Is Foreign Direct Investment delivering what it promised? Empirical Evidence from Indian Healthcare Industry

Abstract

Foreign Direct Investment (FDI) was permitted in the Indian Drugs&Pharmaceutical (D&P) sector with the expectations of additional capital influx, technology spillover, improved managerial practices, export promotion and import substitution. But as the prime aim of the foreign investors is profit augmentation and market capture by way of Brownfield acquisitions, the accessibility and affordability of essential drugs and healthcare services are going way beyond the reach of the Indian commoners. Contextually, using the Auto Regressive Distributed Lag (ARDL) model and the Toda- Yamamoto approach to Granger non-causality, the present paper attempts to identify whether there is actually any role of FDI in improving the performance of the D&P sector of India or not. The study finds no conclusive evidence of long run cointegrating relationship between FDI equity inflows in Indian D&P sector and the sectoral stock index, and export and import of pharma products. In the short run, the sectoral stock index, exports and imports of Indian D&P sector, taken together, is found to granger cause FDI equity inflows, but it is not the other way round.