ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Indian manufacturing firmsSubscribe to Indian manufacturing firms

The ‘Missing Middle’ Problem in Indian Manufacturing

The Indian manufacturing sector, with few mid-size firms, has the problem of the “missing middle.” The critical constraint is imposed by “predatory institutions” and their corruption that mid-size firms face in their day-to-day interactions with the state. The current policy approach towards improving the ease of doing business by reforming regulatory institutions is not enough in this case. To solve the missing middle problem, lower-level bureaucrats engaged in petty corruption need to be disciplined, and government procedures should be made transparent and accountable to reduce the scope for such corruption.

FDI Spillovers on Technical Efficiency of Indian Manufacturing Firms

The impact of foreign direct investment on technical efficiency of Indian manufacturing firms during two sub-periods, 1994–2001 and 2002–10, is investigated. Using stochastic frontier analysis, this study shows that domestic firms gain efficiency from foreign skill spillovers and backward linkages with foreign firms in the first sub-period. However, evidence from the second sub-period indicates a significant adverse impact of oreign-owned firms on domestic firms. It may be noted that flows of FDI increased mainly in the 2000s. The study also shows that technology gains occur through internal research and development expenditure, and through purchase of imported raw materials and capital goods rather than through purchase of imported drawings and designs.

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