Whether FDI or Exports Enhance from Indian Manufacturing Firms

Abstract

The economic reforms of 1991 resulted in an increased inflow of FDI into the Indian economy. However, for the invention of new techniques and skills, there is a great need to invest on R&D, requires a huge amount of capital, which can be available through FDI inflows. Technology has been imported in heavy amount after the implementation of liberalization policies. Therefore, the present study intends to know whether FDI contributes to the Indian manufacturing sector through R&D or not. The average growth of the manufacturing sector in India (7.93 per cent) has been found considerably higher during the second decade of reforms (2001-2012) as compared to first decade reforms (1991-2000). In the context of this, the present study has tried to examine the trends and patterns of FDI and R&D in manufacturing firms of India during the second decade of reforms (2001-12) and also, to analyze the impact of FDI and exports on R&D in manufacturing firms of India through fixed effect model. The results suggest that R&D has been significantly impacted by the import of capital goods, foreign equity, disembodied technology, and export intensity during the second decade of liberalization period. The present study suggests that greater approvals for foreign capital inflows are required in India, for enhancing the R&D in the manufacturing sector. There must be an appropriate coordination between public and private sector, which can improve the R&D expenditure of manufacturing firms of India.