Region/Country (1) World Developed Economies Developing Economies FDI Stocks as % of Gross Domestic Product 1990 2000 2006 (2) (3) (4) 8.4 18.3 24.8 8.2 9.6 16.4 25.6 24.2 26.7 20.8 27.2 11.1 5.7 36.0 33.0 FDI Flows as %of Gross Fixed Capital Formation 2004 2005 2006 (5) (6) (7) 8.5 10.4 12.6 6.6 12.9 16.0 16.7 8.0 3.2 19.1 14.0 9.3 12.6 10.7 13.3 8.8 3.6 15.2 17.5 11.8 13.8 10.5 11.1 8.0 8.7 20.1 16.5

Brazil 8.5 17.1 Mexico 8.5 16.7 China 5.4 17.9 India 0.5 3.8 Malaysia 23.4 58.4 Thailand 9.7 24.4 Source: Based on: UNCTAD, World Investment Report, 2007.

Along with the increasing level of inflows, one would expect a change in the composition of FDI stock in the country. The Reserve Bank of India used to bring out Census of Indias Foreign Liabilities and Assets. A comparison of the latest two Censuses suggests that within a few years there was a shift in favour of nonmanufacturing sectors, especially services, with the utilities started making their impact (Table-5). Data on actual inflows for a more recent period further confirm the low share of the manufacturing sector.(See Table-6) While this is mainly due to the opening up of many sectors for FDI, the experience is also in line with the global shift. For instance, the share of manufacturing in the world inward FDI stock decreased from 41.31 per cent in 1990 to 30.13 per cent in 2005 while that of services increased from 49.23 per cent to 61.87 per cent.7(Table-7) The shift was, however, more pronounced in developing countries as the corresponding shares of manufacturing were 44.21 per cent and 31.84 per cent.

These are based on the GFCF and inflows data reported in Reserve Bank of India, Handbook of Statistics on Indian Economy, 2005.

Table-5 Industry-Wise Distribution of Stock of Foreign Direct Investment in India: 1991 to 1997#
Industry (1) I. Plantations II. Mining III. Petroleum IV. Manufacturing 1. Food & beverages 2. Textile products 3. Transport equipment 4. Machinery & machine tools 5. Metal & metal products 6. Electrical goods & machinery 7. Chemicals & allied products 8. Others V. Trading VI. Construction & Turnkey Projects VII. Transport VIII. Utilities IX. Others (including Services) Total 1991 (2) 304 10 5 2,710 202 72 311 418 190 371 875 Amount (Rs. Crores) 1992 1996 (3) (4) 327 420 24 50 77 278 3,195 11,320 187 1,245 112 733 475 1,607 483 1,437 194 600 421 1,243 1,07 2,608 7 271 246 1,847 23 42 114 52 19 88 15 5 2 3 18 384 90 128 11,364 3,213 3,840 24,020 1997 (5) 431 41 333 17,523 2,431 1,039 2,457 1,931 760 2,940 3,253 2,712 594 135 3 1,805 15,645 36,510 1991 (6) 9.46 0.31 0.16 84.34 6.29 2.24 9.68 13.01 5.91 11.55 27.23 8.43 0.72 1.62 0.47 0.09 2.80 100.0 0 Share in Total (%) 1992 1996 (7) (8) 8.52 1.75 0.63 0.21 2.01 1.16 83.20 47.13 4.87 5.18 2.92 3.05 12.37 6.69 12.58 5.98 5.05 2.50 10.96 5.17 28.05 10.86 6.41 1.09 0.49 0.13 0.47 3.33 100.0 0 7.69 0.47 0.37 0.01 1.60 47.31 100.0 0 1997 (9) 1.18 0.11 0.91 48.00 6.66 2.85 6.73 5.29 2.08 8.05 8.91 7.43 1.63 0.37 0.01 4.94 42.85 100.00

# end March. Source: Based on: (i) RBI, Census of Indias Foreign Liabilities and Assets as on March 31, 1992, Reserve Bank of India Bulletin, September 1996 and Reserve Bank of India; and (ii) Census of Indias Foreign Liabilities and Assets as on March 31, 1997, Reserve Bank of India Bulletin, October 2000.

At the aggregate level, given its relative smallness, FDI could probably be playing a limited role. However, since most FDI enters the corporate sector, in particular the private corporate sector, it may be more appropriate to examine the position of FDI in the private corporate sector. 8 The ratio of FDI inflows to capital formation in the private corporate sector for the years 2000-01, 2001-02, 2002-03 and 2003-04 work out to be 18.0 per cent, 25.9 per cent, 24.9 per cent and 19.2 per cent respectively.9 Even taking into account the possibility that a substantial part of the FDI is going towards acquisition of existing facilities10, these figures appear impressive and underline the need to take a closer look at the pattern of FDI and its behaviour. We, therefore, make an attempt to establish the place of FDI companies in the Indian corporate sector in general and the selected sectors, in particular.

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We are not aware whether such comparisons are available for other countries. These are based on the GFCF and inflows data reported in Reserve Bank of India, Handbook of Statistics on Indian Economy, 2005. For instance, during 2005, 2006 and 2007, inflows through acquisition of existing shares accounted for 38.55, 22.27 and 28.41 per cent of the inflows arising out of government approvlas and RBI automatic route.

Table-6 FDI Inflows: Top 25 Sectors (April 2000 to March 2008) S.No. Inflow Share in Total Rs. (Crores) Inflows (%) (2) (3) 1 Services Sector 55,697 22.64 2 Computer Software & Hardware 32,167 13.07 3 Telecommunications 16,747 6.81 4 Construction Activities 13,385 5.44 5 Housing & Real Estate # 11,162 4.54 6 Automobile Industry 9,856 4.01 7 Power 9,627 3.91 8 Petroleum & Natural Gas 8,246 3.35 9 Metallurgical Industries 7,348 2.99 10 Chemicals (Other Than Fertilizers) 6,142 2.50 11 Drugs & Pharmaceuticals 5,607 2.28 12 Electrical Equipments 4,760 1.93 13 Ports 4,343 1.77 14 Cement And Gypsum Products 4,204 1.71 15 Consultancy Services 3,956 1.61 16 Trading 3,732 1.52 17 Hotel & Tourism 3,656 1.49 18 Electronics 3,056 1.24 19 Food Processing Industries 2,996 1.22 20 Information & Broadcasting (Including Print Media) 2,484 1.01 21 Textiles (Including Dyed,Printed) 2,254 0.92 22 Miscellaneous Mechanical & Engineering Industries 2,220 0.90 23 Fermentation Industries 2,146 0.87 24 Mining 2,048 0.83 25 Hospital & Diagnostic Centres 1,705 0.69 Total of the Above 2,19,544 89.25 Total $ 2,46,068 100.00 # Including Cineplex, Multiplex, Integrated Townships & Commercial Complexes, etc. $ Excluding stock swapped, advances of inflow and NRI-RBI schemes. Source: Ministry of Commerce & Industry, India: FDI Factsheet, March 2008. Classification is as per the Ministry. Sector (1) Table-7 Estimated World Inward FDI Stock by Sector -- 1990 and 2005 Sector 1990 (Millions $) 2005 (Millions $) Share of Developing Countries in Total (%)

(1) Primary Manufacturing Services Total

World (2) 166860 729065 868844 176476 9

Developed Countries (3) 139013

World (5) 790478 297551 584069 144996 9 2196968 611076 713721 155123 1 4683574 987675 1436803 327966 8 7431744 Share in Total Stock (%)

Developi ng Countries (4) 27847

Develope d Countries (6) 551202

Developin g Countries * (7) 239276 778551 1427187 2445014

1990 (8) 16.69 19.89 17.85 18.58

2005 (9) 30.27 26.17 23.36 24.76

Primary 9.46 9.68 8.49 8.00 Manufacturing 41.31 40.65 44.21 30.13 Services 49.23 49.67 47.30 61.87 Total 100.00 100.00 100.00 100.00 * Including South East Europe & CIS Source: Based on UNCTAD, World Investment Report, 2007

7.42 29.56 63.02 100.00

9.79 31.84 58.37 100.00

III

Place of FDI in the Indian Corporate Sector

In order to understand the impact of FDI in an economy it is not only necessary to have an estimate of the quantum of investment but also its various characteristics like the sector of operation, location of activities, mode of entry, etc. In India, however, there has been no such precise identification. The official reporting of FDI approvals do not allow much freedom in the classification of foreign investors by the mode of entry and the nature of foreign investor and even the country of origin of the foreign investor. Most studies on FDI in India rely on RBI Company Finance Data (CFD) and corporate databases offered by private agencies. While the users of CFD are not provided with the names of companies, the essential identifying factor, commercial databases cover mainly the listed companies. The listed segment, however, is becoming increasingly less representative of the FDI sector in India.11 On the other hand, not only the criteria adopted and coverage of the lists issued/maintained by various agencies is not known, their completeness is also quite suspect. While most private sources give the names of the MNCs in India which range between 1000-150012 in numbers, Company Directory CD-ROM (Release 2005) of the Department of Company Affairs contains the names of only about 350 subsidiaries of foreign companies. The most recent study of Finances of FDI Companies covered only 518 companies.13 In the absence of any authentic and comprehensive source on FDI companies it was decided to take advantage of a database called First Source brought out by the Department of Company Affairs in association with the Centre for Monitoring Indian Economy (CMIE). The First Source gives, apart from the basic contact details, names of directors, auditors, and some minimum financial data. While data from the Balance Sheet is given for most companies, data from the Profit & Loss Account of companies is withheld in respect of private limited companies. The coverage of First
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While many erstwhile foreign subsidiaries and branches got their shares listed on the stock market as a following up of FERA, 1973, in the post-liberalisation period, some of them have got de-listed (gone private). On the other hand, entry of new FDI companies is extremely limited. For an early indication of this phenomenon, see: S.K. Goyal et. al, Foreign Investment Approvals and Implementation Status: A Review, August 1991 December 1994, a report submitted to the Ministry of Finance, New Delhi, 1995. These include FICCI; CII; Centre of Publications, Delhi; National Institute of Industrial Research, Delhi; and Amelia Publications, Delhi. Since these include branches and liaison offices, the actual number of joint stock companies having FDI would be even smaller. The lists by these organisations cannot be taken by their face value. At times they also include technical collaborations. Reserve Bank of India, Finances of Foreign Direct Investment Companies, 2004-05, RBI Bulletin, May, 2007.

Source is by far the largest and its 2004 release contains about 2,60,000 companies. It is, however, by no means complete even in respect of relatively larger companies. Further, financial information is not available uniformly for all the years 1999-00 to 2002-03. The coverage is maximum in respect of the financial year 2000-01. For the sake of convenience all those companies having at least Rs. 5 crores of assets in any of the years between 1999-00 and 2001-02 were selected from the database. There were 25,528 such companies (banks, development financial institutions and insurance companies have been excluded from the data set). 2000-01 has been chosen as the reference year, and paid-up capital (PUC) and total assets have been taken to measure the size of companies. Wherever data were not available for 2000-01, these were substituted by the relevant figures relating to 1999-00 or 2001-02 after making suitable adjustments. The 25,528 companies accounted for 95 per cent of total assets and 90 per cent of PUC of all the companies covered by First Source. The coverage of non-government companies was slightly lower at 92 and 84 per cent in terms of assets and PUC respectively. Though, international agencies have adopted the 10 per cent criterion and India followed suit, it does appear that the level may indeed be too low and consequently it may be overstating the importance of the contribution and impact of FDI on an economy and at the global level. RBI followed the 25 per cent criteria for classifying companies as Foreign Controlled Rupee Companies (FCRCs) for some years. However, to be in line with the international practice we have also used the 10 per cent criterion in our analysis. For a proper understanding of the role of FDI, one needs to pay more attention to this aspect. Indeed, studies are now underlining the need to take up disaggregate level analysis than drawing policy conclusions from macro models. Major companies, in each of the four-digit level National Industrial Classification, 1998, were examined from the point of their having foreign equity of at least 10 per cent. For purposes of this classification, investment by foreign institutional investors has not been taken into account. Thus the identification of FDI companies is far more reliable in case of the largest companies, stock exchange listed ones and top companies among the selected industries. While in case of most listed companies, data on the shareholding pattern is available and it was relatively unproblematic to decide about the extent of foreign equity, one had to encounter many problems in case of the unlisted ones which outnumber the listed ones. To bridge this information gap, we had to rely extensively on the internet by using various search engines. The sources tapped in the process include individual company/business group websites, financial service providers websites, business portals, newspapers, industry associations, etc. The difficulties encountered in classifying unlisted companies can be illustrated by the fact that even the company classification provided by the CMIE in its popular company database (Prowess) does not
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enable automatic classification into foreign and domestic companies as it terms joint ventures with Indian business groups as group companies, without any reference to the foreign ownership. In case of unlisted ones even lesser attention is paid. We have come across joint ventures which are reported as Private (Indian) by the Prowess. The inconsistent reporting by the database on the one hand, and by the corporates on the other, makes the matters even worse. Broad estimates of the place of FDI companies in the larger private corporate sector are presented in Table-8. FDI companies account for nearly 13 per cent of the companies in terms of numbers, almost 18 per cent in terms of assets and close to onefourth in terms of PUC. Within the private sector, to which practically all the FDI companies belong to, the share in assets and PUC was far higher at about 28 per cent and 40 per cent respectively. In fact, they constitute almost one-third of the total even in terms of numbers. While about 56 per cent of the assets of FDI companies are in the manufacturing sector, the next important position is occupied by the services sector with about 33 per cent share. The share of FDI companies in the large private manufacturing companies is lower than that in the services sector companies and even higher in the electricity, gas and water supply sector (Table-9). It, therefore, appears that the FDI sector occupies a significant position in Indias private corporate sector, in particular in the non-manufacturing sector.
Table-8 Place of FDI Companies in Indias Larger Corporate Sector# Non-banking, Non-insurance Companies Government, Non-banking & Non-insurance Companies (3) Non-government, Non-banking & Non-insurance Companies (4)

(1) (2) Number of Companies All Companies 25,528 635 24,893 of which, FDI Cos. 3,282 16 3,266 Share of FDI Cos. in Total 12.86 2.52 13.12 (%) Assets All Companies 24,20,362 9,03,212 15,17,150 of which, FDI Cos. 4,33,442 15939 4,17,503 Share of FDI Cos. in Total 17.91 1.76 27.52 (%) Paid-up Capital All Companies 3,43,045 1,33,981 2,09,063 of which, FDI Cos. 84,925 1188 83,737 Share of FDI Cos. in Total 24.76 0.89 40.05 (%) # Companies with assets of at least Rs. 5 crores in 2000-01, identified from the First Source database.

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Table-9 Sectoral Distribution of FDI Companies NIC Cod e Sector/Industry Total No. of Cos. FDI Companies No. of Cos. (4) 96 11 85 1,860 351 172 76 256 150 114 80 103 103 98 5 24 66 29 32 75 13 4 109 57 58 1,185 192 Assets (5) 13,095 8,131 4,964 2,36,9 24 41,882 37,196 29,304 18,261 16,385 11,794 10,945 9,023 8,758 7,803 6,683 5,582 5,571 4,529 4,311 4,307 3,394 6,923 4,274 26,494 3,632 1,37,2 64 53,826 PUC (6) 1,93 0 629 1,30 1 43,9 34 8,16 1 8,68 4 3,26 4 3,35 7 4,12 8 1,39 8 2,54 6 1,83 5 1,36 7 1,49 5 319 1,20 3 1,08 2 501 1,36 6 1,83 3 427 280 688 7,68 7 682 29,4 56 9,10 Share in Assets of FDI Cos. (7) 3.14 1.95 1.19 56.75 10.03 8.91 7.02 4.37 3.92 2.82 2.62 2.16 2.10 1.87 1.60 1.34 1.33 1.08 1.03 1.03 0.81 1.66 1.02 6.35 0.87 32.88 12.89 Share of FDI Companies all Cos. # Assets PUC (8) 44.15 82.52 25.06 26.54 23.35 70.13 23.86 45.16 23.56 42.62 25.17 33.55 12.84 22.91 75.37 32.88 30.85 61.36 6.73 54.79 28.89 13.06 10.91 44.33 7.25 28.78 26.95 (9) 47.29 74.07 40.25 39.43 36.02 86.22 26.26 61.33 40.43 48.67 35.18 46.82 17.82 34.15 78.99 45.26 44.58 58.41 14.86 75.83 49.50 13.99 18.63 72.11 18.88 38.08 29.56

(1) Primary 11 Other Primary Manufacturing 24 34 27 29 15 31 26 32 17 25 16 21 28 30 23 33 35

(2)

(3) 677 26 651 11,93 2 2,130 486 1,146 756 1,482 447 398 322 1,489 687 55 356 461 105 93 221 73 56 1,169 156 898 10,30 0 3,766

Chemicals & Chemical Products Motor Vehicles & Trailers Base Metals Machinery & Equipment (Non-Elect.) Food Products & Beverages Electrical Machinery & Apparatus Non-Metallic Mineral Products Radio, TV & Communication Equip. Textiles Rubber & Plastic Products Tobacco Products Paper & Paper Products Fabricated Metal Products Office, Accounting & Computing machinery Coke, Refined Petroleum Products & Nuclear Fuel Medical, Precision & Optical Instruments Other Transport Equipment Diversified Companies Other Manufacturing Electricity, Gas & Water Supply Construction Services Financial Services

40 45 65

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64 51 72 92 74

Posts & Telecommunications Trade, Hotels & Restaurants Computer Software & Related Activities Recreation, Cultural & Sporting Activities Other Business Activities Other Services Unclassified Grand Total

170 2,931 812 190 496 1,935

82 287 308 21 132 163

26,499 15,383 14,157 6,540 4,657

6 9,20 8 4,06 9 2,32 8 334

6.35 3.68 3.39 1.57

69.91 17.54 29.73 52.72

80.55 32.87 33.29 20.02 45.81 28.58 2.54 40.05

930 10 24,89 3,266 3 # These shares are calculated with respect to all the companies covered in Table-8.

1,03 1.12 34.93 3 16,203 3,37 3.88 20.69 7 93 49 0.02 1.16 4,17,5 83,7 100.00 27.52 03 37 in the corresponding sector/industry

We now look at the position of FDI companies in the selected industries namely, (i) Food Processing, (ii) Pharmaceuticals, (iii) Transport Equipment; (iv) Auto Ancillaries; (v) Other Engineering Industries and (vi) Information Technology. Table-10 gives the distribution and share of FDI companies in different sub-divisions and within each such division, their share in the private sector. The FDI companies form approximately one-fourth of the total companies in these sectors. Their share is somewhat higher in computer software related activities, other engineering and transport equipment but is very low in case of food processing and pharmaceutical industries. In terms of assets, especially with regard to the private sector, FDI companies occupy a prominent position in the transport equipment and other engineering industries. Their share is, however, far low in the case of pharmaceutical sector. In case of the food processing sector FDI companies seem to be occupying an important position. The extent of direct influence of FDI companies in different sectors is described in the foregoing, we now look at their contribution through creation of new manufacturing and service facilities. In order to understand the contribution of new facilities set up by FDI companies in the post-liberalisation period to the overall position of FDI in the selected industries we have tried to classify the FDI companies into pre- and post-liberalisation period on the basis of the year of incorporation. To estimate the contribution of new entrants more realistically, wherever we have definite information on the mode of entry of the foreign investor, takeover of existing plants/units and forming a new company is treated as an old case. For instance, Heinz started its operations in India by taking over Glaxos food business. For purposes of
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this exercise, we have treated Heinz India, a company incorporated in 1994, as a company belonging to the pre-liberation period. Similar is the case with Coca-Cola. Such a classification could be justified because, while the companies are new, the production facilities had been in existence even before their entry/re-entry into India. Classifying them as new FDI will result in overestimation of the contribution of FDI in the post-liberalisation period. Table-11 shows that new FDI companies outnumber the older ones: 677 against 562. While in terms of assets the share of newer ones was far less at 35 per cent, their share in PUC was quite substantial at 63 per cent. This was true especially in the cases of transport equipment and other engineering industries. In food processing, the gap was somewhat narrow: the number of new companies almost matched the older ones. Understandably, the gap was widest in case of computer software and related activities which developed mostly during the post-liberalisation period. In the pharmaceutical sector new FDI seems to be playing a minor role.

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Table-10 Distribution of FDI Companies in Selected Sectors and their Relative Position in terms of Assets: 2000-01 NIC Code (1) 15 151 152 153 154 155 Description Number of Companies FDI All Cos. Share of Cos. No. FDI Cos. No (3) (4) (5) 150 1506 9.96 37 8 14 55 33 3 109 579 256 29 116 103 75 186 14 159 13 512 70 164 513 228 19 672 1910 778 106 459 339 228 579 20 468 91 7.23 11.43 8.54 10.72 14.47 15.79 16.22 30.31 32.90 27.36 25.27 30.38 32.89 32.12 70.00 33.97 14.29 Total Assets (crores) Public Non-FDI FDI Cos. Sector Private Sector (6) (7) (8) 2059 53162 16385 390 185 506 874 92 13 2867 30615 18533 69 2128 7097 2787 17707 0 27 17679 379 53626 14055 1554 2264 24886 10033 369 32092 62337 22175 2852 15882 17874 3555 24200 5266 10579 8356 31330 203121 2409 1622 1470 5994 4754 136 9058 48230 18261 4529 12110 9023 4307 45621 30171 12056 3394 11712 131006 Share of FDI Cos. in Assets Total Total Private Sector (9) 71605 16853 3360 4240 31754 14879 518 44017 141182 58970 7450 30120 33993 10649 87528 35436 22662 29429 43421 387753 (10) 22.88 14.29 48.27 34.67 18.87 31.95 26.30 20.58 34.16 30.97 60.79 40.21 26.54 40.45 52.12 85.14 53.20 11.53 26.97 33.79 (11) 23.56 14.63 51.07 39.37 19.41 32.15 26.95 22.01 43.62 45.16 61.36 43.26 33.55 54.79 65.34 85.14 53.26 28.89 27.21 39.21

(2) Food Products, Beverages & Tobacco Products Meat, Fish, Fruits, Vegetables, etc.(Production, Processing, etc.) Dairy Products Grain Mill Products, Starches, etc. Other Food Products Beverages Food Products, etc. n.e.c. Pharmaceuticals & Medicinal Chemicals

242

Other Engineering 29 Machinery & Equipment 30 Office, Accounting & Computing Machinery 31 Electrical Machinery & Apparatus 32 Radio, Television & Communication Equipment 33 Medical, Precision & Optical Instruments, etc. Transport Equipment & Ancillaries 341 Motor Vehicles 343 Auto Ancillaries 35 Other Transport Equipment 722

Computer Software & Related Services 215 595 36.13 All Companies 1239 5262 23.55 Note: Three FDI companies in the public sector were clubbed with the private sector. Source: Generated from an analysis of First Source database.

14

15

Table-11 Distribution of FDI Companies According to the Period of Entry as on 2000-01 NIC Code Description PreLiberali sation No. of FDI Companies PostTotal Share of Liberali Postsation Liberali sation (3) (4) (5) (6) 72 78 150 52.00 9 4 7 36 15 1 65 287 146 13 46 48 34 92 6 76 10 46 562 28 4 7 19 18 2 44 292 110 16 70 55 41 94 8 83 3 169 677 37 8 14 55 33 3 109 579 256 29 116 103 75 186 14 159 13 215 1239 75.68 50.00 50.00 34.55 54.55 66.67 40.37 50.43 42.97 55.17 60.34 53.40 54.67 50.54 57.14 52.20 23.08 78.60 54.64 PreLiberali sation Total Assets (Rs Crores) PostTotal Share of Libera Postlisatio Liberalis n ation (7) (8) (9) (10) 11827 4558 16385 27.82 1281 1152 725 5142 3516 11 6036 30027 12974 2573 8113 4299 2068 33398 21553 8698 3147 3643 84932 1128 470 745 852 1239 125 3022 18204 5288 1956 3997 4723 2239 12223 8618 3357 248 8069 46075 2409 1622 1470 5994 4754 136 9058 48230 18261 4529 12110 9023 4307 45621 30171 12056 3394 11712 13100 46.81 28.98 50.68 14.21 26.05 91.57 33.36 37.74 28.96 43.20 33.01 52.35 51.98 26.79 28.56 27.85 7.29 68.90 35.17 PreLiber alisati on (11) 2795 133 115 323 379 1841 3 690 3517 1568 303 523 631 491 1972 1042 710 220 329 9303 PUC (Rs Crores) PostTotal Share Liberali of Postsation Liberali sation (12) (13) (14) 1333 4128 32.30 277 164 123 301 421 47 673 5454 1789 198 923 1204 1342 7271 5916 1148 207 1374 16106 411 278 446 681 2262 50 1363 8971 3357 501 1446 1835 1833 9243 6958 1858 427 1703 2540 67.50 58.85 27.63 44.28 18.60 93.13 49.39 60.80 53.28 39.46 63.82 65.60 73.22 78.66 85.02 61.77 48.52 80.67 63.39

(1) (2) 15 Food Products, Beverages & Tobacco Products 151 Meat, Fish, Fruits, Vegetables, etc. (Production, Processing, etc.) 152 Dairy Products 153 Grain Mill Products, Starches, etc. 154 Other Food Products 155 Beverages 150 242 Pharmaceuticals & Medicinal Chemicals Other Engineering 29 Machinery & Equipment 30 Office, Accounting & Computing Machinery 31 Electrical Machinery & Apparatus 32 Radio, Television & Communication Equipment 33 Medical, Precision & Optical Instruments, etc. Transport Equipment & Ancillaries 341 Motor Vehicles 343 Auto Ancillaries 35 Other Transport Equipment 722 Computer Software & Related Services All Companies

16

6 Note: Three FDI companies in the public sector were clubbed with the private sector. Source: Generated from an analysis of First Source database.

17

Some of the reasons for the gap between the share in assets and PUC could be that when companies depend more on internal sources and less on borrowings, the share of PUC would tend to be high. Secondly, when the newer companies use relatively less fixed capital i.e., labour-intensive techniques, trade in others manufactures or engage in assembly operations the gap would be large. It needs to be examined to what extent these factors would explain the relative shares of new FDI companies in assets and PUC. This could have a bearing on the contribution of FDI sector on the one hand and its impact on the domestic enterprises on the other. Continuing on the issue of impact further, while classifying companies into FDI cases and others, we have come across a number of changes in ownership from domestic to FDI and vice versa. Understanding this phenomenon, we believe is necessary because the emphasis at present is more on FDI inflows rather than on withdrawal of the exiting ones. Though in a few instances, the reason (foreign investor exited from some activities globally) was obvious, because of the large number of cases, one may need to take a closer look at the phenomenon which has implications for FDI inflows and its overall impact. Some of the new inflows could be just replacements for the older FDI investments. These could have implications for the existing ventures. For instance, Honda exited from Kinetic Honda Motor Ltd (now Kinetic Motors) but has re-entered through its wholly owned enterprise namely Honda Motorcycle & Scooter India Pvt. Ltd. Similarly, Suzuki re-entered the Indian motorcycle industry after exiting from its joint venture with the TVS group. While it is difficult to give precise estimates, the net inflow (after adjusting for the withdrawals) on account of these ventures would definitely be lower than the reported inflows. Even in cases in which the foreign investor continues to exist but with a higher stake acquired by buying out the Indian partners/ordinary shareholders, new inflows may not always get translated into fresh expansion of activities in the short term. Even if the foreign equity remains in one form or the other, in some cases it does appear that some of the entities have come under control of Indian businessmen/businessmen of Indian origin. In yet other ones, existing Indian companies have been turned into foreign subsidiaries by their existing promoters, by transferring the equity to the overseas corporate bodies controlled by them. Obviously, there could be hardly any addition to the productive capital on the one hand, and no additional benefit in terms of production technology, management techniques on the other. Some illustrative cases are presented in Annexure-I. Since such changes have implications for the behaviour and consequently the impact of FDI, especially at the sectoral level,14 one would have to make a further classification of companies according to the nature of foreign investor.

14

For example, in case of auto ancillaries it was suggested that Indian companies have no scope in high technology items where FDI companies have immense advantage. See: Raghuvir Srinivasan, Auto components: bracing for the race, Hindu Business Online, June 16, 2002.

18

IV

Export Performance Companies

and

Other

Characteristics

of

FDI

FDI is expected to help promote host developing country exports because of superior technology, well-known brand names and established international marketing network. Additionally, export orientation also probably reflects on the extent of transfer of technology because to be able to sell in international markets the products should meet minimum international standards. In spite of its importance due to the lack of detailed break-up of Indias exports by the nature of exporter, precise estimates could never be made. In one of the earlier studies at the Institute for Studies in Industrial Development which was based on data on individual export transactions obtained from two of Indias most important customs houses namely, Mumbai Air and Sea, it was observed that during the mid-1990s, foreign-controlled companies15 accounted for about 4.2 per cent of total exports from these two ports. Exclusion of exports of primary items, agriculture related products and gems and jewellery did improve their share but the share was still quite low at 5.7 per cent.16 Going by the RBI study of Finances of FDI companies for the years 2001-02 to 2003-04, which covered 508 companies, it appears that the share of FDI companies in Indias exports continues to be low at around six per cent. (Graph-1). 17 Within the total exports of FDI companies under study for the selected years, chemicals and chemical products (from among those for which industry-wise details are reported) was the maximum at 28.86 per cent in 2001-02 (Table-12 and Graph-2). The share, however, declined to about 22.81 per cent in 2003-04. It needs to be underlined that within FDI companies exports the individual shares of industries like food products and beverages, machinery and machine tools, electrical machinery and apparatus, motor vehicles and other transport equipment, and computer and related activities were somewhat low with chemical products dominating the scene. Given that most of the important manufacturing industries are already covered and there is a large unexplained portion of around 38 per cent, a question arises as to the characteristics of FDI exports. Could they be dominated by textiles, leather, primary items including ores, gems and jewellery and petroleum related items? These observations raise questions about the nature and characteristics of FDI companies themselves on the one hand and the coverage of CFD on the other.
Table-12 Composition of FDI Companies Exports (Based on Company Classification)
15

16

17

Those having at least 25 per cent foreign investment (excluding portfolio investment) were termed as foreign-controlled companies. See: S.K. Goyal, et. al., India's External Trade during the 'Nineties: Some Aspects - An Analysis of Customs House and Company Data, a project report sponsored by the Planning Commission, November 2002. The actuals could be further lower if the foreign exchange earnings reported by computer software and related activities are excluded.

19

SN o

Industry

(1) (3) (4) (5) Tea plantations 1.40 1.31 0.91 Food products and Beverages 4.00 3.02 3.05 Chemicals and Chemical products 28.86 25.16 22.81 Rubber and Plastic products 1.67 1.93 2.04 Machinery and Machine tools 12.26 14.16 16.24 Electrical machinery and apparatus 4.90 3.90 4.09 Motor vehicles and other transport 5.19 6.93 7.49 equipment 8 Wholesale and Retail trade 22 1.04 1.06 0.14 9 Computer and related activities 25 3.99 4.18 5.39 sub-total (1-9) 312 63.32 61.66 62.16 Others 196 36.68 38.34 37.84 Total 508 100.00 100.00 100.00 Reported Exports of 490 FDI Cos. (Rs. 12548 13532 15543 Cr.) India's Total Exports (Rs. Cr.) 209018 255137 293367 Share of FDI Cos. in Indias Exports (%) 6.00 5.30 5.29 Source: Based on RBI, Finances of FDI Companies 2003-04, RBI Bulletin, April 2006. 1 2 3 4 5 6 7 Graph-1

No. of Companie s (2) 10 18 78 15 82 30 32

(Percentages to Total) 2001-02 2002-03 2003-04

Share of FDI Companies in India's Exports


6.20 6.00 (Percentages) 5.80 5.60 5.40 5.20 5.00 4.80 2001-02 2002-03 2003-04
5.30 5.29 6.00

Source: See Table-12.

Graph-2

20

Industry Composition of Exports of FDI Companies: 2003-04


40 35 30 25 20 15 10 5 0
Tea plantations

(Percentage Share)

Food Beverages

Chemicals & Products

Rubber & Pastic Prdts.

Trade

Machinery & M/c Tools

Computer & related

Electrical m/c & apparatus

Note

:Based on company classification reported in RBI, Finances of FDI Companies. RBI Bulletin, April, 2006.

From this it is observed that FDI is playing a limited role in the Indias exports. This further goes to show that in India FDI companies are predominantly domestic market-oriented and at best they could be slightly better export-oriented than the corresponding domestic companies. For want of any other data at the company level, one had to rely on corporate databases like the Prowess of CMIE to analyse the export performance and other characteristics of FDI companies in relation to comparable domestic private sector companies in the selected industries. We have identified 1,026 non-government companies which have been classified by Prowess as belonging to these industries. Data have been collected for all the three years 2001-02, 2002-03 and 2003-04. To improve the understanding of FDI companies performance better, we have tried to distinguish the ones under the control of NRIs. The detailed results, based on averages for the three years, are presented in the following. It can be seen from Table-13 that among the industries selected, exports are concentrated in computer software and related services and pharmaceutical products. Their combined share was almost twothirds of the total. In terms of net sales share of these two sectors was about onefourth only. In terms of sales, transport equipment together with auto ancillaries tops the list. In terms of exports domestic companies account for two-thirds, and the FDI companies, together with NRIcontrolled ones, account for the rest. The main points emerging from the exercise are as follows.

21

Motor Vehicles & Tpt Eqp

Others

Table-13 Some Basic Data Regarding the Companies under Study (Averages of 2001-02 to 2003-04) NIC Cod e (1) 15 16 2423 29 30 31 32 Description No. of Companies FD NR Domesti I I c (3) (4) (5) 9 1 65 3 6 21 8 144 48 3 20 19 7 2 3 104 24 77 49 Net Sales NRI Domestic (8) 150.09 855.52 292.92 1105.7 7 1226.9 1 (9) 5720.61 710.54 21902.00 8724.35 2753.56 5830.14 4398.63 (Amount in Rs. Crores) Exports Share in Total NRI Domesti All Net Export c Sales s (12) (13) (14) (15) (16) 1.31 145.06 459.10 5.76 1.22 61.84 1218.16 3.70 3.24 516.87 7430.80 8520.56 14.41 22.63 71.27 916.78 81.98 822.54 166.35 515.95 250.34 2204.82 1132.66 1303.53 478.54 9.40 2.41 6.89 3.83 5.86 3.01 3.46 1.27

All (6) 75 9 173 159 29 100 68

FDI (7) 5230.37 6419.94 5012.79 9100.19 793.02 6220.38 2993.16

All (10) 11101.07 7130.48 27770.31 18117.46 4652.34 13277.43 7391.80

FDI (11) 312.73 1156.32 572.90 1311.01 49.52 705.61 228.20

(2) Food Products, Beverages Tobacco Products Pharmaceuticals & Medicinal Chemicals Machinery & Equipment Office, Accounting & Computing Machinery Electrical Machinery & Apparatus Radio, Television & Communication Equipment Medical, Precision & Optical Instruments, etc. Transport Equipment & Ancillaries Computer Software & Related Services Diversified Companies Grand Total

33 34 72 98

4 63 17 207 2 16 39

14 86 174 37 780

18 151 207 37 1026

501.95 27165.6 4 2948.59 2986.6 4 1428.4 8

380.92 29724.02 17656.22

882.87 59876.29 22033.29 20528.31 192761.6 5

67.52 2005.06 2648.54 9057.41 218.90 1305.8 6 3112.9 7

43.56 2091.92 12343.78 1604.11 25476.25

111.07 4315.89 16298.1 8 1604.11 37646.6 3

0.46 31.06 11.43 10.65 100.00

0.30 11.46 43.29 4.26 100.00

20528.31 66386.0 8046.3 118329.3 2 2 0 Note: Net sales and exports are averages for the years 2001-02, 2002-03 and 2003-04. Source: Based on the data extracted from Prowess corporate database.

22

Exports Sales Ratio Understandably, the exports-sales ratio, which denotes the export-orientation of a sector or a company, is the highest in case of Computer Software and related Services (Table-14). The next highest ratio was recorded by the Pharmaceutical industry at 30.68 per cent. This was followed by Office, Accounting and Computing machinery with 24.35 per cent. The ratio was less than 10 per cent in case of Electrical Machinery & Apparatus (9.81 per cent), Radio, Television & Communication Equipment (6.47 per cent), Transport Equipment & Ancillaries (7.21 per cent) and Food & Beverages (4.13 per cent). While at the broad industry-levels FDI companies seem to be performing better than the domestic companies, the same does not hold good uniformly at the individual product group level. The differnce between the two groups was also not always striking. Interestingly, in some cases NRI companies outperformed both FDI companies and the domestic companies. The characteristics of some of the top FDI exporters, however, suggests that probably there is little relationship between their export performance and foreignownership. Hindustan Lever Ltd., classified as a chemicals company accounted for 38 per cent of exports of the chemicals group. As seen from the Table-15, it exports various items not all of which are related to chemical industry. Similarly, ITC, a leading cigarette manufacturing company exports mostly agricultural products. Strictly going by the company classification, ITC accounted for about 96 per cent of exports of tobacco products by FPCs. Moser Baer accounted for practically the entire exports under the Office, Accounting and Computing Machinery. Its foreign shareholders do not, however, seem to have any specialisation in the computer recording media, the companys forte. One of the foreign promoters shares the surname with its Indian promoters. Ispat Industries, a company belonging to a nonresident group, accounted for two-thirds of exports of the basic metals group.

Import Intensity While there is no uniformity in the import intensity of sales across various industries and between different categories of companies, it does appear that in industries in which they have a substantial share, FDI companies tended to be more import dependent compared to the domestic companies (Table-16). This is especially true in case of the transport equipment sector in which the difference between the two is quite substantial. As we have seen earlier, there is little difference between the two in terms of their export-orientation. In case of pharmaceuticals, domestic companies are far more export-oriented but are only slightly more import-dependent than the corresponding FDI companies. Once again NRI companies seem to be behaving differently from the others.
23

Table-14 Exports-Sales Ratios of Different Categories of Companies in Selected Industries (based on averages of 2001-02 to 2003-04) NIC Description Exports-Sales Ratio (%) Code FDI NRI Domestic All (1) (2) (3) (4) (5) (7) 15 Food Products, Beverages 5.98 0.87 2.54 4.13 1513 Processing & Preserving of Fruits & Vegetables 11.33 77.23 76.58 1520 Dairy Products 12.28 1.96 8.61 1531 Grain Mill Products 2.75 2.75 1541 Bakery Products 1.77 2.86 1.86 1550 Beverages 16.47 0.87 1.16 1.64 1554 Soft Drinks & Mineral water 0.06 0.06 16 2423 29 2911 2912 2913 2915 2919 2921 2922 2924 2925 2926 2929 2930 30 31 3110 3120 3130 3140 3150 3190 32 3210 3220 3230 33 34 3410 3430 3591 72 98 Tobacco Products Pharmaceuticals & Medicinal Chemicals Machinery & Equipment General Purpose m/c Pumps, Compressors etc. Bearings, Gears etc. Lifting & Handling eqpt. Other general machinery Agricultural m/c. Machine tools Mining, quarrying & Const. m/c Food processing m/c Textile & Leather m/c Other Spl. Purpose m/c Domestic Appliances Office, Accounting & Computing Machinery Electrical Machinery & Apparatus Electrical motors, generators etc. Electricity distribution m/c Insulated wires and cables Accumulators, primary cells etc. Electric lamps & lighting eqpt Other electrical eqpt. Radio, Television & Communication Equipment Electronic vales, tubes etc. Television & Radio Transm. etc. Television & Radio receivers etc. Medical, Precision & Optical Instruments, etc. Transport Equipment & Ancillaries Motor Vehicles Auto Ancillaries Motor Cycles Computer Software & Related Services Diversified Companies Source: Based on the data extracted from Prowess corporate database. 24 18.01 11.43 14.41 22.56 24.46 12.76 0.48 2.12 3.54 23.86 1.29 33.39 11.32 9.40 13.68 9.40 11.34 14.96 9.91 3.52 2.28 66.35 30.39 7.62 36.80 8.57 3.48 13.45 7.39 8.16 9.47 1.69 89.82 7.32 7.71 0.00 91.42 60.42 24.33 34.68 3.12 6.42 8.70 33.93 9.43 5.04 10.02 4.97 12.11 10.87 1.43 13.71 6.74 23.20 13.24 24.83 2.22 6.04 8.85 15.05 12.57 5.42 8.28 53.52 7.90 5.69 11.58 1.84 2.93 11.43 7.03 5.63 12.17 5.65 69.91 7.81 17.08 30.68 12.17 12.05 19.40 10.68 6.38 7.93 2.64 18.57 3.18 31.06 12.80 21.18 8.69 24.35 9.81 14.99 10.39 5.86 5.77 64.49 7.87 6.47 14.91 4.54 3.23 12.58 7.21 6.84 10.47 4.02 73.97 7.81

33.59 0.00 33.59 6.68 11.94 4.86 5.26

Table-15
Top Foreign Private Corporate Exporters: 2003-04 Name of the Exporter Export Share in s Total (%) 200304 (2) (3) (4) 1,235 6.74 As on March 31, 2002, the reported FDI in the company seems to be held by IFC (18%); Electra Partners, an independent private equity investor, (12%); EM Warburg Pincus, a private equity investor (24%). (Amount in Rs. Crores) Remarks

(1) 1 Moser Baer India Ltd.

2 Hindustan Lever Ltd.

1,179

3 I T C Ltd.

1,045

4 Hyundai Motor India Ltd. 5 Maruti Udyog Ltd. 6 Ispat Industries Ltd.

1,002 942 793

The reported foreign promoters are: Prakash Mehta (6.47%) and Sabena Puri (1.58%). 5.98 A Trading House whose exports business segment includes sales of Marine Products, Leather Products, Castor, Mushrooms, etc. as well as sales of Soaps and Detergents, Personal Products, Beverages and Foods, etc. 5.73 This is a multi-product co (including hotels) and is a major exporter of agricultural products which include rice, soya, wheat, coffee and leaf tobacco. 5.38 Korean passenger car manufacturer 4.53 Japanese passenger car manufacturer 3.83 A Mittal group company. Foreign promoters holding 32.66 percent appear to be part of the group. 3.53 Engaged in computer software related activities 2.93 Engaged in computer software related activities 2.38 Foreign promoter is Tailwinds Ltd, an Isle of Manbased OCB, whose controlling shareholder is Mr. Naresh Goyal, an NRI. The reported export earnings are: Passenger and cargo Revenue. 2.27 Engaged in computer software related activities. Key promoters of the foreign parent company are: Mr. Sunil Wadhwani and Mr. Ashok Trivedi. 43.3 100.00

7 I-Flex Solutions Ltd. 8 Hewlett-Packard Globalsoft Ltd. 9 Jet Airways (India) Ltd.

670 617 513

1 Igate Global Solutions 0 Ltd. Sub-Total Total

416

8,412 17,490

Source: CMIE, Prowess database.

25

NIC Code . (1) 15 1513 1520 1531 1541 1550 1554 16 2423 29 2911 2912 2913 2915 2919 2921 2922 2924 2925 2926 2929 2930 30 31 3110 3120 3130 3140 3150 3190 32 3210 3220 3230 33 34 3410 3430 3591 72 98

Table-16 Imports-Sales Ratios of Different Categories of Companies in Select Industries (based on averages of 2001-02 to 2003-04) (Percentages) Description FDI NRI Domestic All Cos. Cos. Cos. Cos. (2) Food Products, Beverages & Tobacco Products Processing & Preserving of Fruits & Vegetables Dairy Products Grain Mill Products Bakery Products Beverages Soft Drinks & Mineral water Tobacco Products Pharmaceuticals & Medicinal Chemicals Machinery & Equipment General Purpose m/c Pumps, Compressors etc. Bearings, Gears etc. Lifting & Handling eqpt. Other general machinery Agricultural m/c Machine tools Mining, quarrying & Construction m/c Food processing m/c Textile & Leather m/c Other Spl. Purpose m/c Domestic Appliances Office, Accounting & Computing Machinery Electrical Machinery & Apparatus Electrical motors, generators etc. Electricity distribution m/c Insulated wire and cable Accumulators, primary cells etc. Electric lamps & lighting eqpt Other electrical eqpt. Radio, Television & Communication Equipment Electronic vales, tubes etc. Television & Radio transmitters etc. Television & Radio receivers etc. Medical, Precision & Optical Instruments, etc. Transport Equipment & Ancillaries Motor Vehicles Auto Ancillaries Motor Cycles Computer Software & Related Services Diversified Companies (3) 2.06 1.48 3.25 1.39 0.18 (4) 1.73 (5) 0.75 3.34 0.45 0.45 0.38 0.76 2.92 0.78 36.18 4.94 4.66 0.89 13.09 13.99 7.76 15.72 3.75 5.96 9.30 3.15 0.32 12.65 6.94 3.28 12.61 8.70 4.95 19.08 8.69 12.21 4.03 9.02 7.94 8.05 6.31 21.77 24.21 28.60 13.38 25.33 2.96 3.09 0.55 1.11 3.80 2.85 6.53 3.48 3.23 8.55 (6) 1.38 3.32 2.25 0.45 1.31 0.78 2.92 5.56 13.99 9.97 16.80 8.32 7.57 6.73 6.64 1.64 18.85 20.97 14.97 11.24 7.54 10.78 33.11 14.39 11.04 16.84 15.44 13.78 41.98 5.74 19.86 25.46 26.40 12.67 29.05 8.57 9.07 10.56 4.78 2.99 8.55

1.73

6.09 10.20 12.26 18.42 11.35 8.47 4.09 13.43 2.61 25.58 28.42 18.44 6.53 5.02 15.27 14.67 17.54 10.45 19.68 39.41 16.44 47.75 7.26 17.05 33.70 23.12 12.10 31.87 14.41 18.20 13.50 6.62 2.46

6.83 0.00 81.29 25.48

44.48 19.60 0.23

26

Source: Based on the data extracted from Prowess corporate database.

Net Earnings in Foreign Exchange It is evident that the engineering and transport equipment related industries are net losers of foreign exchange while computer software and related activities, pharmaceuticals, tobacco products and food products are net earners (Table-17). Except in computer software related activities and tobacco products, FDI companies have been net losers. This is true even in pharmaceuticals, which is otherwise a net earner. While in all branches of the transport equipment sector domestic companies have been net earners, FDI companies tended to be net losers. NRI companies fall somewhere in between. Interestingly, at the sub-sector level, in general, wherever FDI companies happen to be net earners, domestic companies too turned out to be net gainers. As noted above, a significant portion of the reported export earnings of the major exporter belonging to the tobacco products industry are unrelated to cigarette manufacture. In sum, FDI companies did not exhibit superior foreign exchange earning capacity compared to their domestic counterparts. In fact, their performance was considerably inferior. Apart from their domestic market orientation, one of the reasons for the negative net earnings by foreign companies could be that FDI companies depend more on imported raw materials and components.

R&D to Sales Ratio Not surprisingly in most of the selected industries the ratio of R&D expenditure to sales is practically negligible (Table-18). Pharmaceutical industry is an exception where the ratio is somewhat higher at about 3.5 per cent. Interestingly, domestic companies appear to be spending relatively more on R&D compared to FDI companies. This is true in the pharmaceutical industry as well. It is possible that FDI companies in may be depending upon their parent companies and international affiliates for technology. In sum, while FDI companies have acquired an important place in Indian corporate sector, their export-orientation is some what limited even in comparison with the corresponding domestic companies. They generally remain net losers of foreign exchange and the available evidence does not reveal any major efforts at engaging in R&D at the affiliate level.

27

Table-17 Net Earnings of Foreign Exchange (based on averages of 2001-02 to 2003-04) NIC Code (1) 15 1513 1520 1531 1541 1550 1554 16 2423 29 2911 2912 2913 2915 2919 2921 2922 2924 2925 2926 2929 2930 30 31 3110 3120 3130 3140 3150 3190 32 3210 3220 3230 33 34,35 3410 3430 3591 72 98 Description (2) Food Products, Beverages & Tobacco Products Processing & Preserving of Fruits & Vegetables Dairy Products Grain Mill Products Bakery Products Beverages Soft Drinks & Mineral water Tobacco Products Pharmaceuticals & Medicinal Chemicals Machinery & Equipment General Purpose m/c Pumps, Compressors etc. Bearings, Gears etc. Lifting & Handling eqpt. Other general machinery Agricultural m/c Machine tools Mining, quarrying & Construction m/c Food processing m/c Textile & Leather m/c Other Spl. Purpose m/c Domestic Appliances Office, Accounting & Computing Machinery Electrical Machinery & Apparatus Electrical motors, generators etc. Electricity distribution m/c Insulated wire and cable Accumulators, primary cells etc. Electric lamps & lighting eqpt Other electrical eqpt. Radio, Television & Communication Equipment Electronic vales, tubes etc. Television & Radio transmitters etc. Television & Radio receivers etc. Medical, Precision & Optical Instruments, etc. Transport Equipment & Ancillaries Motor Vehicles Auto Ancillaries Motor Cycles Computer Software & Related Services Diversified Companies FDI Cos. (3) -26.34 -0.62 -7.45 -34.52 16.26 592.90 -288.42 -192.80 -8.90 136.03 -21.62 -23.86 -71.85 -4.53 -52.48 -82.10 19.08 7.20 2.14 -91.90 -215.63 -410.75 137.74 -348.26 -116.95 -98.37 14.61 0.48 -429.16 -6.08 -253.54 -169.54 -102.82 -2751.89 -1724.88 -601.56 -425.45 1714.44 82.49 83.42 -0.93 457.50 176.92 49.47 18.28 0.33 -0.99 NRI Cos. (4) -3.16

-3.16

(Rs. Crores) Domestic All Cos. Cos. (5) (6) 85.77 56.27 47.97 47.35 13.18 5.73 22.90 22.90 5.97 -28.55 3.03 16.13 -7.29 -7.29 55.42 3698.12 -100.38 -287.26 35.95 -10.97 0.97 48.73 13.64 -0.33 5.46 14.13 -4.40 153.33 -69.64 -584.93 30.83 64.41 50.25 -68.41 -24.75 6.12 3.21 -835.23 -212.34 -355.97 -266.91 -70.07 723.20 298.67 323.03 101.50 6325.27 -337.82 648.32 3586.62 -243.71 -296.16 190.26 -32.27 -22.89 -24.11 9.12 -52.81 -76.63 33.21 2.79 187.33 -161.54 -890.37 -635.30 202.15 -298.01 -296.67 -268.34 20.73 4.84 1264.39 -218.42 -609.52 -436.46 -172.89 1946.19 1342.79 -279.46 -323.94 8497.21 -337.82

31.85 -89.81 -255.37 -111.30 -145.22 1.15

Source: Based on the data extracted from Prowess corporate database. 28

Table-18 R&D - Sales Ratios (based on averages of 2001-02 to 2003-04) NIC Code (1) 15 1513 1520 1531 1541 1550 1554 16 2423 29 2911 2912 2913 2915 2919 2921 2922 2924 2925 2926 2929 2930 30 31 3110 3120 3130 3140 3150 3190 32 3210 3220 3230 33 34,35 3410 3430 3591 72 98 Description (2) Food Products, Beverages & Tobacco Products Processing & Preserving of Fruits & Vegetables Dairy Products Grain Mill Products Bakery Products Beverages Soft Drinks & Mineral water Tobacco Products Pharmaceuticals & Medicinal Chemicals Machinery & Equipment General Purpose m/c Pumps, Compressors etc. Bearings, Gears etc. Lifting & Handling eqpt. Other general machinery Agricultural m/c Machine tools Mining, quarrying & Construction m/c Food processing m/c Textile & Leather m/c Other Spl. Purpose m/c Domestic Appliances Office, Accounting & Computing Machinery Electrical Machinery & Apparatus Electrical motors, generators etc. Electricity distribution m/c Insulated wire and cable Accumulators, primary cells etc. Electric lamps & lighting eqpt Other electrical eqpt. Radio, Television & Communication Equipment Electronic vales, tubes etc. Television & Radio transmitters etc. Television & Radio receivers etc. Medical, Precision & Optical Instruments, etc. Transport Equipment & Ancillaries Motor Vehicles Auto Ancillaries Motor Cycles Computer Software & Related Services Diversified Companies FDI Cos. (3) 0.24 0.00 0.14 0.30 0.00 NRI Cos. (4) 0.00 (Percentages) Domesti All c Cos. Cos. (5) (6) 0.03 0.13 0.06 0.06 0.01 0.09 0.02 0.02 0.02 0.28 0.04 0.04 0.01 0.01 0.07 3.79 0.56 0.06 0.00 0.00 4.05 0.61 0.96 0.60 0.58 0.14 0.22 1.10 0.27 0.35 0.61 1.18 0.68 0.17 0.15 0.16 0.20 0.32 0.07 0.23 0.00 0.15 1.10 1.27 1.73 0.39 0.88 1.37 1.61 0.60 1.52 0.62 0.10 0.36 3.49 0.65 1.11 0.68 0.19 0.26 0.19 1.62 0.32 0.26 0.24 0.96 0.64 0.33 0.31 0.29 0.48 0.29 0.06 0.38 0.00 0.13 0.81 1.15 1.20 0.38 0.39 1.03 1.09 0.93 0.98 0.68 0.10

0.00

0.39 1.01 0.69 1.32 0.77 0.09 0.39 0.15 2.01 0.37 0.22 0.13 0.21 0.38 0.44 0.05 0.41 0.62 0.28 0.01 0.60 0.00 0.00 0.38 0.35 0.40 0.37 0.03 0.64 0.42 1.18 0.21 1.21

1.30 0.00 0.92 0.31

0.00 0.43 0.00

1.23 0.03 0.43

Source: Based on the data extracted from Prowess corporate database. 29

Summary

Following the process of economic liberalisation and liberal FDI policy, there has been a quantum jump in Indias stock of FDI. However, while Indias FDI policy is quite open and comparable to many countries, its record in terms of attracting large amounts of FDI has been seen as unimpressive. Even more importantly, the low realisation of approved FDI is seen as an indicator of problems faced at the operational level. These have often been attributed to various factors chief among them being lack of quality infrastructure, restrictive labour laws, poor intellectual property protection, bureaucratic attitude of various official organisations, especially at the state level, etc.18 The dissatisfaction with the low realisation of approved FDI on the one hand and feeling of being left behind in comparable terms with many countries, especially China, probably was one of the reasons for India gradually opening of many sectors and offering greater ownership freedom to foreign investors. With much emphasis being placed on attracting FDI the focus was on improving the procedures. In the process, monitoring the activities of FDI has been relegated to the background, almost to the point of neglect. Given the poor state of data and information on the unlisted segment of the Indian corporate sector, individual researchers are hard pressed to make in depth studies of the operations of FDI companies.19 An attempt was made at ISID, probably the first of its kind in India, to arrive at some tentative estimates of the shares of FDI companies in different segments of the Indian corporate sector. The exercise, towards the end, made us acutely aware of the limitations of the thumb rule criteria of 10 per cent holding by a foreign investor for classifying a company as an FDI one. We also realised that many companies classified as FDI companies may not be able to exhibit the characteristics often associated with FDI. A view got crystallised that such a liberal criteria could tend to overstate the importance of FDI on the global scene. While it is practically impossible to study each company for its FDI characteristics, the somewhat restrictive criteria of 25 per cent foreign equity, followed earlier by India, appears to be more realistic. In this context, one can refer to China which follows the 25 per cent criteria to accord a company the status of foreign invested enterprise (FIE). By following the 10 per cent criterion it has been observed that FDI companies accounted for nearly 13 per cent of the large companies (with at least Rs. 5 crores assets in 2000-01) in terms of numbers, almost 18 per cent in terms of assets and close to onefourth in terms of paid-up capital (PUC). Within the private sector, to which practically all the FDI companies belong to, the share in assets and PUC was far higher at about 28
18

Chalapati Rao K.S. and M R Murthy, Towards Understanding the State-wise Distribution of Foreign Direct Investments in the Post-Liberalisation Period, ISID Working Paper No: 2006/01

19

Goyal S.K., et. al., Foreign Investment Approvals: An Analysis (August 1991 July 1993), a report submitted to the Ministry of Finance, New Delhi, 1994.

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per cent and 40 per cent respectively. In fact, they constituted almost one-third of the total even in terms of numbers. While about 56 per cent of the assets of FDI companies are in the manufacturing sector, the next important position is occupied by the services sector with about 33 per cent share. It does appear that the FDI sector occupies a significant position in Indias private corporate sector, in particular in the nonmanufacturing sector. The exercise confirms the view that in the new regime there has been a shift in the sectoral composition of FDI. The share of manufacturing sector declined substantially giving way to services and utilities. Indias experience is also in line with the shift at the global level. The share of manufacturing in the world inward FDI stock decreased from 41.47 per cent in 1990 to 32.47 per cent in 2004 while that of services increased from 49.27 per cent to 62.83 per cent. The shift was even more pronounced in developing countries as the corresponding shares of manufacturing were 45.16 per cent and 30.70 per cent. A disaggregated analysis of the transactions in foreign exchange conducted by companies in the selected industries of food processing, pharmaceuticals, engineering and computer software & related activities for the period 2001-02 to 2003-04 revealed the following:
i)

Among the industries selected, exports are concentrated in computer software and related services and pharmaceutical products. Their combined share was almost two-thirds of the total. In terms of net sales, share of these two sectors was about one-fourth only. The two sectors are thus more export-oriented than the remaining ones. The exports-sales ratio was the highest (73.97 per cent) in case of Computer Software and related Services. The next highest ratio was recorded by the Pharmaceutical industry at 30.68 per cent. In the case of fruits & vegetables processing domestic companies are better oriented towards exports. It was the other way round in case of Beverages. In all other industries FDI companies export-orientation was higher than that of domestic companies. But the gap between the two was narrow. In case of computer software and related services, FDI companies show markedly higher export orientation. In some sub-groupa, however, domestic companies performed somewhat better. There was no uniformity in the import intensity of sales across various industries and between different categories of companies, it does appear that industries in which FDI companies have a substantial share, FDI companies tended to be more import dependent compared to domestic companies. The engineering and transport equipment related industries are net losers of foreign exchange while computer software and related activities, pharmaceuticals, tobacco products and food products are net earners. The characteristics of some of top FDI exporters suggest that probably there is little relationship between their export performance and foreignownership. Hindustan Lever Ltd., classified as a chemicals company and an established Trading House, accounted for 38 per cent of exports of the
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ii)

iii)

iv)

v)

chemicals group. Similarly, ITC, a leading cigarette manufacturing company, exports mostly agricultural products. Strictly going by the company classification, ITC accounted for about 96 per cent of exports of tobacco products by non-financial FDI companies.
vi)

The ratio of R&D expenditure to sales is generally practically negligible. Pharmaceutical industry is an exception where the ratio is somewhat higher at about 3.5 per cent. Interestingly, domestic companies appear to be spending relatively more on R&D compared to FDI companies. it plays a major role in the IT sector also, the lead was provided by Indian companies. FDI only followed suit. In the remaining industries, the contribution has been quite limited and could be even termed not so positive to the extent that domestic enterprises were replaced by FDI or the Indian facilities have been turned into contractual manufacturers.

vii) The new FDI does play an important role in the automobiles sector. Though

viii) In general, in India, the contribution of FDI companies to exports has been very small. The relative low contribution has been pointed out widely and there does not appear to be much improvement over the years. Eventhough the inflows have increased during the past few years and FDI companies occupy an important position in Indias large private corporate sector, the fact that reinvested earnings and acquisitions account for a significant share of the inflows it does appear that one cannit expect major changes in their behaviour in the near future. This is also because the inflows are directed more towards nonmanufacturing activities. From the investment point of view, for the domestic entrepreneurs, FDI is not the only source of external capital. Unlike a joint venture type of arrangement, these financing alternatives give Indian entrepreneurs the operational freedom and a chance to grow independently. The emphasis should be on quality of FDI rather than the amount per se. The emphasis should be on technology transfer and local development by whatever means it could be achieved. It has been proved time and again that entry level restrictions are no major deterrents provided other necessary conditions are in place. Simultaneous with improving the investment climate India should pay more attention to monitoring the functioning of the Indian corporate sector both foreign and domestic. Many Indian companies are no longer purely domestic as they have extensive international operations and are much bigger than some of the FDI companies entering India thus blurring the distinction between the two. Recent changes in Chinas FDI policy support a somewhat restrictive approach towards FDI and indicate the countrys emphasis on quality of FDI over its quantity and the Chinas desire to retain control over pillar industries.

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Annexure-I Illustrative List of FDI Cases 1. Disinvestment by the Foreign Investor Bakelite Hylam Foreign partner exited the venture Birla Power Solutions Foreign partner, Yamaha, exited the venture BMG Crescendo (India) Pvt Ltd The company was initially wholly Indian owned. It was converted into a joint venture between the Indian promoter and BMG Diamont Boart The foreign investor is reported to have exited the venture EPIC Enzymes, Pharmaceuticals & Foreign Parent exited from the venture Industrial Chemicals Ltd Eureka Forbes AB Electrolux exited from the joint venture with the Forbes Group Eveready (formerly Union Carbide) Taken over by Khaitans of Williamson Magor Everest Industries (fromerly Eternit Reported to have been completely taken over by ACC Everest Ltd) FAL Inds (formerly Facit Asia) Now under control of Forbes Group Glowtronics Video Display Corp sold off its 40% share in the company Godrej GE Appliances Godrej's refrigerator unit was initially transferred to the JV. Subsequently the JV broke up and GE exited from the venture Hydro S&S Industries Foreign Parent exited the company India Foils Foreign investor exited the company Indian Aluminium Co. Ltd Foreign investor exited the venture International Combustion Foreign promoter exited the company Kirloskar Briggs and Stratton Power the JV agreement was terminated in 2002 with Kirloskars Equipment Ltd buying out the foreign partner's share Kirloskar Systems Chatterjee Holdings (Mauritius) Ltd is reported to have exited the venture L&T Mcneil LTM (fully bought over by L&T) LG Hotline CPT Ltd LG exited the 50:50 JV with the Hotline group. LML & VCCL Piaggio exited the ventures Lotus Chocolate Co. The foreign parent exited from the company in 2003-04 Merind Foreign invetsor exited the venture Miven Machine Tools Foreign parent exited from the company completely. Onkyo India Pvt Ltd Originally promoted by Osaka of Japn in 1995. It became an India company and has been renemed as Dakshin Speaker Manufacturing Ltd Parry's Confectionary Ltd Its JV Leaf Parry Ltd (later Confectionery Specialities Ltd) was terminated and the company was amalgamated with itself. Its other JV proposal with Chupa Chups SA was called off. PSI Data Systems The foreign Investor exited the venture Ridhi Sidhi Gluco Biols Took over KG Gluco Biols of Glaxo. RPG Lifesciences formerly Searle India. The foreign investor exited the co. Spice Net Ltd Modi Olivetti was renamed after Olivetti exited from the joint venture Sundaram Brakelinings the joint venture is now a wholly Indian owned company Suven Life Sciences Borregard Industries Ltd, a norwegian Co., acquired 15% stake in the company in 2001 and sold its entire stake in 2003. Sylea Automotive India Ashok Minda group buys out Valeo (French) shareholding Tarmac India The co., a subsidiary of Tarmac, UK was reported to be taken over by ACC Vickers Systems Intl. Indian partner exited from the venture 33

2. Re-entry by the Foreign Investor Black & Decker Kinetic Honda Tractor Engineers TVS-Suzuki United Distilleries India 3. FDI Cases with the NRI angle Bharti Healthcare Bharti Telecom Exide Lanco Global Systems Mather & Platt Polyplex Corp Sterlite Group Windsor Machines Zee Telefilms 4. Takeover of Companies/Foreign equity hikes AMP Sanmar Amrit Agro Industries Ltd Associated Cement Cos. Ltd Astra Zeneca Pharma Atlas Copco BASF Styrene Pvt ltd

Exited from Kulkarni Black & Decker (now Kulkarni Power Tools) and joined hands with Bajaj's to form Black & Decker Bajaj Ltd. Foreign partner (Honda) exited from the company completely and started an independent venture to manufature scooters. L&T took over Caterpillar's stake in the JV. Caterpillar started its independent operations by taking over Hindustan Motors' earthmoving equipment division. Foreign partner (Suzuki) exited from the company completely and started an independent venture to manufature motor cycles. The foreign partner in this was reported to have exited to pursue its business in India independently

Bharti Global, reported to be belonging to the promoter group, was the forign promoter of Bharti Healthcare till the end of 2004 Bharti Global Mr.Satish Raheja, brother of Mr.R. Raheja, owns a controlling interest in Exide Industries Ltd., India, through Chloride Eastern Industries Ltd. (CEIL), Singapore Lanco Solutions Inc. is the foreign promoter Nature of 'foreign equity' Sterlite Industries and Madras Aluminium have been turned into foreign subsidiaries by the group. Delgrada, the foreign promoter with 20% equity, is reported to be owned by the Indian promoters

Blue Dart Britannia Industries

Cadbury India Chambal Agritech Coca-Cola CRISIL Cummins India Ltd Denso India

Sanmar exited from the JV Sells the potato chips business (Uncle Chipps) to FritoLay's of Pepsi Acquired by the Holcim Group Foreign investor attempted to buy out the Indian shareholding Hiked the foreign equity to 84 per cent. BASF gained management and operational control of Pushpa Polymers Private Limited in November 2000; the company was renamed BASF Styrenics Private Limited. Today BASF is the only global polystyrene manufacturer operating in India. Taken over by DHL Aquired substantial stakes in: Kwality Biscuits; JB Mangharam Foods, Sunrise Biscuit Co., Nalanda Biscuit Co., Ganges Valley Foods, International Bakery Products and Klassic Foods Foreign investor bought over the Indian shareholding The joint venture was taken over by the foreign partner Took over the soft drink business of Parle group. Taken over by Standard & Poor Kirloskars exited the JV. Indian Partner exited the venture 34

Dyanora Promoter Obul Reddy Godrej Sara Lee Hindustan Powerplus Hitachi Home & Life Solutions India Ltd Igarashi Motors India Ltd. Inatech Info Solutions Pvt Ltd Kennametal India Matsushita Air-conditioning India Ltd Oriental Carbon & Chemicals Perfect Moulds Philips India Precision Gears Ltd Pricol Punjab Anand Lamp Industries SRP tools Tata Lucent Technologies Vijay Vision Wartsila India Tata Information Systems Ltd 5. Takeover of Units/Divisions Apar Lighting Belting Division of Andrew Yule Compressor Units of SIEL and Kelvinator EBG (India) Pvt Ltd

entered into a 51;49 JV with Thomson. His shareholding gradually declined to about 10 per cent by 2003. took over the mosquito repellent business of Godrej Indian partner was bought over by the foreign investor Strengthened its control by acquiring majority stake Indian partner was bought over by the foreign investor Oracle acquired the co. and renamed it as Oracle Solution Services Indian partner was bought over by the foreign investor contd... Videocon group exits the JV This existing company has been acquired by Mitsubishi Heavy Industries the company, established as a wholly-owned subsidiary of Voltas, became a JV with Sermo, France , in 2001. It is now wholly-foreign-owned. Foreign investor bought over the Indian shareholding This existing company became a subsidiary of IMA, Italy in 1995 Denso joins as foreign equity partner Foreign investor bought over the Indian shareholding This existing company has been acquired by Mitsubishi Heavy Industries Indian partner was bought over by the foreign investor Acquired by Essilor Indian partner was bought over by the foreign investor IBM bought over the Indian partner in the venture

Electric Meter Divn. of VXL Filters Divn. of Kirloskar Oil Engines Hienz India India Linoleum unit of Birla Jute Joint Venture Umbrellas Kirloskar Copeland Luxor Pen mfg. facilities Motor Cycle Divn. Of Escorts Sepertrans-Nirlon Ltd Siel Aircon South Asia Tyres Sugar machinery divn. of KCP

the division was transferred to the JV, GE-Apar Lighting Acquired by Phoenix Yule Ltd in 1999. A new company Tecumseh India was formed for this purpose A JV between Thyssenkrupp Electrical Steel (TKES), Germany and Raymond Ltd. TKES, with a share of 76% is the major shareholder. The JV took over the steel division of Raymond Ltd. to a JV with Landys Gyr. Birlas exited the JV subsequently The JV Kirloskar Knecht Filters was formed (now Mahle Filter Systems) was formed. In 2002 Kirloskar practically exited from the JV. Acquired the food business of Glaxo India. to a JV Birla DLW Ltd Wesman, Sanmar, Modi, Essar Telecom business The new joint venture company took over the compressors manufacturing and sales business of hermetic compressors division of Kirloskar Brothers transferred to Luxor Writing Instruments, a JV with Gillette to a JV with Yamaha. Escorts exited the JV subsequently This JV was incorporated to takeover the conveyor belting division of Nirlon Ltd Daikin Shriram ws formed as a JV. Finally the Indian partner's share was bought over by the foreign investor The JV took over the 2 and 3-wheeler tyre unit of Ceat. Subsequently, the Indian partner was bought over by Goodyear taken over by the JV, FCB-KCP Ltd 35

Taj SATS Air Catering Ltd Tisco's Cement Unit

The JV took over Taj group's air catering units. Lafarge started its operations by acquiring this unit. IT also acquired Raymond's cement unit

36

References Balasubramanyam V.N. and Vidya Mahambare, Foreign Direct Investment in India, paper presented at a workshop on Foreign Direct Investment in Developing Countries held at the Lake District, September 13th 14th, 2002. Chalapati Rao K.S. and M R Murthy, Towards Understanding the State-wise Distribution of Foreign Direct Investments in the Post-Liberalisation Period, ISID Working Paper No: 2006/01 Chalapati Rao K.S., K V K Ranganathan & M R Murthy, Imapct of Foreign Direct Investment on Selected Sectors of India A Comparative Study with Selected Countries, report submitted to the Office of the Economic Adviser, Department of Industrial Policy and Promotion, Ministry of Commerce & Industry, March 2007. CMIE, First Source database. CMIE, Prowess Corporate Database. Goyal S.K. et. al, Foreign Investment Approvals and Implementation Status: A Review, August 1991 December 1994, a report submitted to the Ministry of Finance, New Delhi, 1995. Goyal S.K., et. al., Foreign Investment Approvals: An Analysis (August 1991 July 1993), a report submitted to the Ministry of Finance, New Delhi, 1994. Goyal, S.K. et. al., India's External Trade during the 'Nineties: Some Aspects - An Analysis of Customs House and Company Data, a project report sponsored by the Planning Commission, November 2002. Ministry of Commerce & Industry, India: FDI Factsheet, March 2008. Raghuvir Srinivasan, Auto components: bracing for the race, Hindu Business Online, June 16, 2002. Reserve Bank of India, Census of Indias Foreign Liabilities and Assets as on March 31, 1997, Reserve Bank of India Bulletin, October 2000. Reserve Bank of India, Census of Indias Foreign Liabilities and Assets as on March 31, 1992, RBI Bulletin, September 1996. Reserve Bank of India, Finances of Foreign Direct Investment Companies-2004-05, RBI Bulletin, May, 2007. Reserve Bank of India, Finances of Foreign Direct Investment Companies-2003-04, RBI Bulletin, April 2006. Reserve Bank of India, Handbook of Statistics on Indian Economy, 2005. UNCTAD, New UNCTAD Surveys: Foreign Direct Investment Prospects Promising For 2005-2008, Press Release UNCTAD/PRESS/PR/2005/031, 05/09/05. See at (http://www.unctad.org/ Templates/webflyer.asp? docid=6301&intItemID=1528&lang=1). UNCTAD, FDI Statistics. UNCTAD, World Investment Report 2006: FDI from Developing Country, Academic, New Delhi, 2006. UNCTAD, World Investment Report, 2007. UNCTAD, World Investment Report: FDI Policies for Development: National and International Perspectives, 2003.
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