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THE PHARMA REVIEW (MAY - JUNE 2011)

Foreign Direct Investment and Small Scale Drug Industry in India

Dr (Lt Cdr) G. Shanmugasundaram

Abstract: Foreign Direct Investment (FDI) forms an integral part of India’s new economic policies and the inflow of FDI has increased since it started to liberalize its economy in the beginning of the 1990s. FDI in the pharmaceutical industry have made many changes in the Indian large scale and small scale drug industry. The main issue of the study is increased foreign direct investment in pharmaceutical sector had impact on the small-scale drug industry in terms of growth. The study is based on the primary data collected from the 200 samples on Rensis Likert Scale 1932. Out of the total 200 samples, 100 samples have been collected from the entrepreneurs of the small-scale drug industry. In order to avoid the bias, another 100 samples have been collected from the non-industrial respondents who are mostly connected with the drug industry and familiar with IPA-2005 & drug policies. The non industrial respondents are further classified into four categories each represents 25 members. They are: 1) Wholesale drug distributors 2) Industrial workers (production managers, Quality control managers, Quality assurance managers) 3) Association/ academicians 4) Sales Representatives. The study used primary data collected through a structured questionnaire assessing the behavior of the small-scale industry during the period 2005-2010. They believe that increased FDI in favour of large scale drug industries are not good for the small scale drug industry in India. But their responses are different for the general statement "Are you in favour of this increased foreign direct investment?".
Foreign Direct Investment and small scale drug Industry in India
As in many developing countries, India has often used Foreign Direct Investment (FDI) as a magic stick for the rapid industrial growth. It is the vehicle through which capital is provided and efficiency stimulated in the industrial as well as service sectors. Besides providing capital inflow, the FDI can offer foreign technology; managerial skills and improvement of the international competitiveness of domestic firms. Since the last decade of the twentieth century, due to liberalisation of policies and globalisation, the FDI inflows are on an increasing trend. Foreign Direct Investment and liberalisation/globalisation have been one of the most fascinating and hot discussion topic today.
After independence the governments concentrated on the upliftment of our industries that had suffered from the colonial policies for a long time. The main aims of the government were self reliance and development of national industrial capacity by a balanced growth. During the first two decades a large amount of investment went into state owned enterprises. At this time FDI was not at all an option for capital accusation.
The poor technology of Indian firms create/d some problems in the industrial sector throughout India. So the MNCs permitted to participate with domestic firm only if their technology was sophisticated. But government ensured the self reliance of such industries and controlled the level of participation. According to the foreign Exchange Regulation Act 1973 the Multi-National Companies were forced to reduce their holidays in Indian ventures to 40% stake or else to accompany with the export obligations to retain 51% stake. Due to this the Multi-National Company reduced their size of operation. The regulated relaxation showed a positive impact on the performance of the industries. During the 1980s government relaxed the regulatory frameworks. Foreign exchange restrictions were softened for export-oriented firms.

 

 

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