The RBI has today placed on its website Survey on Foreign Collaboration in Indian Industry for 2014-2016.

Foreign collaboration is widely used as an effective vehicle for overcoming the technology gap in the path of economic development. Cross-border technical collaboration is often embedded in financial collaboration, thus securing buy-in from the technology partner in corporate management. Regular assessment of the dimensions and impact of technological collaboration on various aspects of economic development is, therefore, useful for informing the setting of macroeconomic policies so as to derive maximum benefits from such collaborations.

In India, foreign collaborations have a long history. Over the years, companies have increased their overseas financial and technical alliances and foreign subsidiaries have been set up, as India’s integration into the global economy has strengthened in multiple directions. In order to facilitate analytical studies in this area, the Reserve Bank has been conducting the Survey on Foreign Collaboration in Indian Industry since the 1960s. After introduction of the mandatory Census on Foreign Liabilities and Assets (FLA) of Indian Direct Investment Companies in 2011, this survey was restructured in 2012. It now supplements the FLA census and focuses on major operational facets of Indian companies that have technical collaboration agreements with foreign companies (survey schedule is attached).

The latest survey (eleventh round) covers the financial years 2014-15 and 2015-16.

Highlights:

• Coverage: Of the 694 Indian entities that responded in the latest survey round, 306 reported 590 foreign technical collaboration (FTC) agreements. Around 60 per cent of the reporting companies were foreign subsidiaries (single foreign investor holding majority equity) and a fourth were foreign associates (foreign investors’ equity holding ranging between 10-50 per cent). Thus, an overwhelming majority of the FTC companies also had overseas financial collaboration. Only 11 companies had pure technical collaborations (Table 1). Of the 306 companies that reported FTCs, 183 are common in relation to the previous survey round, 123 are new in the sample and 38 companies, which reported in the last round, have not reported in the latest round.

• Industry-wise Agreements: 80 per cent of the reported FTC agreements belonged in the manufacturing sector, with nearly half relating to motor vehicles, transport, machinery and equipment, chemicals and pharmaceuticals. Construction attracted a higher number of such collaborations with a larger share of output in the latest round relative to the previous round. In the services sector, information and communication reported more FTC agreements than in the previous round (Table 2).

• Partner Country Profile: Japan, USA and Germany remained the top three technology source countries, together accounting for 58 per cent of the reported FTC agreements. UK, Italy, Republic of Korea, France and Switzerland were other countries with significant shares in total technical collaboration (Table 3).

• Asset transfer and Payment Mode: Over two-third of the FTC agreements involved know-how transfer by the foreign collaborator and another 10 per cent involved use of trade-marks / brand names. Less than one per cent of the agreements were on patent transfer (Table 4). An overwhelming majority of the FTCs provided for royalty payment, some of which also had additional clauses for lump-sum technical fees. Only 13.8 per cent of the reported contracts were based on pure lump-sum technical fees payments (Table 5).

• Export Restriction Clauses and Exclusive Rights Provisions: Export restriction clauses are typically written into FTCs by foreign collaborators intending to protect their own markets. On the other hand, local collaborators try include provision of exclusive rights on assets transferred under the agreement so as to restrict the foreign collaborator from transferring such assets to another local party. Over a third of the reported manufacturing sector FTC agreements had export restriction clauses whereas it was less than 10 per cent for the services sector. Within the manufacturing FTCs, the export-intensive chemicals, rubber and plastic and motor vehicles sectors had lower export restriction clauses. FTC agreements for pharmaceuticals and electrical and other machinery had a significant share of such clauses. Nevertheless, exports from these sectors remained substantial, implying that companies without export restriction clauses in their FTCs accounted for the larger part of export activity. Japan accounted for over a third of the reported FTC agreements and nearly 45 per cent of them had export restriction clauses. At the aggregate level, around 32 per cent of reported FTCs had export restriction clauses and nearly 36 per cent had provision for exclusive rights on assets transferred under the agreements (Tables 6, 7, 8 and 10).

• Value of Production: The total value of production of the FTC reporting companies increased by 10.3 per cent to ₹ 4,387 billion in 2015-16. Nearly 80 per cent of this output related to the manufacturing sector, where motor vehicles were the largest sub-sector, followed by chemicals (Tables 9).

• Exports and Imports: Total exports of FTC reporting companies recorded y-on-y increase of 6.7 per cent, rising to ₹ 788.8 billion in 2015-16, with the manufacturing sector recording the dominant share. On the other hand, imports increased by 7.7 per cent to ₹ 877.3 billion. The ratio of exports and imports to value of production stood at 18 per cent and 20 per cent, respectively, at the aggregate level, but there were large inter-sectoral variations. (Tables 10 and 11).

• Profitability: The average profitability of FTC reporting companies, measured by the ratio of gross profit to capital employed, has increased during the last three survey rounds. In the latest survey, this ratio increased from 17.3 per cent in 2014-15 to 18.5 per cent in 2015-16 (Table 12).

The results of the earlier round of the Survey on Foreign Collaboration in Indian Industry for the period 2012-14 (tenth round) were released on the RBI website on March 24, 2015.

Ajit Prasad
Assistant Adviser

Press Release : 2016-2017/2529