The impact of MNC on Indian Economy.

ACKNOWLEDGEMENT

I hereby express my heartiest thanks to all sources who have contributed to the

making of this project. I oblige thanks to all those who have supported, provided

their valuable guidance and helped for the accomplishment of this project. I also

extent my hearty thanks to my family, friends, our co-ordinator college teachers

and all the well wishers.

I also would like to thanks my project guide for his guidance and timely

suggestion and the information provided by his on this particular topic.

It is matter of outmost pleasure to express my indebt and deep sense of gratitude to

various person who extended their maximum help to supply the necessary

information for the present thesis, which became available on account of the most

selfless cooperation.

Above all its sincere thanks to the UNIVERSITY OF MUMBAI for which this

project is given consideration and was done with outmost seriousness

1 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

OBJECTIVE OF THE STUDY

2 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

The role of MNC on India ON INDIAN ECONOMY

3 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

ABSTRACT

The purpose of these projects is to understand the impact Indian Multi-nationals have in development of Indian as a whole. Since 1991 till present, there were various policies framed, amendment, ordinance passed by RBI to encourage its domestic industries to go global. Therefore central governing council of Indian financial institute, The RBI, in March 2003, significantly liberalized the policies for Indian investment abroad. Enabling Indian players to globalised their operation, which in turn had a considerable impact on India and its foreign market. So through this project we would put light on those aspects which in turned has helped and favored Indian companies to go global and impact of this policies and measures on Indian foreign market.

4 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

TABLE OF CONTENTS

1. INTRODUCTION……………………………………..

2. MULTINATIONAL CORPORATIONS…………….

3. MULTI NATIONAL COMPANIES IN INDIA….…..

4. ECONOMY IN INDIA………………………………..

5. ECONOMIC REFORMS IN INDIA SINCE 1991….

6. IMPACT OF MNC……………………………………

7. CONCLUSION……………………………………….

8. BIBLIOGRAPHY…………………………………….

9. WIBLIOGRAPHY……………………………………...

5 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

INTRODUCTION

History :

There is a dispute as to which was the first MNC. Some have argued that the Knights Templar, founded in 1117. However, others claim that the Dutch East India Company was the first proper multinational.

Multinational corporations are business entities that operate in more than one country. The typical multinational corporation or MNC normally functions with a headquarters that is based in one country, while other facilities are based in locations in other countries. In some circles, a multinational corporation is referred to as multinational enterprise (MBE) or a transnational corporation (TNC).

The exact model for an MNC may vary slightly. One common model is for the multinational corporation is the positioning of the executive headquarters in one nation, while production facilities are located in one or more other countries. This model often allows the company to take advantage of benefits of incorporating in a given locality, while also being able to produce goods and services in areas where the cost of production is lower.

Till 1991, India was more or less a closed Economy. The rate of growth of the economy was limited. The contribution of the local industries to the country’s GDP was limited that were the main cause of shortage of funds for various development projects initiated by the government.

In an effort to revive the industries and to bring the country back on the right track, the government began to open various sectors such as Infrastructure, Automobile, Tourism, Information Technology, Food and Beverages, etc to the Multinational Corporations. The MNCs slowly but reluctantly began to pour capital investment, technology and other valuable resources in the country causing a surge in GDP and upliftment of the economy as a hole. This was the post 1991 era where the government began to invite and welcome giant MNCs into the country.

6 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

The growth of Indian MNC’s help country in following ways: -

1) MNC’s help to increases the investment level & thereby the income & employment in host country.

2) The transnational corporations have become vehicles for the transfer technology, especially to developing countries.

3) They also kind a managerial revolution in host countries through professional management and employment of highly sophisticated management techniques.

4) The MNCs enable that host countries to increases their exports & decreases their import requirements.

5) They work to equalize cost of factors of production around the world.

6) MNC’s provide and efficient means of integrating national economies.

7) The enormous resources of multinational enterprises enable them to have very efficient research & development systems. Thus, they make a commendable contribution to inventions & innovations.

8) MNC’s also stimulate domestic enterprise because to support their own operations, the MNC’s may encourage & assist domestic suppliers.

9) MNC’s help to increase competition & break domestic monopolies.

7 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

MULTINATIONAL CORPORATION ( MNC)

International power

Large multinational corporations can have a powerful influence in international relations, given their large economic influence in politicians' representative districts, as well as their extensive financial resources available for public relations and political lobbying.

Tax Competition

Multinationals have played an important role in globalization. Countries and sometimes subnational regions must compete against one another for the establishment of MNC facilities, and the subsequent tax revenue, employment, and economic activity. To compete, countries and regional political districts offer incentives to MNCs such as tax breaks, pledges of governmental assistance or improved infrastructure, or lax environmental and labour standards.

Lobbying :

Multinational corporate lobbying is directed at a range of business concerns, from tariff structures to environmental regulations. There is no unified multinational perspective on any of these issues. Companies that have invested heavily in pollution control mechanisms may lobby for very tough environmental standards in an effort to force non-compliant competitors into a weaker position. For every tariff category that one multinational wants to have reduced, there is another multinational that wants the tariff raised. Even within the U.S. auto industry, the fraction of a company's imported components will vary, so some firms favor tighter import restrictions, while others favor looser ones.

8 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

Government Power :

In addition to efforts by multinational corporations to affect governments, there is much government action intended to affect corporate behavior. The threat of nationalization (forcing a company to sell its local assets to the government or to other local nationals) or changes in local business laws and regulations can limit a multinational's power.

Micro-Multinationals

Enabled by Internet based communication tools, a new breed of multinational companies is growing in numbers. These multinationals start operating in different countries from the very early stages. These companies are being called micro-multinationals.What differentiates micro-multinationals from the large MNCs is the fact that they are small businesses. Some of these micro-multinationals, particularly software development companies, have been hiring employees in multiple countries from the beginning of the Internet era. But more and more micro-multinationals are actively starting to market their products and services in various countries. Internet tools like Google, Yahoo, MSN, Ebay and Amazon make it easier for the micro-multinationals to reach potential customers in other countries.Contrary to the traditional powerful image of the large MNCs, the micro-multinationals face the limitations and the typical challenges of a small business. In most cases, the micro-multinational companies are being run by technically savvy people who can use various Internet tools to overcome the challenges of remote collaboration, customer service and sales infrastructures.

Multinationals from Emerging Markets

Large number of multinationals are operating into emerging markets and at the same time a number of multinationals are coming from emerging markets.

9 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

Professor Rajesh K Pillania is bringing out a special issue on Multinationals from Emerging Markets in 2008.

Multinational Companies in India

The post financial liberation era in India has experienced huge influx of 'Multinational Companies in India' and propelled India's economy to greater heights.

Although, majority of these companies are of American origin but it did not take too long for other nations to realize the huge potential that India offers. 'Multinational Companies in India' represent a diversified portfolio of companies representing different nations. It is well documented that American companies accounts for around 37% of the turnover of the top 20 firms operating in India. But, the scenario for 'MNC in India' has changed a lot in recent years, since more and more firms from European Union like Britain, Italy, France, Germany, Netherlands, Finland, Belgium etc have outsourced their work to India. Finnish mobile handset manufacturing giant Nokia has the second largest base in India. British Petroleum and Vodafone (to start operation soon) represents the British. A host of automobile companies like Fiat, Ford Motors, Piaggio etc from Italy have opened shop in India with R&D wing attached. French Heavy Engineering major Alstom and Pharma major Sanofi Aventis is one of the earliest entrant in the scene and is expanding very fast. Oil companies, Infrastructure builders from Middle East are also flocking in India to catch the boom. South Korean electronics giants Samsung and LG Electronics and small and mid-segment car major Hyundai Motors are doing excellent business and using India as a hub for global delivery. Japan is also not far behind with host of electronics and automobiles shops. Companies like Singtel of Singapore and Malaysian giant Salem Group are showing huge interest for investment.

In spite of the huge growth India Inc have some bottlenecks, like -

Irrational policies (tax structure and trade barriers).

10 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

Low invest in infrastructure - physical and information technology.

Slow reforms (political reforms to improve stability, privatization and deregulation, labor reforms).

Reports says, performance of 3 out of every 4 'Multinational Companies' has met or exceeded internal targets and expectations. India is perceived to be at par with China in terms of FDI attractiveness by 'Multinational Companies in India'. In view of 'Multinational Companies' community, it ranks higher than China, Malaysia, Thailand, and Philippines in terms of MNC performance. Multinational Companies Operating in India cite India's highly educated workforce, management talent, rule of law, transparency, cultural affinity, and regulatory environment as more favorable than others. Moreover, they acknowledged, India's leadership in IT, business processing, and R&D investments.

'Multinational Companies in India' are bullish on -

India's market potential.

Labor competitiveness.

Macro-economic stability.

FDI attractiveness.

What are advantages and disadvantages of MNCs?

For a person individual

Advantage: MNCs are globally recognized businesses so you have great potential for your Career growth in a Global level

Disadvantage: Career path in MNC will take time to establish.

11 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

For Society

Advantage: MNCs remove established legacy businesses and promote local employment opportunities. They also provide various charitable services to the society.

Disadvantage: MNCs induces competition, and their profit minded operations may impact local market/produce.

For Government

Advantage: Tax Source Economic Benefit

Disadvantage: MNCs Strategy will influence various government policies making which may not always be good for the economy

MNCs???? Even Indian companies should not allow. Have you ever given a second thought to what will happen to small retail shop owners & farmers? These big retailers would control the prices of commodities, farm produce etc. once they establish their presence.

12 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

Majority of MNC's in India making profits:

A majority of foreign companies operating in India are making profits but the multinationals felt the need to build brand India so as to attract more investors, a study by FICCI has said.

According to FICCI's annual FDI survey, 70 per cent of the foreign companies here are earning profits from their Indian operations.

The survey said 84 per cent of the respondents gave a positive assessment of India, although they highlighted the need for building brand India and showcase India's potential as an investment destination.

Despite an overwhelming majority, 91 per cent, were upbeat about the market conditions and the potential for further FDI inflows, they expressed concerns about the quality of infrastructure in India, it said.

13 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

Economy of India

The economy of India, when measured in USD exchange-rate terms, is the twelfth largest in the world. It is the third largest in terms of purchasing power parity. India is the second fastest growing major economy in the world. However, India's huge population results in a per capita income of $4,542 at PPP and $1,089 at nominal. The World Bank classifies India as a low-income economy. India's economy is diverse, encompassing agriculture, handicrafts, textile, manufacturing. Although two-thirds of the Indian workforce still earn their livelihood directly or indirectly through agriculture, services are a growing sector and play an increasingly important role of India's economy. The advent of the digital age, and the large number of young and educated populace fluent in English, is gradually transforming India as an important 'back office' destination for global outsourcing of customer services and technical support. Sectors like manufacturing, pharmaceuticals, biotechnology, nanotechnology, telecommunication, shipbuilding, aviation and tourism are showing strong potentials with higher growth rates. India followed a socialist-inspired approach for most of its independent history, with strict government control over private sector participation, foreign trade, and foreign direct investment. However, since the early 1990s, India has gradually opened up its markets through economic reforms by reducing government controls on foreign trade and investment. The privatisation of publicly owned industries and the opening up of certain sectors to private and foreign interests has proceeded slowly amid political debate. India faces a fast growing population and the challenge of reducing economic and social inequality. Poverty remains a serious problem, although it has declined significantly since independence.

14 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

Pre-colonial

The citizens of the Indus Valley civilisation, a permanent and predominantly urban settlement that flourished between 2800 BC and 1800 BC, practised agriculture, domesticated animals, used uniform weights and measures, made tools and weapons, and traded with other cities. Evidence of well planned streets, a drainage system and water supply reveals their knowledge of urban planning, which included the world's first urban sanitation systems and the existence of a form of municipal government. Religion, especially Hinduism, and the caste and the joint family systems, played an influential role in shaping economic activities.[10] The caste system functioned much like medieval European guilds, ensuring the division of labour, providing for the training of apprentices and, in some cases, allowing manufacturers to achieve narrow specialization.For instance, in certain regions, producing each variety of cloth was the speciality of a particular sub-caste.

Estimates of the per capita income of India (1857–1900) as per 1948–49 prices. Textiles such as muslin, Calicos, shawls, and agricultural products such as pepper, cinnamon, opium and indigo were exported to Europe, the Middle East and South East Asia in return for gold and silver. Assessment of India's pre-colonial economy is mostly qualitative, owing to the lack of quantitative information. One estimate puts the revenue of Akbar's Mughal Empire in 1600 at £17.5 million, in contrast with the total revenue of Great Britain in 1800, which totalled £16 million. India, by the time of the arrival of the British, was a largely traditional agrarian economy with a dominant subsistence sector dependent on primitive technology. It existed alongside a competitively developed network of commerce, manufacturing and credit. After the fall of the Mughals,

15 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

India was administered by Maratha Empire. The maratha empire's budget in 1740s, at its peak, was Rs. 100 million.

Colonial

Colonial rule brought a major change in the taxation environment from revenue taxes to property taxes resulting in mass impoverishment and destitution of the great majority of farmers. It also created an institutional environment that, on paper, guaranteed property rights among the colonizers, encouraged free trade, and created a single currency with fixed exchange rates, standardized weights and measures, capital markets, a well developed system of railways and telegraphs, a civil service that aimed to be free from political interference, and a common-law, adversarial legal system. India's colonisation by the British coincided with major changes in the world economy—industrialisation, and significant growth in production and trade. However, at the end of colonial rule, India inherited an economy that was one of the poorest in the developing world, with industrial development stalled, agriculture unable to feed a rapidly growing population, one of the world's lowest life expectancies, and low rates of literacy. An estimate by Cambridge University historian Angus Maddison reveals that India's share of the world income fell from 22.6% in 1700, comparable to Europe's share of 23.3%, to a low of 3.8% in 1952. While Indian leaders during the Independence struggle, and left-nationalist economic historians have blamed colonial rule for the dismal state of India's economy.

16 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

Independence to 1991

Growth rate of India's real GDP per capita (Constant Prices: Chain series) (1950–20012). Data Source: Penn World tables.

Indian economic policy after independence was influenced by the colonial experience, Policy tended towards protectionism, with a strong emphasis on import substitution, industrialisation, state intervention in labour and financial markets, a large public sector, business regulation, and central planning. Jawaharlal Nehru, the first prime minister, along with the statistician Prasanta Chandra Mahalanobis, carried on by Indira Gandhi formulated and oversaw economic policy. They expected favourable outcomes from this strategy, because it involved both public and private sectors and was based on direct and indirect state intervention, rather than the more extreme Soviet-style central command system. The policy of concentrating simultaneously on capital- and technology-intensive heavy industry and subsidising manual, low-skill cottage industries was criticized by economist Milton Friedman, who thought it would waste capital and labour, and retard the development of small manufacturers. India's low average growth rate from 1947–80 was derisively referred to as the Hindu rate of growth, because of the unfavourable comparison with growth rates in other Asian countries, especially the "East Asian Tigers".

17 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

After 1991 :

In the late 80s, the government led by Rajiv Gandhi eased restrictions on capacity expansion for incumbents, removed price controls and reduced corporate taxes. While this increased the rate of growth, it also led to high fiscal deficits and a worsening current account.

Government Intervention

State planning and the mixed economy

After independence, India opted for a centrally planned economy to try to achieve an effective and equitable allocation of national resources and balanced economic development. The process of formulation and direction of the Five-Year Plans is carried out by the Planning Commission, headed by the Prime Minister of India as its chairperson.

18 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

The number of people employed in non-agricultural occupations in the public and private sectors. Totals are rounded. Private sector data relates to non-agriculture establishments with 10 or more employees.

India's mixed economy combines features of both capitalist market economy and the socialist command economy, but has shifted more towards the former over the past decade. The public sector generally covers areas which are deemed too important or not profitable enough to leave to the market, including such services as the railways and postal system. Since independence, there have been phases of nationalizing such areas as banking and, more recently, of privatization.

19 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

IMPACTS OF MNC

Economic Reforms in India since 1991The Turnaround

Economic reforms were introduced by the Rajiv Gandhi government (1985-89), it was the Narasimha Rao Government that gave a definite shape and start to the new economic reforms of globalization in India. Presenting the 1991-92 Budget, Finance Minister Manmohan Singh said: “After four decades of planning for industrialization, we have now reached a stage where we should welcome, rather fear, foreign investment. Direct foreign investment would provide access to capital, technology and market.”

In the Memorandum of Economic Policies dated August 27, 1991 to the IMF, the Finance Minister submitted in the concluding paragraph: “The Government of India believes that the policies set forth in the Memorandum are adequate to achieve the objectives of the program, but will take any additional measures appropriate for this purpose. In addition, the Government will consult with the Fund on the adoption of any measures that may be appropriate in accordance with the policies of the Fund on such consultations.” Era of 1991

Indian economy had experienced major policy changes in early 1990s. The new economic reform, popularly known as, Liberalization, Privatization and Globalization (LPG model) aimed at making the Indian economy as fastest

20 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

growing economy and globally competitive. The series of reforms undertaken with respect to industrial sector, trade as well as financial sector aimed at making the economy more efficient.

With the onset of reforms to liberalize the Indian economy in July of 1991, a new chapter has dawned for India and her billion plus population. This period of economic transition has had a tremendous impact on the overall economic development of almost all major sectors of the economy, and its effects over the last decade can hardly be overlooked. Besides, it also marks the advent of the real integration of the Indian economy into the global economy.

Indian economy was in deep crisis in July 1991, when foreign currency reserves had plummeted to almost $1 billion; Inflation had roared to an annual rate of 17 percent; fiscal deficit was very high and had become unsustainable; foreign investors and NRIs had lost confidence in Indian Economy. Capital was flying out of the country and we were close to defaulting on loans. So in order to over situation follow policies and steps were initiated by then UPA government under the leadership of Narasimha Rao.

Devaluation:

In 1991, India still had a fixed exchange rate system, where the rupee was pegged to the value of a basket of currencies of major trading partners. India started having balance of payments problems since 1985, and by the end of 1990, it found itself in serious economic trouble. The government was close to default and its foreign exchange reserves had dried up to the point that India could barely finance three weeks’ worth of imports. As in 1966, India faced high inflation and large government budget deficits. This led the government to devalue the rupee. At the end of 1999, the Indian Rupee was devalued considerably.

Therefore the first steps towards globalization were taken with the announcement of the devaluation of Indian currency by 18-19 percent against major currencies in the international foreign exchange market. In fact, this measure was taken in order to resolve the BOP crisis.

21 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

Disinvestmen t

In order to make the process of globalization smooth, privatization and liberalization policies are moving along as well. Under the privatization scheme, most of the public sector undertakings have been/ are being sold to private sector. Company such as Modern Foods India Ltd., BALCO, an aluminium company. and very recent example is coal.

Dismantling of the Industrial Licensing Regime

At present, only six industries are under compulsory, Licensing mainly on accounting of environmental safety and strategic considerations. A significantly amended locational policy in tune with the liberalized licensing policy is in place. No industrial approval is required from the government for locations not falling within 25 kms of the periphery of cities having a population of more than one million.

Allowing Foreign Direct Investment

With the initiation of new economic policy in 1991 and subsequent reforms process, India has witnessed a change in the flow and direction of foreign direct investment (FDI) into the country. This is mainly due to the removal of restrictive and regulated practices such as

22 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

The removal of quantitative restrictions on imports

Trade policy reform has also made progress, though the pace has been slower than in industrial liberalization. Before the reforms, trade policy was characterized by high tariffs and pervasive import restrictions. Imports of manufactured consumer goods were completely banned. For capital goods, raw materials and intermediates, certain lists of goods were freely importable, but for most items where domestic substitutes were being produced, imports were only possible with import licenses. The criteria for issue of licenses were nontransparent; delays were endemic and corruption unavoidable. The economic reforms sought to phase out import licensing and also to reduce import duties.

23 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

Indian Exports Overview (in Rs. Crore)

YEAR EXPORTS GROWTH   RATE

1990-91 32558 17.7

1991-92 44042 35.3

1992-93 53688 21.9

1993-94 69751 29.9

1994-95 82674 18.5

1995-96 106353 28.6

2004-2005 118817 11.7

2005-2006 130101 9.5

2007-2008 139753 7.4

2008-2009 159561 14.2

2009-2010 203571 27.6

2010-2011 209018 22.68

2011-2012 255137 18.99

2012-2013 293367 12.29

24 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

Throwing Open Industries Reserved For The Public Sector to Private Participation.

The list of industries reserved solely for the public sector -- which used to cover 18 industries, including iron and steel, heavy plant and machinery, telecommunications and telecom equipment, minerals, oil, mining, air transport services and electricity generation and distribution -- has been drastically reduced to three: defense aircrafts and warships, atomic energy generation, and railway transport. Industrial licensing by the central government has been almost abolished except for a few hazardous and environmentally sensitive industries. The requirement that investments by large industrial houses needed a separate clearance under the Monopolies and Restrictive Trade Practices Act to discourage the concentration of economic power was abolished and the act itself is to be replaced by a new competition law which will attempt to regulate anticompetitive behavior in other ways

For eg power generation, transmission and distribution in Mumbai (Tata and reliance power)

Foreign direct investment in India increased from US $ 129 million in 1991-92 to US$ 2,214 million in April 2010. The cumulative amount of FDI equity inflows from August 1991 to April 2010 stood at US$ 134,642 million, according to the data released by the Department of Industrial Policy and Promotion (DIPP). Today, India provides highest returns on FDI than any other country in the world. Therefore, India is evolving as one of the 'most favored destination' for FDI in Asia and the Pacific.

25 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

Indian Multinational Companies (MNC)

India Inc. is flying high. Not only over the Indian sky. Many Indian firms have slowly and surely embarked on the global path and lead to the emergence of the Indian multinational companies.

With each passing day, Indian businesses are acquiring companies’ abroad, becoming world-popular suppliers and are recruiting staff cutting across nationalities. While an Asian Paint is painting the world red, Tata is rolling out Indicas from Birmingham and Sundram Fasteners nails home the fact that the Indian company is an entity to be reckoned with.

Tata Motors sells its passenger-car Indica in the UK through a marketing alliance with Rover and has acquired a Daewoo Commercial Vehicles unit giving it access to markets in Korea and China.

Ranbaxy is the ninth largest generics company in the world. An impressive 76 percent of its revenues come from overseas.

Dr Reddy's Laboratories became the first Asia Pacific pharmaceutical company outside Japan to list on the New York Stock Exchange in 2001.

Asian Paints is among the 10 largest decorative paints makers in the world and has manufacturing facilities across 24 countries.

Small auto components company Bharat Forge is now the world's second largest forgings maker. It became the world's second largest forgings manufacturer after acquiring Carl Dan Peddinghaus a German forgings company last year. Its workforce includes Japanese, German, American and Chinese people. It has 31 customers across the world and only 31 percent of its turnover comes from India..

About 80 percent of revenues for Tata Consultancy Services come from outside India. This month, it raised Rs 54.2 billion ($1.17 billion) in Asia's second-biggest tech IPO this year and India's largest IPO ever

26 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

Reforms in Agriculture

A common criticism of India’s economic reforms is that they have been excessively focused on industrial and trade policy, neglecting agriculture which provides the livelihood of 60 percent of the population. However, the notion that trade policy changes have not helped agriculture is clearly a misconception. The reduction of protection to industry, and the accompanying depreciation in the exchange rate, has tilted relative prices in favor of agriculture and helped agricultural exports. The index of agricultural prices relative to manufactured products has increased by almost 30 percent in the past ten years. The share of India’s agricultural exports in world exports of the same commodities increased from 1.1 percent in 1990 to 1.9 percent in 1999, whereas it had declined in the ten years before the reforms.

For example, the direct benefit of subsidizing fertilizer and underpricing water and power goes mainly to fertilizer producers and high income farmers while having negative effects on the environment and production, and even on income of small farmers.

27 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

Infrastructure Development

Rapid growth in a globalized environment requires a well-functioning infrastructure including especially electric power, road and rail connectivity, telecommunications, air transport, and efficient ports. India lags behind east and southeast Asia in these areas. These services were traditionally provided by public sector monopolies but since the investment needed to expand capacity and improve quality could not be mobilized by the public sector, these sectors were opened to private investment, including foreign investment.

Civil aviation and ports are two other areas where reforms appear to be succeeding, though much remains to be done. Two private sector domestic airlines, which began operations after the reforms, now have more than half the market for domestic air travel. However, proposals to attract private investment to upgrade the major airports at Mumbai and Delhi have yet to make visible progress.

In 1998, a tax was imposed on gasoline (later extended to diesel) , the proceeds of which are earmarked for the development of the national highways, state roads and rural roads. This will help finance a major program of upgrading the national highways connecting Delhi, Mumbai, Chennai and Calcutta to four lanes or more.

The railways are a potentially important means of freight transportation but this area is untouched by reforms as yet. The Expert Group on Indian Railways (2002) recently submitted a comprehensive program of reform converting the railways from a departmentally run government enterprise to a corporation, with a regulatory authority fixing the fares in a rational manner. No decisions have been announced as yet on these recommendations.

28 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

Financial Sector Reform

India’s reform program included wide-ranging reforms in the banking system and the capital markets.

Banking sector reforms included: (a) measures for liberalization, like dismantling the complex system of interest rate controls, eliminating prior approval of the Reserve Bank of India for large loans, and reducing the statutory requirements to invest in government securities; measures for increasing competition like more liberal licensing of private banks and freer expansion by foreign banks. These steps have produced some positive outcomes. There has been a sharp reduction in the share of non-performing assets in the portfolio and more than 90 percent of the banks now meet the new capital adequacy standards.

India’s banking reforms differ from those in other developing countries in one important respect and that is the policy towards public sector banks which dominate the banking system.

29 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

Social Sector Development in Health and Education

For example, India’s adult literacy rate in 1991 was 52 percent, compared with 57 percent in Indonesia and 79 percent in Thailand in 1971. The gap in social development needed to be closed, not only to improve the welfare of the poor and increase their income earning capacity, but also to create the preconditions for rapid economic growth.

Closing the social sector gaps between India and other countries in southeast Asia will require additional expenditure, which in turn depends upon improvements in the fiscal position of both the central and state governments.

Part of the solution lies in greater participation by the beneficiaries in supervising education and health systems, which in turn requires decentralization to local levels and effective peoples’ participation at these levels. Nongovernment organizations can play a critical role in this process. Different state governments are experimenting with alternative modalities but a great deal more needs to be done in this area.

While the challenges in this area are enormous, it is worth noting that social sector indicators have continued to improve during the reforms. The literacy rate increased from 52 percent in 1991 to 65 percent in 2001, a faster increase in the 1990s than in the previous decade, and the increase has been particularly high in the some of the low literacy states such as Bihar, Madhya Pradesh, Uttar Pradesh and Rajasthan.

.

30 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

ConclusionsMultinational companies are like double-edged sword. The sword can harm if not handled properly. Similarly the Multinational companies have their own pros and cons.

The extent of technology and management of know-how transfer by the MNCs depend to a large extent on their corporate strategy; for example, firms desiring to have a longer-term relationship with the suppliers (rather than those simply using the host country as a marketing/export base) will be more inclined to effect transfer technology.

As pointed out in the World Investment Report, 2000, MNCs may restrict the access of particular affiliates to technology in order to minimise inter-affiliate competition. It is noted that MNCs are more likely to licence older technologies from which they have already derived significant rents than newer technologies on which there are still relying for market leadership. Further, they may hold back the upgrading of the affiliate technology or invest insufficiently in host-country training and R&D.

31 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.

The impact of MNC on Indian Economy.

Webliographywww.ibef.org

www.google.comwww.cii.com

www.ficci.comwww.indoinfoline.com

BibliographyInternational Marketing Management

- M.V. Kulkarni

International Marketing- Francis Cherunilam

32 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.