At a time when Government of India is attracting foreign direct investment (FDI) to strengthen India’s position in the global supply chain, the financial results of select FDI companies in India show that foreign investment need not necessarily increase exports from India.
According to the financial data of 8,095 FDI companies released by Reserve Bank of India on June 8, 2020, export earnings of these companies declined 13.8% between 2016-17 and 2018-19, the latest year for which data is available. Export earnings of these companies declined to Rs 89,396 crore in 2018-19 from Rs 103,680 crore in 2016-17. This is despite the fact that India’s overall exports (goods and services) during this period grew a whopping 28% to Rs 38.14 lakh crore from Rs 29.80 lakh crore.
The export data of 8,095 FDI companies is based on the analysis of the audited annual accounts of these firms that account for 47.5% of the paid-up capital (PUC) of all FDI companies in India. Of these, 5,099 companies or 63% belong to the service sector, 2,350 companies (or 29%) are engaged in manufacturing sector, while the remaining operate in other sectors. Specifically, 18% of these companies belong to computer and related service sectors, while 7% are engaged in machinery and machine tool production, another 6% operate in wholesale and retail trade.
Around 22% of these FDI companies are from USA, while 12.5% are from Singapore, 9.6% from Mauritius and 7% each from Japan and the
UK. Export of FDI companies declined despite their overall production and sales growing 26.5% during these years, the RBI data shows. Total sales of these 8,095 companies grew to Rs 23.81 lakh crore in 2018-19 from Rs 18.82 lakh crore in 2016-17 and this includes both domestic sales and exports.
Export intensity declines
For 8,095 FDI companies, export intensity, measured as ratio of exports to total sales, declined from 5.5% to 3.8% during the above mentioned two years. Export intensity has fallen for both manufacturing and service sector companies. While export intensity fell from 4.7% to 3.6% for service sector companies, the comparable figure for manufacturing companies declines from 6.4% to 4.4%.
Among sectors, machinery and machine tools is the only sector where export intensity has been largely constant during 2016-2019. Export to total sales ratio of around 598 companies companies in this sector remained around 11.5% during this period. On the other hand, the share of exports in the total sales of 1,490 companies engaged in computer and related activities almost halved from 14.1% to 7.6%. Proportion of exports in total revenue for automobile equipment companies declined sharply from 5.6% to 2.0%.
Sharing her views on this data, Rupa Naik, senior director, MVIRDC World Trade Center Mumbai, said, “Our local MSMEs and large corporate houses are the major drivers of exports in India. Therefore, we need to identify local enterprises and handhold them in export marketing, documentation, quality certification and logistics management. We need a focussed approach at the grassroot level to build competitiveness of local entrepreneurs in the global market. We should also improve access to credit for our MSMEs so that they can enhance their scale of operation and become globally competitive.”
Data from RBI shows that export earnings of select domestic public limited companies grew 1.4% between 2016-17 and 2018-19. This data is extracted from the audited financial statements of 16,045 non-government non-financial companies published by RBI on May 4, 2020.
Imports
While exports of these FDI firms declined, imports posted sharp growth of 13.4% during this period. In all, 8,095 FDI companies imported Rs. 1.18 lakh crore worth of raw materials, capital goods and spare parts in 2018-19, compared to Rs 1.04 lakh crore in 2016-17. Total imports of India, on the other hand, grew 37% from Rs 32.7 lakh crore to Rs 45.02 lakh crore.