Today, the Reserve Bank released the results of the twelfth round of the biennial survey on Foreign Collaboration in Indian Industry covering the financial years 2016-17 and 2017-18, on its website¹.

Domestic efforts in building technological support for economic development are often supplemented by foreign technical collaboration, which is a frequent component in cross-border financial partnerships in corporate management. In India, foreign collaborations have a long history and the strengthening of the country’s integration with the global economy has resulted in an increase in such financial and technical alliances, often by setting up of cross-border subsidiaries.

Regular assessment of the dimensions and impact of technological collaboration on various aspects of economic development is useful for informing the setting of macroeconomic policies. Accordingly, the Reserve Bank has been conducting the survey on foreign collaboration in Indian industry since the 1960s, to gauge the nature of collaboration and to analyse its impact. 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 to supplement the FLA census. It focuses on the major operational facets of the Indian companies that have technical collaboration agreements with foreign companies (survey schedule is attached).

Highlights:

I. Coverage: In the latest round of the survey, 877 Indian entities that responded, of which, 334 companies reported 620 foreign technical collaboration (FTC) agreements. Out of these 334 companies, 206 were foreign subsidiaries (single foreign investor holding majority equity) and 83 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 eight companies had pure technical collaborations (Table 1). Incidentally, 189 of the 334 FTC companies are common in relation to the previous survey round and 145 are new in the sample.

II. Industry-wise Agreements: Over 80 per cent of the reported FTC agreements were in the manufacturing sector where motor vehicles, machinery and other equipment, chemicals and chemical products had major share. Relative to the previous survey round, there is an increase in such agreement in the construction sector, the share of which in total output has been growing. The share of services sector in FTC agreements continues to be much lower than its share in the economy (Table 2).

III. Partner Country Profile: In terms of source country for technology transfer, Japan accounted for nearly a third of the FTC agreements followed by USA and Germany: these three partner countries together accounted for nearly 60 per cent of the reported FTC agreements. The UK, Italy, Republic of Korea and Switzerland were other major collaborators (Table 3).

IV. Asset transfer and Payment Mode: Nearly two-thirds of the FTC agreements involved know-how transfer by the foreign collaborator and another 11 per cent involved use of trade-marks / brand names (Table 4). Around half of the FTCs provided for royalty payment and some of them also had additional clauses for lump-sum technical fees. Only 16 per cent of the reported contracts were based on pure lump-sum technical fees payments (Table 5).

V. 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 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. At the aggregate level, around 32 per cent of reported FTC agreements had export restriction clauses and nearly 37 per cent had provision for exclusive rights on assets transferred under the agreements.

Over a third of the FTC agreements in the manufacturing sector had export restriction clauses whereas it was less than 10 per cent for the services sector. In the manufacturing sector, In the manufacturing sector, the export-intensive rubber and plastic, fabricated metal products, motor vehicles, machinery and equipment sectors had lower export restriction clauses. In case of Japan, which was the largest collaborator country, nearly 43 per cent of agreements had export restriction clauses (Tables 6, 7, 8 and 10).

VI. Value of Production: The total value of production of the FTC reporting companies in the sample increased by 13.8 per cent in 2017-18 to 5,317 billion, of which, nearly 80 per cent related to the manufacturing sector (Tables 9).

VII. Exports and Imports: Led by the manufacturing sector, exports and imports of FTC reporting companies increased by 10.5 per cent and 28.3 per cent, respectively, in 2017-18. At the aggregate level, the ratio of exports and imports to value of production stood at 13.8 per cent and 18.9 per cent, respectively, with large inter-sectoral variations. (Tables 10 and 11).

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

Ajit Prasad
Assistant Adviser

Press Release : 2018-2019/1763

¹ The results of the eleventh round of the Survey on Foreign Collaboration in Indian Industry for the period 2014-16 were released on the RBI website on March 22, 2017.