Export promotion and investment in India

Even so, as this case study shows, Indian entrepreneurs are ready to take advantage of any slight opening the Indian Government provides. Although not intended to promote exports, A.I.D.'s Program for the Advancement of Commercial Technology (PACT) project in India was highly successful in linking Indian firms with U.S. partners for commercially viable projects. PACT helped to promote the creation of a venture capital industry in India, and reinforced the competence of Indian entrepreneurs. The following lessons can be learned from the PACT experience. (1) Projects can have significant policy fallout when they demonstrate the benefits of better policy and indicate directions for such policy, as PACT did for indigenous research and development in India and for linkages to foreign firms. (2) The findings of Keesing (1992) and others are strongly confirmed: government export promotion activities are of limited or marginal value. It is possible to spend, as India does, large amounts of resources without significant impact. (3) Indian firms seem to misperceive the risks and rewards of exporting. Being in a protected environment, they are insufficiently aware of the potential for sharp increases in productivity and profits from better technology and methods. (4) Close collaboration between foreign and domestic firms in a repressed economy like India's result in high payoffs, though only over time. (5) USAID/India should focus on the key problem of the massive waste of the country's scarce investment resources: India's capacity to save would allow annual growth of 9-10% per year. The challenge for USAID is to identify paths of economic liberalization, particularly in trade, that will help improve efficiency. (Author abstract, modified)