Technology Transfer through FDI in India

This study examines the volume and challenges of technology transfer through FDI in India. It analyzes the impact of multinational corporations on the Indian economy and explores how technology transfer helps these corporations. The study also evaluates the structure of FDI investments and the usage of tax havens by Indian international corporations. The aim is to provide insights into the role of technology transfer in the context of FDI in India.

Introduction
1.1 background Of the Study
Today, authorities in numerous developing countries view technology transfers from an MNC parent to an
affiliated based in a developing economy as a primary component of technology transfer and an important
source of FDI to the host economy. It is presumable that after an MNC forms a branch in a country, the
company has ties outside will trade technology for these payments, eventually resulting in an effective transfer
of technology through spillovers and regular absorption by the host country. Over the years, host developing
nations have supported technology-related payments with this clear set of expectations in mind. These
contributions are also directly regarded as an approximative measure of technology transfer. One of the
primary motives for encouraging foreign investment and supporting the establishment of wholly or partially
owned subsidiary companies of MNCs through common trade and investment policy reforms by several
developing countries of the world is the perceived technological factor through foreign-invested firms. It is no
different in the case of India, where FDI has been actively and consciously pushed as part of a series of the
economy and foreign investment economic reform policies that have been implemented with great energy.
International technology partnerships have been promoted to promote knowledge transfer, and the outflows
cap has been gradually relaxed. The Global Technology Agreement Policy, which ensures easy outflow of using
these funds facilitate an accessible entrance of technology, has eliminated the former ceilings put on royalty
payments in India. However, even against the backdrop of these regulatory initiatives, conclusive data
regarding the volume of technology transfer via FDI in the Indian context is seldom accessible. The National
Manufacturing Competitiveness Council of India raised essential concerns in its report to the Prime Minister's
Group (2008) regarding the challenges associated with acquiring technology through FDI, particularly in light of
the liberal FDI policy the nation has been pursuing since 1991. The report emphasised that there has been little
to no focus on whether there is technological transfer.
1.2 Aim and Objectives
Aim
There are various ways to think about technology diffusion through FDI. The first typology refers to vertical and
horizontal industry spillovers, which affect technology diffusion differently.
Objectives
 To Identify the structure of FDI investments and the usage of tax havens by Indian international
corporations.
 To analyse Multinational corporations significantly impact the growth of the home countries
operating in today's globalized world.
 To Evaluate Domestic savings are insufficient in developing nations like India to guarantee
economic growth.
 To recommend in this period of liberalisation, privatisation, and globalisation.
 1.3 Project rationale
However, even against the backdrop of these regulatory initiatives, conclusive data regarding the volume of
technology transfer via FDI in the Indian context is seldom accessible. The National Skill development
Competitiveness Council of India raised essential concerns in its report to the Prime Minister's Group
regarding the problems associated with acquiring technology through FDI, particularly in light of the liberal FDI

policy the nation has been pursuing .The report emphasized that there's been little to no focus on whether
there is technological transfer. Horizontal spillovers include technological distribution within an industry,
where domestic firms can learn from observing and interacting with MNCs, as well as labour turnover, which
allows former MNC employees to start or join a household enterprise
1.4 Project or research question
 How does technology transfer help MNCs?
 What are the challenges of multinational corporations in India?
 What is the impact of MNCs on the Indian economy?
 Why do multinational corporations come to India?
1.5 project significance
The following is a summary of the paper's main findings. India's sectors have direct and indirect
effects from FDI that boost productivity. Both productivity levels and growth are consistent with this.
An industry with more human capital typically reaps the rewards of FDI significantly. Labour-intensive
industries make more direct contributions to productivity, while capital-intensive industries make more
spillovers.
1.6 project structure of a dissertation
1.7 Project summary
Similar concerns are emphasized in the Discussion Paper on Industrial Policy (2017), which also
points out that India's FDI policy has to be reviewed to enable more efficient technology transfer.
DIPP established a more recent inter-ministerial group in April 2017 to examine the payment norms
and current legal framework governing royalty payments and transfer pricing in light of the increase in
prices following the lifting of outflow limitations. Given this situation, conducting a more thorough
investigation of the costs and burdens of international technological cooperation and a closer
assessment of the true scope of knowledge transfer is essential. This is especially crucial given the
development in FDI-based global financial and technical cooperation in India and the significant
permanent payments that numerous local licensee businesses make to international technology
licensors. The importance of financial and technology partnership contracts in India is on the rise,
according to recent surveys on foreign investment in Indian industry conducted by RBI5. Table 1
demonstrates that foreign subsidiaries and associates made up a sizable fraction of the surveyed
Indian firms that indicated any overseas technological engagement in various years (approx. 84 per
cent to 94 per cent). This depicts the development of technology partnerships related to foreign
investment in India in recent years. In contrast, very few businesses have reported mainly technical
associations in recent years (between 0 per cent and 6 per cent).Additionally, the survey's findings

reveal that, especially in recent years, the proportion of foreign technical agreements involving the
transfer of know-how has been relatively high (more than two-thirds), especially when compared to
other types of asset transfers like patents and trademarks. In reality, only a tiny portion of the
agreements included any transfer of patents.
2. Literature Review
2.1 Introduction
Others have argued that one of the main justifications for this special treatment frequently derives from the
idea that foreign investment produces externalities in the form of technology transfer, even though many
researchers have attempted to evaluate the justification for the government's incentives and subsidies). As a
result, if there are positive externalities brought about by foreign investment, domestic enterprises may
become more productive. The strongest arguments by researchers support the countries involved in the
"subsidy game" are based on the likelihood of knowledge spillovers. Blomstrom and Kokko claim that these
benefits manifest as a variety of "spillovers" or "externals," whereby local businesses may be able to boost
productivity as a result of forwarding or backward linkages with MNC affiliates created by the application of
superior technology, as well as by initiating MNC technologies, hiring staff who have received training from
MNC affiliates, or as a result of the available incentive provided by increased competition. While domestic
firms may face dispersion as domestic workers transfer from foreign to domestic businesses, certain domestic
businesses may increase productivity by watching neighbouring international businesses.
2.2 Increasing global competition
 The Government of India's 2005 annual budget document outlines the policymakers' convictions
Regarding the chances for technical development, access to global managerial skills and practises,
optimum use of human and natural resources, and more effective global competition given by the
expansion in foreign investment. (MNCs) suggests that it is primarily driven by major Indian business
houses and is concentrated in the private sector. However, corporations with higher degree of
profitability in their financial flows are more likely to routinely use tax havens, even if Indian
enterprises are not the only ones to pursue efficiency. It would be interesting to see if this pattern
continues or deviates in the future.
2.3 Host nation for a reasonable price
Teece claimed that because the assets are usually always acquired through experience, they can be transferred
to subsidiary companies in the host nation for a reasonable price but cannot be rapidly licenced to host
country corporations. This debate centred on whether the advanced technology utilised in inbound foreign
investments "spills over" to locally owned businesses rather than only being retained by the foreign-owned
businesses. Although all three are reflections of technology, these assessments of production function
comparisons may be too general and too specific because they are dependent on assumptions. One of these
assumptions is that decisions about element combinations, firm size, capital intensity, or the sources of firm-
level inputs are made without the benefit of diverse knowledge
2.4 either advantageous or advantageous
Productivity spillovers to surrounding enterprises may or may not be beneficial. Although several other case
studies have provided conflicting evidence regarding the contribution of foreign investment to the generation
of technology transfer to local producers, qualitative case studies and empirically tested based on a richer data
set have formed the direct impact of technology transfer on the productivity of domestic firms. The primary

shortcomings of some of these studies can be attributed to productivity measurements. An operationalized
definition of technology is used in studies assessing the transfer of technology or knowledge from foreign
multinational corporations to domestic firms. Productivity is measured in terms of total factor productivity,
labour productivity, or adjustments to production processes..
2.5 Determine
• Examine how a firm's efficiency is impacted by foreign ownership across 14 important Indian industry
groups.
• Measuring the distribution (difference between the most efficient firm and the other firms in any sector) of
overall productivity in the industry can help establish if domestic enterprises in a certain industry sector have
benefited from the transfer of technology.
• To ascertain whether foreign investment in a sector boosts native companies' productivity (to determine
whether there are any "spillovers" to domestic firms).
2.6 theoretical framework
Most of this research found that the productivity of local businesses was slightly but favourably impacted by
foreign presence. Furthermore, for Morocco and Venezuela, respectively, Harrison with Haddad and Aitken
reported either negative or no spillovers of FDI. They defined the negative spillover effect as a phenomenon
brought on by a typical market circumstance in which local businesses may suffer due to competition from
foreign businesses that will result in lower production levels if foreign firms steal market share from local
businesses, forcing the latter to produce at lower levels.
2.7 literature gap
The current study's objective was to advance knowledge on the development of variables and measures
utilized in panel data estimation for spillover hypothesis testing. The analysis uses comprehensive firm-level
panel data from Capital line 2005 for the Indian manufacturing sector given via Capital Market Ltd. (an Indian
Information Services firm). Despite having firm-level financial information on more than 13,000 companies in
the database, the current study has only used information on 631 firms from 14 industries due to restrictions
on matching variables of various types. The information spans the years 2002-2003 to 2005-2006 and includes
631 businesses from the following 14 industries:

The list of 631 enterprises that were ultimately chosen for testing the spillover hypothesis was trimmed down
to remove firms with elevated conditions at both end points of a scale (with a very high or relatively modest
rate of performance).The data set was used initially for results from the data of 661 observations (firms) from
14 industries. Because there were too few businesses in a particular industry, several economic sectors were
eliminated or combined with others. Examples include merging the commerce, telecommunications,
construction, and entertainment sectors with the service sector. Similarly, a few companies were removed
from the data set because their output or sales turnover was zero or negative.
2.8 Summary
Although a wide variety of observations were made in almost every industry sector covered by the negative
RBI reports of the Indian government, the decision to focus on these particular industries was primarily driven
by the pattern of FDI inflow over time. These papers demonstrate a clear objective for inward FDI in the
service, computer, food, and dairy sectors from the 1990s to 2002. While the chemical, food, and dairy sectors
saw negative growth, these sectors saw positive inward FDI growth. Apart from a small number of industry
sectors that permit 100 per cent foreign investment by approval from the FIPB, either by the Reserve Bank of
India's (RBI) fully automated route or by the Foreign Investment Promotion Board, the entry barriers to foreign
direct investment in each of these industry sectors vary typically and show that the existing equity limits in the
majority of industry sectors are not more than 40 per cent (FIPB, Govt. of India). Additionally, several
industries have not yet accepted foreign investment. In 2000-01, the study's base year, computers, electronics
and electrical equipment, engineering, services, and services were the main industries receiving FDI. The early
1990s sector leaders in FDI attraction—domestic appliances, banking, food, and dairy products—have seen a
drop in recent years.
In addition, there has been an apparent increasing trend in services and computers during the latter portion of
the preceding decade. Given the requirement to draw FDI to increase India's GDP growth rate, there should be
a presumption in favour of accepting FDI. Therefore, entry restrictions for FDI must be well-justified and go
beyond those that apply to private investment. The government recently thought that many entry restrictions
were justified more when implemented. Nevertheless, many of these can be eliminated with a more robust
and aggressive economy. This will eliminate little irritations that occasionally become magnified by interested
parties at the expense of the bigger picture. One of the important recommendations that the administration is
working on is raising the equity cap from 20+% to at least 50%. Additionally, most industries with equity
limitations of 50% or 74% are likely to welcome foreign investors with equity limits of 100%.

3. Research Methodology
3.1 introduction
Since there is no specific database on the operations or financials of FDI companies in India, it was difficult to
identify a set of manufacturing companies with foreign technical collaborations to assess the mode and extent
of technology transfer through FDI routes. Information on businesses with an option for inward FDI in India
was available for the most recent year on the Investment Map6 website. Several foreign affiliates functioning
in India's manufacturing sector were found using this database. The Prowess-IQ database of CMIE7 was
searched similarly to find international manufacturing affiliates.
3.2 RESEARCH PHILOSOPHY
Choosing the right research philosophy when writing a research essay is crucial. This section will
concentrate on choosing the specific research philosophy that will be used. Research is
philosophically categorized, which is important. It highlights the study's perspective and, as a result,
the distinct viewpoint the inquiry is evaluating. A thorough exposition of that philosophy will reveal
the rationale behind selecting a certain research philosophy. There are three different sorts of
research philosophies available. The three are positivism, interpretivism, and realism. To conduct
this investigation, positivist philosophy has been accumulated.
Positive research only considers information that can be independently confirmed. There is no other
method than observation. A statistical method that results in quantitative testing is required to
tackle a research challenge. The researcher claims that the ideology of positivism has numerous
justifications. The focus of this strategy is the objective data collection method.
Additionally, critical interpretation is done. It facilitates the gathering of data. Creating the primary
research topic is done. The researcher is helped in gathering the data required for a successful data
analysis by quantifiable data prediction.
the fact that an appropriate technology policy "is in many basic ways in direct contradiction with the
goals of the affluent political and economic class and must rely on the expectation that the State,
affluent classes, and foreign Enterprise is sufficiently worried about to make timely concessions to
avoid possible social conflict. He makes it quite apparent that such hopes are few.
3.3 RESEARCH APPROACH
There, the most common research methodologies are of two categories. There are two methods:
inductive reasoning and deductive reasoning. Deductive reasoning will be used to undertake the
entire study.
LDCs that impose restrictions on MNCs see varying degrees of success. Native goods and businesses
in several nations—India in particular—seem to have a competitive edge over MNCs in several
commercial sectors. The growth of several locally produced and bottled beverages after Coca-Cola
and other Western businesses were thrown out of India makes the soft drink sector a particularly
intriguing topic. MNCs in India have reacted to tighter government regulations in several ways. In
several instances, MNCs have taken on the role of the investor while transferring managerial
authority to their local affiliates. Policymakers and theorists may not have appreciated the extent of

the MNC's ability to adjust to host nation constraints. This is especially true given the employment of
wholly owned subsidiaries.
Other examples highlight the unexpected outcomes that can happen when a host nation blindly
adopts the North-South concept. For instance, during the 1970s, Zambia's and Zaire's copper mines
were nationalized. Today, copper production is almost nonexistent. Zaire's new policy is
derivatization, which aims to entice MNCs to return and provide the country with the necessary
finance, managerial know-how, and access to global markets.
3.4 RESEARCH DESIGN
Three different study design types are employed in this sector. These three types are explanatory, exploratory,
and descriptive. A descriptive design will be used throughout the entire study. This kind of research has been
utilized to gather specific, high-quality data. It can be used to get rid of one person or a group of people.
Accurate data and appropriate suggestion methodologies have been proven beneficial in data analysis. The
descriptive research strategy is also known as the statistical research technique. The explanatory research
strategy is also known as the statistical research technique. It allows the collecting of data from individuals as
well as from group studies.
When working with LDCs, researchers, policymakers, and managers who work for MNCs should bear in mind
both the North-South and economic development models. Data indicate that MNCs affect LDCs both
favourably and unfavourably. MNCs that do not recognise their complicated effects on LDCs—effects that can
occasionally be beneficial and occasionally be harmful—invite friction and even disdain from those LDCs'
policymakers. Understanding both models can help MNC participants deal more skilfully with the negative
values, hopes, dreams, disappointments, and anxieties of LDCs and their populations.
3.5 DATA TYPE
The process of research involves two distinct research methods: namely qualitative and quantitative. In their
contacts with MNCs, LDCs are growing more sophisticated, and MNCs must adapt to changing values,
expectations, requirements, and demands. Few countries have tried to withdraw from the global economy, but
most LDCs are tightening their MNCs' restrictions. However, policymakers in LDCs often recognise that overly
strict legislation intended to restrain MNCs may have unfavourable consequences, such as preventing the
transfer of technology (Mowlana, 1975), closing off international markets for domestically produced goods, and
ultimately impeding the economic development that is so urgently required. Therefore, their goal is to direct
MNC investment to offset the adverse effects discovered by academics like Chase-Dunn (1975), Ehrensaft
(1971), Evans and Timberlake (1980), Frank (1969), and Singer rather than to restrict MNC investment (1971).
Empirical data shows that LDCs struggle to create and practice efficient economic growth strategies, even
when they are more aware of the possible negative consequences of MNCs. According to Zakour (1981), U.S.-
based MNCs continue to be almost as likely to get incentives to invest in LDCs as they are exposed to
performance requirements by LDCs. In 1977, the U.S. Department of Commerce assessed 23,641 U.S.-based
MNCs in LDCs (banking affiliates were excluded). Of those, 27% indicated investment incentives and 29%
reported performance standards by which LDCs hoped to influence MNC activities to advance national
objectives. The likelihood of reporting performance requirements was highest in the mining and
manufacturing industries.
3.6 DATA COLLECTION METHOD
This study's aim was to ascertain how the terms of the technology partnership agreements between Indian
corporations are not public knowledge. For this study investigation, online journals or websites provided the
data. Various websites and periodicals scoured the information required to respond to the questions. The
study conducted by those particular researchers was thought to yield the required information and responses
to the questions.

The MCA website was used to obtain the corporate records, which included the annual financial statements of
these companies. The schedule 5 document, which lists each company's foreign shareholding, was used to
identify FDI-invested enterprises. The ITC HS code (4-digit) of the primary product (that generated the most
revenue in the study year 2015–16) given by enterprises in their annual financial statements was used to
identify manufacturing companies and to map any company to an industrial group. Directorate General of
Foreign Trade (DGFT) offers Indian Trade Classification based on Harmonized System of Coding, which
describes 98 product chapter codes under 21 parts. Based on these two-digit chapter codes, the sample
companies for this study were divided into twelve major manufacturing industrial groups. A few industries
from several ITCHS chapters that produce comparable goods or have a small number of businesses have been
grouped together.
3.7 DATA ANALYSIS
Researchers and politicians should understand two models: direct cognition and policy determination in less
developed countries and managers interested in multinational firms. The economic development model
strongly emphasizes the beneficial effects of foreign investment on the economy of underdeveloped nations.
The North-South model highlights the negative repercussions of such investments. It is essential to
comprehend the implications for policy decisions and each model's ideological and scientific foundations.
A suitable conceptual framework is required to comprehend the concerns of the citizens and policymakers of
less developed countries as the emphasis is on global settings (LDCs). To help observers of multinational
corporations (MNCs) comprehend the changing political, social, and economic challenges of LDCs, this article
will analyze two different conceptual frameworks. The economic development strategy is one concept that
emphasizes the benefits of MNC involvement in LDCs. The second paradigm, the North-South model, focuses
on how MNCs harm LDCs. Understanding these two opposing frameworks would make it easier for MNCs in
developing host nations to cope with problems.
Of course, there is also the genuine chance that advertisements may, in fact, influence tastes. Boulding has
noted that, like other components of "knowledge," preferences are acquired during development.
Although the process by which they are taught is still "mysterious indeed," only the most narrow-minded
individuals (such as "special case economists") could maintain this belief for very long. Therefore, multinational
corporations may be fulfilling their most significant function in molding consumer tastes into a pattern
amenable to the specific consumption technology they are selling. (Sometimes, when they increased demand
for "branded" milk formula for babies, the results have been described as catastrophic.)
3.8 Time horizon

Table1: Timehorizon
(Source: Created by the learner)
4. Discuss and analysis
A Preference for Using Foreign Technology and Local Innovation Initiatives
According to section 134(3)(m) and rule 8(3) of the Companies (Accounts) Rules, 2014-11, the additional
information relating to "Conservation of Energy, Technology absorption, Foreign Exchange earnings and
outgo" is required to be disclosed by Companies along with their annual filing of Annual Financial Statements
as an annexure to Report of Board of Directors. For imported technology (imported during the last three years
reckoned from the beginning of the financial year), the disclosures must include information on efforts made
towards technology absorption, the benefits derived, such as product improvement, cost reduction, product
development, or import substitution, and in case of imported technology, the details of technology imported,
the year of import, whether the technology has been fully absorbed, if not fully absorbed, areas where
absorption is needed. The yearly financial statement papers (XBRL format) of sample companies downloaded
from the MCA website and utilised for the analysis contain the same information included in the Director's
report.
Continued Dependence on Foreign Partner for Technology

The ongoing technological dependency on the foreign partner is evident for several FDI enterprises. While they
consistently got the technology from their foreign colleagues in place of steady payments, many reported little
to no R&D activities. Only sometimes, when some of the local affiliates demonstrate a lack of competence to
conduct any manufacturing activity without access to the collaborator's technical expertise, does the parent
supplier complete the research work. For several FDI enterprises, a technology reliance condition is suggested.
Manufacturing enterprises with FDI have been paying foreign collaborators royalties and technical fees
recently. At least for some businesses, it is possible to observe a drain of resources in foreign exchange on this
account whereby restrictive IPR terms of collaboration may slow down the process of absorbing technology
over time, while the local affiliate may be dependent on a foreign technology supplier for years with little
tendency to develop local innovative capabilities. A few carefully chosen FDI companies have mentioned steps
to localise inputs in their annual reports.
Restrictive Terms of Technical Collaboration with Limited Scope of Technology Transfer
A closer examination of the terms of foreign technical collaboration contracts is essential due to the
prevalence of a variety of restrictive conditions on the use and dissemination of intellectual property or
technological know-how in many conventional technical collaboration agreements, which may significantly
restrict the transfer of technology to any licensee located in a developing economy today. This is crucial since
many of these international partnerships have financial ties with the technology supplier via the FDI route.
Because the licensee in such a setup has little negotiating power, the prospect of technology transfer via the
FDI route of technology acquisition may remain substantially limited in a developing host country.
The specific direct clauses linked to non-transferability and indivisibility of licence, strict confidentiality or
secrecy of intellectual property or know-how, restrictions placed on the use of technology, and other similar
provisions are those that may reasonably limit the technology transfer extent12 from the technology supplier
or licensor to the affiliated or unrelated licensee and ultimately to the host developing economy where the
licensee is located. Additionally, the license's non-exclusive terms, export limitations, tying-in clauses related
to sales or imports, quality control measures, non-competition clauses, and other unjust terms indicate any
direct or indirect control the licensor may have over technology or intellectual property. In practice, these
prohibitionary provisions work together to guarantee that the technology or know-how is kept as the sole
property of the licensor, with very little room for eventual "real acquisition" or "absorption" by the licensee,
either during the term of the agreement or even after its expiration or termination.
5. conclusion
Indicated in annual financial disclosures of a group of FDI manufacturing companies, the majority of which are
majority or wholly owned foreign subsidiaries, a closer examination of the specific terms of foreign technical
collaboration contracts, local innovation efforts, and approach to technology absorption shows that the
technology transfer process via FDI route may be associated with limited or inadequate technology transfer,
even though the substantial value of pay is involved.
It has been noted that in several cases, key clauses have been imposed by the technology licensor on the local
affiliate in the foreign technical collaboration contracts that effectively limit the scope of technology transfer to
the licensee over time, while the continued payments may have only guaranteed prolonged "access." Even
after many years and significant gains, the licensor has complete control over the property due to the severe
IPR conditions and other limitations on technology usage. As a result, only a few FDI companies from overseas
partners can acquire technology from them. Compared to the pure technological partnership approach, such
situations demonstrate that the FDI route of technology transfer is equally susceptible to insufficient levels of
technology acquisition.
6. Recommendations

While it is necessary to appropriately revise the financial disclosure standards to ensure accurate reporting of
the companies' overall technology adoption process, it is urgently required to implement appropriate policy
changes that strictly regulate expensive and demanding conditions for technology purchases, whether they are
made within a company or on the open market for foreign technology. Moreover, from a pure policy
standpoint, India, which seeks to achieve accurate technology transfer in this setup and is intensely focused on
attracting higher levels of FDI in the future for such purpose, faces a severe problem with the limited
absorption of technology by the local affiliate and potential continued dependence on a foreign collaborator
for technology over the years in these technology purchase arrangements.
In the case of India, it is vital to monitor the economy's long-term genuine technology absorption from FDI
channels. To minimise the restrictive licencing conditions (intellectual property and others) in any foreign
technical collaboration agreements and to enable more profound levels of technology acquisition to be
realised through FDI or open market purchase routes, serious policy intervention is also necessary. If a higher
level of technological advancement is desired in the Indian context, a strict monitoring of the negotiated terms
of the contract, strengthening of the local licensee's negotiating position, and regulatory supervision of
technology transfer and its eventual absorption into the economy over the years are essentially needed.