Measuring Efficiency and Spillover Effects of Foreign Direct Investment in Manufacturing: An Indian Policy Perspective

This paper studies the spillover effects of disembodied technological progress between foreign firms and domestic firms in Indian manufacturing firms during the period 2000-01 to 2018-19, using Malmquist Index, of productive efficiency. It aims to investigate whether foreign firms are more efficient, always and dynamically could there be two-way spillover effects between foreign and domestic firms, over time. The findings of the study reveal that foreign firms are found to be initially more efficient in 9 out of 13 industries, but due to dynamic spillover effects, there are ‘positive spillovers’ from foreign to domestic industries in 7 cases; and ‘negative spillovers’ from domestic to foreign firms in 6 industries .The study has implications for “Made in India” and “Make in India” policies of Indian government. The policy implications are that we should encourage FDI only in those sectors in which there are positive spillovers but not in all industries as a blanket approach.