Inward FDI and Innovation in the Indian Service Sector

1593 Words Jul 10th, 2012 7 Pages
Inward FDI and innovation in the Indian service sector

Bikramjit Sinha

This section analyses the linkage between inward FDI flows and innovation activity in Indian service sector. The focus is on service sector since there has been unprecedented inflow of FDI in services in recent years.

FDI in Services In 2000, share of FDI in services to total FDI inflows in India was just 1.8% and afterwards it grew steadily to reach a record all-time high of 34.7% during 2006 but declined afterwards. Of the cumulative FDI in services during 2000-2010, financial services accounted for bulk of the inflows (41.7%) followed by banking services (9.6%), and both non-financial services and R&D sharing 9.5% each (Table 1). Share of financial services,
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RTL intensity of services BEs was almost equal with R&D intensity and stood at 0.5% over the reference period. Within the services, RTL intensity of financial services was higher than the total service RTL intensity (Fig. 3). On an average 0.6% of the BEs were engaged in procuring knowledge from foreign countries which has from 1.2% in 2001 to 0.57% in 2010 (Table 2). FRTL intensity was highest during 2002 (0.4%) which after passing through a fluctuating trend culminates to all-time low of 0.05% in 2009, probably coinciding with the recent global recession. Only financial services, outsourcing and other services are acquiring technology from abroad. FRTL intensity of only outsourcing services was higher than the sectoral intensity all along the reference period (Fig. 4).

T3 32

0.8 Financial Others 0.6 0.4 0.2 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Outsourcing SERVICES

Fig 4. Trend of FRTL intensity in the services sector

To sum up, the trend of share of FDI inflows in different services to total FDI in services does not go well with the corresponding innovation pattern (Table 3). Financial and banking sector, recipients of maximum FDI flows hardly show any innovation activity.

Table 3: Selected innovation indicators of the services sector during 2001-2010 Sub-sector Financial Non-Financial Banking
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