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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………………………………..
a. ECONOMIC REFORMS IN INDIA SINCE 1991….
5. IMPACT OF MNC……………………………………
6. CONCLUSION……………………………………….
7. BIBLIOGRAPHY…………………………………….
8. WIBLIOGRAPHY……………………………………...
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The impact of MNC on Indian Economy.
1. INTRODUCTION
a. 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.
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The impact of MNC on Indian Economy.
b. 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.
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The impact of MNC on Indian Economy.
2. MULTINATIONAL CORPORATION ( MNC):
a. 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.
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The impact of MNC on Indian Economy.
b. 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.
c. 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. Professor Rajesh K Pillania is
bringing out a special issue on Multinationals from Emerging Markets in 2008.
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The impact of MNC on Indian Economy.
3. 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).
Low invest in infrastructure - physical and information technology.
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The impact of MNC on Indian Economy.
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.
a. 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.
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The impact of MNC on Indian Economy.
b. 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.
c. For GovernmentAdvantage: 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.
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The impact of MNC on Indian Economy.
d. 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.
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The impact of MNC on Indian Economy.
4. 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.
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The impact of MNC on Indian Economy.
a. 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, India was administered by Maratha Empire. The maratha empire's budget in 1740s, at
its peak, was Rs. 100 million.
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The impact of MNC on Indian Economy.
b. 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.
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The impact of MNC on Indian Economy.
c. 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".
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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.
d. 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.
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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.
5. IMPACTS OF MNC
a. Economic Reforms in India since 1991
The 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 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.
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The impact of MNC on Indian 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.
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The impact of MNC on Indian Economy.
Disinvestment
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
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.
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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
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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.
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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
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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.
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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.
27 | 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.
28 | 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.
.
29 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.
The impact of MNC on Indian Economy.
6. 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.
30 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.
The impact of MNC on Indian Economy.
7. Webliography
www.ibef.org
www.google.com
www.cii.com
www.ficci.com
www.indoinfoline.com
8. Bibliography
International Marketing Management
- M.V. Kulkarni
International Marketing
- Francis Cherunilam
31 | P a g eK. M AGRAWAL COLLEGE OF ARTS, COMMERCE AND SCIENCE.