Government policy and performance of the Indian engineering industry

Abstract

A major liberalization of the Indian industrial policy framework has been undertaken in the 1980s. The proponents of liberalization expected not only a general increase in the efficiency of Indian industry but also an improvement in its innovative performance. Detailed industry studies, as well as macro level data, suggest that the simultaneous liberalization of industrial licence and foreign technological collaboration policies resulted in a large scale entry of new firms into a range of industries. Industry structures, best characterized as miniature replications of the global industry were created. Chiefly in response to an inherently large demand for foreign disembodied technology in the Indian industrialization model, foreign technological collaborations became the overwhelming source of product technology. In the process, the Indian capital goods industry has been given the opportunity to better fulfil its role as diffuser of globally generated new technology to Indian customers. In doing so, the liberalization measures have been successful in improving the performance of Indian industry within the limits of an import substituting industrialization model. The extremely fierce competitive situation coupled with nearly free access to foreign technology has however not been associated with an improvement in the Indian engineering industry's innovative performance - indeed, the greater domestic competition has been associated with greater technology imports rather than greater in-house innovative efforts.