FDI, MSMEs, Digitalization, and Green Industrialization

This article undertakes an analysis of the impact of Foreign Direct Investment inflows (IFDI) on India’s export performance during the post-reform era spanning from 1991 to 2019. Additionally, it delves deeper into a refined sub-sample analysis, specifically examining the relationship between Greenfield Investments and Brownfield Investments concerning exports, focussing from 2003 to 2019. The paper’s main contribution lies in analysing types of FDI inflows with exports. The Autoregressive Distributed Lag (ARDL) model is being employed to test the relationship among the aggregate variables, aiming to establish a long-run relationship. The findings indicate the existence of a stable and long-run substituting relationship between aggregate FDI inflows and aggregate exports. However, a distinct disparity arises when comparing the two specific types of FDI. Notably, the study reveals that Greenfield Investments wield a substantial and statistically significant influence on export performance, whereas Brownfield Investments fail to exhibit a similar impact. These findings have important implications for analysts and policymakers in formulating policies encouraging FDI inflows and promoting exports. Understanding the variation in types of FDI and their effects on exports is crucial for developing effective strategies.

The present study examines the link between OFDI, GVC participation and the impact on domestic technological investments and value-added output. The results point out that GVC participation has a positive impact on the parent firms’ OFDI intensity. Further, the study examined the impact of overseas investments by GVC firms on their domestic technological investments and value-added. The study used the RBI’s firm-level overseas direct investment data in combination with the financial data sourced from the Prowess database for the period 2008–2020. The impact of overseas investment activity on the parent firm is analysed by employing the PSM-DID technique. Results point out that GVC firms that undertook investment abroad witnessed a positive impact on the domestic technological investment and value-added. Furthermore, the sub-sample study examined the impact based on the location and the mode of investment. The analysis calls for policies to encourage Indian firms to venture abroad as it may allow them to access technological and strategic assets and help them in their efforts to move up the value chain.

The scholarship concerning linkages between innovation, productivity, and trade has been widely studied, yet the literature concerning developing countries like India is unsettled. In India, the trade liberalization episode provides an interesting context for empirically estimating the causal impact of trade openness and its subsequent effects on competition and productivity growth through innovation. The existing studies use different data sources, and methodologies for calculating total factor productivity (TPF), for example, single and double deflation approaches and translated into contradictory outcomes. Moreover, the rich literature under this umbrella has only used nominal tariffs as an inverse measure of foreign/import competition to capture the relationship between trade liberalization, innovation, and competition and a few have used effective rates of protection (ERP). In addition, there is a lot more focus on TFP with lesser analysis of possible channels for instance an increase in competition leading to productivity growth. As theoretical literature espouses, the transition from trade shocks to productivity growth could not be possible without innovation. Thus, in the present study, we analysed the impact of ERP on innovation (research and development (R&D) expenditure). By employing panel data estimation techniques, particularly dynamic panel models and panel quantile regression, this study finds a positive relationship between innovation and competition, i.e. the negative relationship between different measures of tariff and R&D expenditure of a firm.

Does digitalization promote the export of Indian manufacturing Micro, Small, and Medium Enterprises? We empirically address this under-researched area by using the Centre for Monitoring Indian Economy’s Prowess database consisting of around 800 manufacturing MSMEs for the period 1990–2019. The summary of the findings based on the robust econometric techniques such as the System Generalized Method of Moments and Dynamic Probit Regression Model, and employing three alternative definitions of digitalization, reveals that a higher level of digitalization of an Indian manufacturing MSME increases its export intensity. Also, a digitalized manufacturing MSME firm is more likely to enter the export market, vis-à-vis a non-digitalized one. In fact, the likelihood further increases if digitalization is complemented with technical knowledge. The findings advocate an urgent need for manufacturing MSMEs to go for digitalization to sustain and strengthen their contribution to the Indian economy, specifically in the post-COVID-19 era.

It is well known that industrial locations in India exhibit persistent geographical clustering, leading to a significant regional imbalance in formal sector industrial employment. In this paper, we present a geographical analysis of the manufacturing industry in India using plant locations, without reference to administrative boundaries. The focus of the study is the process of dispersal of location outside dominant clusters, and into areas of low industrialization. For an all India spatial–temporal analysis, we use location data for new completed plants for all industry types from Projects Today for the period 2002–2018. A case study of the automobile component industry is done using the plant-level directory of the Automobile Component Manufacturer’s Association (2016). We use the algorithm of Density-Based Spatial Clustering of Application with Noise (DBSCAN) to identify plant clusters and their properties. We show that industrial clusters transcend administrative boundaries. The automobile component industry clusters reside within the large all industry clusters, and have strong regional characteristics in the north and south of the country. While the agglomeration advantages offered by clusters remain a powerful centripetal force for new industrial locations at all times, periods of good economic growth and regional features are centrifugal forces leading to location dispersal to improve regional imbalances.

This study probes the role of Indian government support and digitalization in mitigating the challenges faced by MSMEs during COVID-19. The study focusses on firms in two key industries, namely, Pharmaceuticals and Textiles, from 2010 to 2022. Results show that the average productivity has declined during the COVID-19 period in both industries. Our econometric analysis does not provide convincing evidence of digitalization and government policy in improving the productivity of MSMEs. The significant heterogeneity in firm responses to pandemic-led shocks suggests that a one-size-fits-all solution is neither practical nor prudent in addressing the issues faced by firms following the COVID-19 pandemic.

MSMEs in developing countries face greater survival and growth challenges than their counterparts in developed countries, primarily due to limited resources and inadequate institutional frameworks. Credit constraints significantly impede MSMEs’ growth by limiting capital investment needed for technological upgrades, productivity improvements, enhanced competitiveness, and market expansion. It also affects their resilience during the economic crisis and their business cycles. Empirically, there are mixed results regarding the effect of access to finance on firm performance. Further, there is less research in the context of developing countries than in developed countries. The present study uses the World Bank Enterprises Survey to reassess the relationship between access to finance and firm productivity of MSMEs in Developing countries. The study found that notwithstanding regional variations, access to finance has significantly affected the firms’ performance in developing countries. The study suggests that concerted efforts by MSME owners, financial institutions, and governments in developing countries are required to address the persistent issue of credit constraints of MSMEs.

Zero Effect Zero Defect (ZED) is an initiative launched by the Government of India with the objective of promoting quality manufacturing practices and sustainable industrial development among MSMEs. ZED focuses on eliminating defects in products and processes while minimizing the environmental impact of industries. It emphasizes the principles of efficiency, waste reduction, and continuous improvement. In the context of India, ZED is particularly important as the country is one of the world’s fastest-growing economies and has a significant manufacturing sector. The initiative aims to enhance the competitiveness of Indian industries, both domestically and globally, by fostering a culture of quality consciousness and environmental responsibility. This research aims to examine the distribution of Zero Defect Zero Effect (ZED) firms across different states and sectors in India. By analysing available data, the study will provide insights into the number of ZED-certified firms in each state and sector. Additionally, it will explore the factors contributing to variations in ZED firm numbers with respect to states and sectors through the lens of various state-level policy initiatives and support. The findings address key insights for policymakers and stakeholders to identify strengths, weaknesses, and opportunities for promoting ZED practices in specific regions and industries.

The current study investigates the trends in various measures of productivity growth viz., labour productivity, capital productivity, TFP and the materials productivity in the Indian economy in the post-globalization period of 1993–2021. The study further considers three definitions of labour productivity, capital productivity, and TFP drawn from India KLEMS 2024, Asian Productivity Organisation (APO), and The Conference Board’s Total Economy Database (TED) databases. The study examines the trends in average mean and average maximum surface air temperature over the period 1993–2021 and finds a rise in temperature levels above normal over time indicating a global warming situation in the economy. The study then econometrically investigates the nexus between temperature and productivity growth of the Indian economy over the period 1993–2021. Using 2-step GMM, the study finds that temperature (both mean and maximum surface) has a negative and statistically significant impact on TFP growth of the Indian economy over the period 1993–2021. The results of the study further suggest that both mean and maximum temperature influence labour productivity growth, capital productivity growth and materials productivity growth negatively and significantly. Considering alternative definitions of the measures of productivity growth sourced from APO and TED databases, the study finds qualitatively similar results. Thus, the results of the study indicate existence of robust evidence of negative impact of global warming on productivity growth of the Indian economy over the period 1993–2021.

Global warming and climate change demands industries to operate sustainably and minimize their environmental ill-effects. However, in the initial stages of growth, industries do impose a certain level of environmental stress. The present study attempts to analyse the environmental degradation effects emanating from the growth of the Indian core industries. The core industries as recognized by the government of India, have a high contribution towards India’s economic growth. The eight industries are—coal, crude oil, natural gas, cement, fertilizers, electricity, steel and refinery products. At the same time, studies have established that these industries are a few of the most polluting industries across the globe. The study employs Tapio’s Decoupling approach to explore the environmental efficiency of each of the core industries. Additionally, a new Decoupling Score (DS) methodology has been introduced that incorporates the ability to represent the polluting levels of the industries. The study considers the Index of Core Industries to represent the growth level of the core industries and carbon dioxide (CO₂) emission to measure the environmental degradation level. Depending on the availability, at least 14 years of data have been considered for each industry from 2005 onwards. The study finds that crude oil and electricity are the most polluting and cleanest core industries respectively. Advanced technologies, efficient management systems, and environment-friendly energy sources are crucial to reduce the environmental degradation levels of these industries.

The quality of corporate governance is broadly a function of the domestic legislative architecture; in the present world with GVCs linkages, it is also the function of the international legislative regime. In other words, it is a function of the dominant market with the growing demand. There has been a delta calling for a radical shift from efficiency and competitiveness to effectiveness in production. All future projects in countries exporting to the EU market would be governed by the CBAM directives (regulations). The quality of governance during the liberalization period in India (1991–2019) and later is primarily linked to the SDGs and the related nationally determined commitments (NDCs) and secondly to the COVID-19 pandemic. The CBAM regulation would require importers of certain energy-intensive goods to pay a levy for their imports corresponding to the emissions allowances price under the EU-Emissions Trading System (“EU-ETS”). Thus, the EU’s NDCs are forced upon its trading partners who would want to be the exporters; therefore, it introduces a green production process like that adopted in the EU—as part of its NDCs for meeting the SDGs of net zero carbon target by 2050. The Indian firms operating in sectors like iron, steel, and aluminium would need to adopt such legislative-driven changes in the production process of their exports to the EU. The European Union (EU) has notified the World Trade Organisation (WTO) about its national measure, which is also a strategic intention to institute a comprehensive “Carbon Border Adjustment Mechanism” to address the “green-house-gasses” (GHGs) emission and the related “climate-change” challenges. The mechanism is so designed to address the challenges posed by carbon emissions. Therefore, it can potentially target the energy-intensive sectors at the primary and secondary levels. The EU regulation known as CBAM has the potential for heralding a pivotal moment in international trade regulation. The EU’s proposed framework targets eight industries with substantial energy demands, including iron and steel, aluminium, cement, electricity, fertilizer, and hydrogen. Notably, the potential implications of carbon taxation resonate distinctly within the Indian economic landscape, with specific sectors like iron, steel, and aluminium standing out due to their pronounced export orientation. This paper aims to compute carbon emission intensity across firms belonging to two sectors, namely iron, steel, and aluminium, for the period 2000–2022 and understand its relationship with investment in plant and machinery for these sectors. The preliminary finding suggests a decline in firms’ average carbon emission intensity across both industries, as they declined during the study period. A negative and significant relationship exists between investment in plant and machinery and carbon emission intensity in these sectors.

We examine the implications of environmental stringency in the exports of India. We use the Combined List of Environmental Goods (CLEG) of 248 items by the OECD. The paper uses the gravity model to analyse the exports of green goods from India. Variables such as GDP for economic size and distance between India and its trade partners as a proxy for trade costs, and control variables, such as a regional trade agreement (RTA) have been used. Along with this, a variable of environmental stringency (EPS) has been used. Though India’s trade in environmental goods is small, the implications of this paper are important for our trade policy in exports of environmental goods.

The energy sector in India contributes to about 70% of carbon emissions, followed by the transportation (14%) and construction (7.5%) sectors. The country is on a path towards accelerating the energy transition from coal to renewable energy sources, which will play a critical role in achieving the net-zero targets. In addition, the government is encouraging the transition from fossil fuel-based transport systems to electric vehicles. Critical raw materials (CRMs) are needed in abundance to ensure green technology adoption in energy as well as transportation sectors. Thus, the availability and sustainable management of CRMs and identification of their substitutes are important factors that can facilitate this transition. In this study, the criticality of raw materials was measured by applying a statistical rank methodology by minimizing different factors associated with its availability. Further, the supply–demand scenario with the resistive adoption of circular economy in green technology was explored. CRMs are the current and future fuel that could either accelerate or decelerate the country’s economic growth while transitioning from conventional sources of energy to green energy. In particular, the rate of adoption of solar, wind, and hydrogen sources as well as electric vehicles largely depends on the availability of CRMs used in these applications. This article highlights the criticality of raw materials in the Indian demography to determine potential ways for minimiing the supply–demand mismatch and to support the application of circular economy at the beginning of the life cycle of a material. Several challenges are associated with the supply of CRMs, among which import dependency is a major setback for India.

Green hydrogen is gaining prominence in the global shift towards sustainable energy systems, with the potential to decarbonize sectors like transportation, chemicals, and industry. However, the green hydrogen value chain faces challenges such as high capital costs, infrastructure limitations, and policy gaps specially for developing economies. This study seeks to address: first, to identify and understand the key players in the green hydrogen value chain, particularly focussing on the upstream and midstream segments, and second, to synthesize policy lessons that can serve as indicators of best practices within the existing value chain. A global mapping exercise was conducted, utilizing datasets on patents, exports, and the IEA Hydrogen Project database, to systematically rank countries across various segments of the value chain. The findings highlight Europe leading with over 30% of proposed green hydrogen projects worldwide, while China emerges as a dominant player in both the export and patent landscapes across all segments. Notably, the study reveals a strategic concentration of raw mineral processing in countries like China and the USA, rather than in the nations that mine these minerals. The analysis concluded in the identification of seven critical policy learnings across three thematic areas: legal and regulatory frameworks, financial mechanisms, and technological innovation. These insights provide a robust foundation for guiding policy development in nascent economies that are in the early stages of establishing or transitioning to a green hydrogen economy.

The study attempts to analyse the Indian solar photovoltaic technological innovation system. The Indian solar photovoltaic industry has become one of the front runners in the renewable energy sector consistently increasing the generation of power. The study relies on both primary and secondary data. It adopts a technological innovation system framework to understand the crucial role, interplay of the various actors and institutions, the nature of the linkages, and the knowledge production from various actors and to see the several key functions in the Indian photovoltaic technological innovation system. Analysing these key functions will help in identifying the inducement and blocking mechanisms and to see the future directions pertaining to the photovoltaic technological innovation system in the country. The study has found that entrepreneurs carry out many activities that perform a major impact. Processes related to knowledge development are found to be stable. At the same time, there is a large fluctuation in the processes related to the guidance of the search. The number of research publications and patents has increased after the introduction of the National Solar Mission. Inconsistent regulations, unpredictable behaviour of the government, and the lack of a clear vision for the technology are the key barriers in the technological innovation system.