Foreign Collaboration: Subject-Matter and Policy

In this article we will discuss about Foreign Collaboration. After reading this article you will learn about: 1. Subject-Matter of Foreign Collaboration 2. Government Policy Foreign Collaboration 3. Areas 4. Procedure for Setting up 5. Investment and Policy 6. Foreign Collaboration and MNCs 7. Favourable Impact.    

Subject-Matter of Foreign Collaboration:

By the term foreign collaboration we mean an agreement for setting up of an enterprise jointly by the foreign and native enterprises.

Foreign collaboration may take place mainly in three forms:

(i) Collaboration between Indian and foreign private companies;

(ii) Collaboration between Indian government companies and foreign private companies; and

(iii) Collaboration between Indian Government and foreign government.

Foreign collaboration may be of two different types:

(a) Financial Collaboration (foreign equity participation) where foreign equity alone is involved;

(b) Technical Collaboration (technology transfer) involving licensing technology by the foreign collaborator on due compensation.

There are two approving authorities for foreign collaboration:

1. Reserve Bank of India (RBI), and

2. Department of Industrial Development in the Ministry of Industry, Government of India.

Under the changing globalized scenario, attainment of international competitiveness is become very important. Such competitiveness can be attained through foreign collaboration especially through technical collaboration in country like India.

Government Policy of Foreign Collaboration:

The policy followed by the Government of India on Foreign Collaboration and foreign private investment is based mainly in the approach adopted in 1949. The basic policy followed is to welcome foreign private investment on a selective basis in those areas which are advantageous to the Indian economy. The conditions under which foreign capital or foreign collaboration is welcome include.

(i) All undertakings (Indian or Foreign) have to conform to the general requirements of the Industrial polity of the Government.

(ii) Foreign enterprises are to be treated at par with their Indian counterparts.

(iii) Foreign enterprises were given freedom to remit profits and repatriate capital, subject to foreign exchange considerations.

The Industrial Policy 1991 prepared a specified list of high technology and high investment 34 priority industries (Annexure III) in which automatic permission will be available for foreign direct investment up to 51 per cent foreign equity. Thus this new policy faced Indian industries from official controls for fully exploiting opportunities for promotion of foreign investment.

Thus it is felt that foreign investment and foreign collaboration would bring advantages of technology transfer, marketing expertise, product diversification, introduction of modern managerial techniques and new possibilities for export promotion for Indian Industries.

Areas of Foreign Collaboration:

Time of time, the Government of India issues a list of industries indicating clearly where foreign investments may be permitted.

Foreign Investment Promotion Board (FIPB) of Government of India also considers import of technology in industries listed in Annexure A and Annexure B of Schedule 1 of Foreign Exchange Management Regulations, 2000 subject to compliance with the provisions of the Industrial Policy and Procedures as notified by secretarial for Industrial Assistance (SIA) in the Ministry of Commerce and Industry of Government of India, from time to time.

Procedure for Setting up Foreign Collaboration:

As per the Government Policy and Foreign Exchange Laws prevailing in India, proposals for foreign investment and technical collaborations would require Government approval. Later on, with adoption on New Industrial Policy, 1991 and subsequent amendments of laws regulating foreign collaborations and industry, this procedure has been simplified further.

With the enactment of FEMA, foreign collaborations and investments have become much more easier.

Investment and Policy of Foreign Collaboration:

In recent years, lot of changes have been brought in the foreign investment and foreign collaboration policy for creating a more favourable fiscal environment for foreign collaborations and investment virtually in every sector of the economy excepting those selective industries reserved for the public sector.

The obstacles that once stood in the path of foreign collaborations are becoming thing of the past. The procedures for approval from the Government are now being simplified continuously in order to make foreign investments more attractive and beneficial.

Foreign Collaboration and MNCs:

In India, collaboration with Indian industrialists is a common form of participation of MNCs in Indian industry. In India, foreign collaboration agreements are being made between Indian and foreign companies through its sale of technology, spare parts and use of foreign brand names for its final products.

In India, almost all the new industries in the large and medium scale category, set up in the post-independence period, had some foreign collaboration agreement.

During 1980s, liberalisation process resulted a considerable spurt in foreign collaborations. Accordingly, out of the total 12,760 foreign collaboration agreements approved during the period between 1948 and 1988, 6,165 agreements (i.e., 48.3 per cent) were approved during the period between 1981 and 1988.

Again with the liberalisation of foreign investment policy announced during the post-1991 period, the number of foreign collaborations in India increased considerably.

During the period from August 1991 to November 1993, total number of foreign collaboration proposals approved by the Government was 3,467, including 1,565 proposals of foreign equity valued as Rs 122.9 billion. Again during the period 1991 to 2005, total actual inflows of Foreign Direct Investments was to the extent of $32.29 billion (Rs 1,31,385 crore) and till 2013-14, total inflow of FDI stood at $ 173.28 billion.

Favourable Impact of Foreign Collaboration:

Foreign Collaborations have some favourable impacts on Indian economy. Initially, Indian industries were concentrated on consumer goods sector only. Foreign collaborations in Indian industry have helped the sector to diversify its production spectrum which includes steel, light and heavy engineering, petroleum refinery, man-made fibre manufacture, automobile, chemical, pharmaceuticals and several other types of industrial products.

Without the support of technical knowhow and skills made available from foreign companies through such foreign collaborations approvals, the development of such basic industries would have been difficult. Thus the gain from foreign collaboration in Indian industries is realised both in terms of increase in physical output, training of technicians, technology transfer and development of skills of modern management.