Determinants of Entry in the Indian Manufacturing Sector

Since 1991, the Indian economy has experienced major structural and policy changes. These changes were expected to reduce barriers to entry and increase competition. While anecdotal evidence seems to support the contention that contestability of various product markets in India has increased in recent years, due to easier entry conditions, no study has attempted a detailed empirical analysis of the same. In exploring the determinants of entry, two specific contributions are made: one, heterogeneity of potential entrants is recognized; two, appropriate econometric techniques are used for estimating the relationships. In the context of the emerging needs to study determinants of entry in the current Indian context and the research gaps, the study (1) identifies key factors that determine entry into the Indian manufacturing sector; (2) explores the difference in the factors that determine entry of different types of entrants and different modes of entry; and shows that it is analytically useful to distinguish between the impact of various causal factors on the incidence vis-à-vis extent of entry into a sector. While achieving the above objectives, the paper provides insights that will be useful for policy makers and managers designing strategies for incumbents and potential entrants.