In the system of national income accounting, Indian companies and foreign (FDI) companies are included under private corporate sector. The aggregate estimates of corporate investment and savings, provides insight into the relative role of the corporate sector in the economy. Since each constituent of the corporate sector has its own method of governance and is driven by different objectives, this paper studies: a) relative performance; and b) drivers of performance between Indian and foreign companies using RBI’s study of company finances. As the RBI’s study does not give a separate series on Indian companies, the paper begins with a discussion on the methods followed to derive a series for Indian companies. The study finds that FDI companies outplayed Indian companies in performance and also that the differences between the two widened over the years. Using literature on the relationship between conduct and performance, and expected outcome of policy changes—the observed performance differentials were explained in terms of R&D intensity, advertising intensity, vertical integration, salaries and wages intensity, export intensity, and import intensity. All of them, except import intensity were found to influence profit margin of Indian companies. However, salaries and wages and export intensity had negative influence. In contrast to this, only advertisement and salaries, and wages intensity were found to negatively influence profit margin of FDI companies, and vertical integration had positive influence.

In the system of national income accounting in India, economy is classified in terms of three categories of institutions—public sector, private corporate sector and household sector. By definition, corporate sector includes all private and public limited companies and noncredit cooperative societies. Since foreign companies1 are either public or private limitedcompanies, they are covered under private corporate sector. The aggregate estimates of corporate investment and savings provides insight into the relative role of the corporate sector in the economy. However, each constituent of the corporate sector has its own method of governance and is driven by different objectives. It would therefore be interesting to study: a) their relative performance; and b) drivers of performance. This paper addresses these two issues with reference to Indian and foreign companies.