Influence of policies in capability evolution and industry structure: lessons from the Indian automotive industry and implications for other developing countries

This paper empirically examines capability progression along with industry structure through three policy eras in the Indian automotive industry. Based on two rounds of field works and using Sanjaya Lall's technology capability pyramid model as the principal theoretical framework, this extensive, multidimensional inquiry found that at the licensing phase, protectionist policies played an important role in the attainment of operational capabilities. However, at a later stage, liberalisation policies catalysed the growth of innovation capabilities. Lastly, the stimulus to form linkage partnerships, in-house R%D efforts and close networked relationships among suppliers and manufacturers also supported the advancement in capabilities. Our proposed conceptual framework contributes to the literature by mapping the relationship between key policies of the Indian Government and the progression of capabilities along with the consequential impact on the industry structure. The study has significant implications for public policy in terms of upgrading capabilities in other developing countries of the world.