|
The available
evidence suggests that this is precisely what is occurring in India.
The Reserve Bank of India has periodically been publishing figures
on the finances of Foreign Direct Investment Companies (FDICs), or
companies in which a single non-resident investor has 10 per cent
or more shares, for different sets of years in the 1990s. These firms
are those, with the requisite foreign equity holding, included in
the RBI's studies of the finances of a larger sample of public
and private limited companies. It must be mentioned that neither do
these data sets amount to a comprehensive census of FDICs nor are
they a consistent sample in the sense that the firms covered remain
the same in all years. However, as Chart 2 shows, these firms, numbering
between 241 and 321 in individual years between 1990-91 and 1996-97,
are predominantly modern firms operating in the Engineering and Chemicals
sectors. Their performance can therefore be treated as being broadly
representative of firms with a significant foreign interest operating
in the country.
Chart 2 >>
As Chart 3 shows,
seen in terms of annual rates of growth of sales and fixed assets
these firms registered substantial expansion starting 1993-94 when
liberalisation really took off, and even though there were signs of
a slow down in sales growth by 1996-97 (the last years for which figures
are available), fixed asset expansion continued. On the other hand,
the two variables that registered a deceleration in growth in the
later reform years where export revenues and foreign exchange earnings,
which were the indicators which the reform were expected to stimulate.
Chart 3 >>
The deceleration
in export earnings was, as expected in the argument delineated earlier,
accompanied by a sharp increase in the import intensity of production
by the FDICs (Chart 4). While the ratio of exports to sales stagnated
in the 9 to 10 per cent range through the 1990s, the ratio of imports
to sales rose in all years excepting for the year of stabilisation-induced
import contraction, 1991-92. The import to sales ratio more than doubled
between 1990-91 and 1996-97, rising from 7.8 per cent in 1990-91 to
8.5 per cent during 1992-94, 10.6 per cent in 1994-95, 12.8 per cent
in 1995-96 and 16.3 per cent in 1996-97.
Chart 4 >>
If we look at
the overall foreign exchange expenditure by these firms we find that
while non-import expenditures on royalties, dividends and the like
did increase as well, the dominant increase was on account of imports
(Chart 5). While imports rose 3.6 times from Rs.1916 crore in 19993-94
to Rs. 6979 crore in 1996-97, foreign exchange expenditure under heads
other than exports rose from Rs. 356 crore to Rs. 1116 crore during
the same period. Clearly the immediate impact of reform was to encourage
foreign firms to offer 'newer', import-intensive products
to exploit the pent-up demand we spoke of earlier. This is corroborated
by the fact that the share of imported raw materials, components and
spares in the total expenditure on such items by these firms, which
fell from 18 to around 15 per cent in the wake of import contraction
in 1991-92, subsequently rose to touch close to 21 per cent in 1996-97
(Chart 6).
Chart 5 >>
Chart 6 >>
Non-import expenditures
too rose sharply, even though the smaller share of such expenditures
in the total limited their impact on foreign exchange outflows. Thus,
between 1990-91 and 1996-97, payments on account of dividends rose
2.6 times, those on account of royalties 6.4 times, and on account
of professional and consultation fees by a multiple of 23.1 (Chart
7). While indicators such as the latter two may be taken as indicators
of modernisation, the fact remains that they contributed little to
actual export competitiveness.
Chart 7 >>
|
