Today, the Reserve Bank placed the results of the thirteenth round of the survey on foreign collaboration in Indian industry covering the financial years 2019-20 and 2020-21¹ on its website.

Highlights:

I. Coverage: Of the 966 Indian entities that participated in the latest survey round, 481 reported 929 foreign technical collaboration (FTC) agreements. Nearly two-third of the respondents were foreign subsidiaries (single foreign investor holding majority equity) and another 22 per cent were foreign associates (foreign investors’ equity holding ranging between 10-50 per cent) (Table 1). Thus, an overwhelming majority of the FTC companies also had overseas financial collaboration too. Only 19 responding companies had pure technical collaborations. Of the 481 companies that reported foreign collaborations in the current round, 205 had also responded to the previous survey round.

II. Industry-wise Agreements: Over 75 per cent of the reported 929 FTC agreements were in the manufacturing sector, where machinery and transport equipments, chemicals and chemical products had major share. Information and communication as well as financial and insurance sectors accounted for significant share in the service sector FTC agreements (Table 2).

III. Partner Country Profile: With 31 per cent of the reported FTC agreements, Japan remained the top source country for technology transfer, followed by Germany and the USA; these three countries together accounted for more than a half of the reported FTC agreements. France, Italy, Republic of Korea, the UK and Switzerland were other source countries with significant shares (Table 3).

IV. Asset Transfer: Around 56 per cent of the FTC agreements involved technology know-how transfer by the foreign collaborators and another 11 per cent involved the use of trade-marks / brand names. Less than one per cent of the reported agreements were on patent transfer (Table 4).

V. Payment Mode: Around two-third of the FTCs provided for royalty payment, some of which also had additional clauses for lump-sum technical fees. Less than 10 per cent of the reported contracts were based on pure lump-sum technical fee payments (Table 5).

VI. Export Restriction Clauses and Exclusive Rights Provisions: Export restriction clauses are typically written into FTCs by foreign collaborators intending to protect their own markets. Likewise, local collaborators often obtain exclusive rights on assets transferred under the agreement so that the foreign collaborator is restrained from transferring such assets to another local party in parallel. Around a fourth of the reported FTC agreements had export restriction clauses and nearly a third had provision for exclusive rights on assets transferred under the agreements. While nearly 30 per cent of the reported FTC agreements in the manufacturing sector had export restriction clauses, this share was less than 10 per cent for the services sector. Nevertheless, exports from service sector, mainly from information and communication remained substantial, implying that companies without export restriction clauses in their FTCs accounted for the larger part of export activity. Within manufacturing, FTC agreements for pharmaceuticals, electrical, motor vehicles and other transport equipment had a significant share of such clauses. Over a half of the agreements in the construction sector had export restrictions. In terms of partner countries, more than a third of the FTC agreements with Japan, the major collaborator, had the export restriction clauses built into them (Tables 6, 7, 8 and 10).

VII. Value of Production: The total value of production of the FTC reporting companies contracted by 9.8 per cent in the year 2020-21, which was affected very adversely by the COVID-19 pandemic. The largest shrinkage was seen in services sector, including construction. FTC reporting companies engaged in pharmaceuticals, medicinal chemical and botanical products recorded sizeable growth in 2020-21 but, at the aggregate level, production contracted for the manufacturing companies, which had nearly 75 per cent share in total value of production (Table 9).

VIII. Exports and Imports: Exports and imports of FTC reporting companies in 2020-21 shrank by 12.4 per cent and 6.8 per cent, respectively; the decline was led by contraction in construction, rubber and plastics products and motor vehicles. Information and communication services contributed positively to the total exports and imports of FTC companies. At the aggregate level, the ratio of exports and imports to value of production stood at 14.6 per cent and 19.6 per cent, respectively, but there were large inter-sectoral variations (Tables 10 and 11).

IX. Profitability: The average profitability of FTC reporting companies, measured by the ratio of gross profit to capital employed, moderated in the current survey round when compared to the previous two rounds (Table 12).

Background:

Financial collaboration with foreign entities very often includes cross-border technical collaboration, which secures buy-in from the technology partner. As foreign investment works as a vehicle for technology transfer, an assessment of the dimensions and impact of technological collaboration on various aspects of economic development provides useful inputs in formulation of policies and setting up of procedures. Accordingly, the Reserve Bank has been conducting the survey on foreign collaboration in Indian industry since 1960s, to gauge the nature of collaboration and monitor its impact, in combination with other higher frequency data on foreign direct investment (FDI). With the introduction of the mandatory census on foreign liabilities and assets (FLA) of Indian direct investment companies to collect detailed information on their inward and outward direct investments in 2011, this survey was restructured in 2012 on broad operational facets of Indian companies that have technical collaboration agreements with foreign companies (survey schedule is attached).

(Yogesh Dayal)     
Chief General Manager

Press Release: 2021-2022/1007

¹ The results of the twelfth round of the Survey on Foreign Collaboration in Indian Industry for the period 2016-18 were released on the RBI website on January 28, 2019.