Centre analyses FDI data to boost tech transfer

Exercise also aims to spur value addition, innovation

The Centre is analysing foreign direct investment (FDI) inflows to introduce specific provisions in the new industrial policy and the FDI Policy for ensuring such funds result in enhanced technology transfer, local value-addition and innovation.

The discussion paper on a future-ready industrial policy had already recommended a review of the current FDI regime.

“It is a little preliminary, but we are analysing the (FDI) inflows sector-wise, region-wise (within India) and country-wise,” a source, privy to the development, told The Hindu.

“We are also looking at global practices, including regulations in countries such as Israel and China regarding transfer of technology, domestic value addition and promotion of innovation. The inputs will be fed into the concerned policies,” the source added.

The analysis is being done with the help of ‘Invest India’ — the government’s investment promotion and facilitation agency.

According to the August 2017 discussion paper by the Department of Industrial Policy and Promotion, while the FDI policy had largely aimed at attracting investment, “benefits of retaining investments and accessing technology have not been harnessed to the extent possible.” It said the “FDI policy requires a review to ensure that it facilitates greater technology transfer, leverages strategic linkages and innovation.” As a long-term measure, the paper pitched for an FDI regime that balances short-term and long-term benefits of inward and outward investments. It said in the medium-term, what should be looked at is, “How can the FDI policy channelise investments into the potential sectors to increase domestic value addition, strengthen (global) linkages and enable brand building?”

In the current FDI policy, the explicit condition specifying that “value addition facilities are set up within India along with transfer of technology” is limited to ‘mining and mineral separation of titanium bearing minerals and ores’ where 100% FDI is allowed through the government-approval route.

Capacity addition

There have been concerns regarding an overweening emphasis on the quantum of FDI and not as much focus on the quality of the funds. A recent study initiated by the Institute for Studies in Industrial Development and conducted by K.S. Chalapati Rao and Biswajit Dhar found that “it was acquisitions which provided the sustenance for the rise in (FDI) flows during 2016-17,” raising doubts about capacity addition.

India received record FDI inflows of $60.1 billion during 2016-17. Referring to (the Centre’s) ‘Make In India’ sectoral achievement reports, the study said they were “lacking close scrutiny of the reported (FDI) inflows or the nature of foreign investments” — including whether the inflows were for greenfield projects, mergers and acquisitions or for other purposes.

The study said “companies have been allowed to not disclose crucial information on foreign exchange transactions, capacities, production, etc., which limits the ability to analyse corporate performance.” Instead, the potential of various filings by the corporates to different official agencies should be exploited fully, it said.

A report in 2016 by the National Council of Applied Economic Research observed that “Judging by ministries’ responses, the principal data gaps appear to be the lack of information on FDI inflows into individual states, on the universe of foreign firms in particular states and sectors, and their contribution in terms of employment, trade, and overall economic value-addition.” It added: “Ministries were also unable to answer most of the queries about foreign firms’ share of total national investment or sales in particular sectors, and the urban-rural break-up of FDI inflows, saying that government data does not distinguish between foreign and domestic firms, or urban and rural investments.” The NCAER report said, “With no information on the exact location and operational contribution of all foreign firms in the country, it becomes impossible to accurately assess what economic difference they make.”

The NCAER said this problem is compounded by the fact that many foreign firms do not publicly list in India, and consequently there is little public information about them. It suggested that “The simplest and most logical first step would be to establish a universal registry of foreign direct investors in the country, which could be disaggregated by location, sector, investment size, and other policy-relevant parameters. This is now standard practice in other leading FDI host economies.”

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Printable version | Feb 20, 2020 9:58:24 AM |

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