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CONTENT
Sr.No. TOPIC

1. 2. 3. . $. %.

MULTINATIONAL CORPORATION MULTINATIONAL CORPORATION IN INDIA Advantages & Disadvantages Indian e!ono"# MULTINATIONAL CORPORATION & Indian e!ono"# MULTINATIONAL CORPORATION IN INDIA

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Multi National Corporation

A multinational corporation (or transnational corporation) (MNC/TNC) is a corporation or enterprise that manages production establishments or delivers services in at least two countries. Very large multinationals have budgets that e ceed those o! many countries. Multinational corporations can have a power!ul in!luence in international relations and local economies. Multinational corporations play an important role in globali"ation# some argue that a new !orm o! MNC is evolving in response to globali"ation$ the %globally integrated enterprise%. What is the difference between Multi National Corporation and Trans National Corporation?The di!!erence is more semantics than anything else. Multinationals operate in several di!!erent companies will trans national implies &'ust across the border& as in the () and Canada. *bviously+ both operate internationally History : There is a dispute as to which was the !irst MNC. )ome have argued that the ,nights Templar+ !ounded in ---.+ became a

multinational when it stumbled into ban/ing in --01. 2owever+ others claim that the 3utch 4ast 5ndia Company was the !irst proper multinational.
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Multinational corporate structure :

Multinational corporations can be divided into three broad groups according to the configuration of their production facilities: Horizontally integrated multinational corporations manage production establishments located in different countries to produce the same or similar products. (example: McDonalds) Vertically integrated multinational corporations manage production establishment in certain country/countries to produce products that serve as input to its production establishments in other country/countries. (example: Adidas) Diversified multinational corporations manage production establishments located in different countries that are neither horizontally nor vertically nor straight nor non!straight integrated. (example: Microsoft) "thers argue that a #ey feature of the multinational is the inclusion of bac# office functions in each of the countries in $hich they operate. %he globally integrated enterprise $hich

some see as the next development in the evolution of the multinational does a$ay $ith this re&uirement.

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International power :
'arge multinational corporations can have a po$erful influence in international relations given their large economic influence in politicians( representative districts as $ell as their extensive financial resources available for public relations and political lobbying.

Tax Competition :
Multinationals have played an important role in globalization. )ountries and sometimes subnational regions must compete against one another for the establishment of M*) facilities and the subse&uent tax revenue employment and economic activity. %o compete countries and regional political districts offer incentives to M*)s such as tax brea#s pledges of governmental assistance or improved infrastructure or lax environmental and labour standards. %his process of becoming more attractive to foreign investment can be characterized as a race to the bottom a push to$ards greater freedom for corporate bodies or both.

Largest Economies :

An inaccurate claim is that out of the +,, largest economies in the $orld -+ are multinational corporations. ./0 %his claim is based on a miscalculation $here t$o numbers describing totally different things are compared: the 1D2 of nations to gross sales of corporations. %he problem $ith the comparison is that 1D2 ta#es into account only the final value $hereas
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gross sales don(t measure ho$ much $as produced outside the company. According to 3$edish economist 4ohan *orberg if one $ere to compare nations and corporations then one should be comparing 1D2 to goods only produced $ithin the particular company (gross sales do not ta#e into account goods purchased from 5rd party vendors and resold 6ust as 1D2 does not ta#e into account imported goods). %hat correction $ould ma#e only 57 of +,, largest economies corporations and all of them $ould be in bottom box: only corporations $ould be in top -,.

Market Withdrawal :
8ecause of their size multinationals can have a significant impact on government policy primarily through the threat of mar#et $ithdra$al. 9or example in an effort to reduce health care costs some countries have tried to force pharmaceutical companies to license their patented drugs to local competitors for a very lo$ fee thereby artificially lo$ering the price. :hen faced $ith that threat multinational pharmaceutical firms have simply $ithdra$n from the mar#et $hich often leads to limited availability of advanced drugs. ;n these cases governments have been

forced to bac# do$n from their efforts. 3imilar corporate and government confrontations have occurred $hen governments tried to force companies to ma#e their intellectual property public in an effort to gain technology for local entrepreneurs. :hen companies are faced $ith the option of losing a core competitive technological advantage
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and $ithdra$ing from a national mar#et they may choose the latter. %his $ithdra$al often causes governments to change policy. )ountries that have been most successful in this type of confrontation $ith multinational corporations are large countries such as ;ndia and 8razil $hich have viable indigenous mar#et competitors.

Lobbying :
Multinational corporate lobbying is directed at a range of business concerns from tariff structures to environmental regulations. %here is no unified multinational perspective on any of these issues. )ompanies 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 $ea#er position. 9or every tariff category that one multinational $ants to have reduced there is another multinational that $ants the tariff raised. <ven $ithin the =.3. auto industry the fraction of a company(s imported components $ill vary so some firms favor tighter import restrictions $hile others favor looser ones.

Go ernment !ower :

;n addition to efforts by multinational corporations to affect governments there is much government action intended to affect corporate behavior. %he threat of nationalization (forcing a company to sell its local assets to the government or to other local nationals) or changes in local business la$s and regulations can limit a multinational(s po$er.
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Micro"Multinationals :
<nabled by ;nternet based communication tools a ne$ breed of multinational companies is gro$ing in numbers. %hese multinationals start operating in different countries from the very early stages. %hese companies are being called micro!multinationals.:hat differentiates micro! multinationals from the large M*)s is the fact that they are small businesses. 3ome of these micro!multinationals particularly soft$are development companies have been hiring employees in multiple countries from the beginning of the ;nternet era. 8ut more and more micro!multinationals are actively starting to mar#et their products and services in various countries. ;nternet tools li#e 1oogle >ahoo M3* <bay and Amazon ma#e it easier for the micro!multinationals to reach potential customers in other countries.)ontrary to the traditional po$erful image of the large M*)s the micro! multinationals face the limitations and the typical challenges of a small business. ;n most cases the micro!multinational companies are being run by technically savvy people $ho can use various ;nternet tools to overcome the challenges of

remote collaboration infrastructures.

customer

service

and

sales

Multinationals #rom Emerging Markets :

'arge number of multinationals are operating into emerging mar#ets and at the same time a number of multinationals are coming from emerging mar#ets. 2rofessor ?a6esh @ 2illania is bringing out a special issue on Multinationals from Emerging Markets in /,,A.
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Multinational Companies in India :

%he post financial liberation era in ;ndia has experienced huge influx of (Multinational Companies in India( and propelled ;ndia(s economy to greater heights. Although ma6ority of these companies are of American origin but it did not ta#e too long for other nations to realize the huge potential that ;ndia ;nc offers. ( Multinational Companies in India( represent a diversified portfolio of companies representing different nations. ;t is $ell documented that American companies accounts for around 57B of the turnover of the top /, firms operating in ;ndia. 8ut the scenario for (M*) in ;ndia( has changed a lot in recent years since more and more firms from <uropean =nion li#e 8ritain ;taly 9rance 1ermany *etherlands 9inland 8elgium etc have outsourced their $or# to ;ndia. 9innish mobile handset manufacturing giant *o#ia has the second largest base in ;ndia. 8ritish 2etroleum and Codafone (to start operation soon) represents the 8ritish. A host of automobile companies li#e 9iat 9ord Motors 2iaggio etc from

;taly have opened shop in ;ndia $ith ?DD $ing attached. 9rench Eeavy <ngineering ma6or Alstom and 2harma ma6or 3anofi Aventis is one of the earliest entrant in the scene and is expanding very fast. "il companies ;nfrastructure builders from Middle <ast are also floc#ing in ;ndia to catch the boom. 3outh @orean electronics giants 3amsung and '1 <lectronics and small and mid!segment car ma6or Eyundai Motors are doing excellent business and using ;ndia as a hub for global delivery. 4apan is also not far behind $ith host of
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electronics and automobiles shops. )ompanies li#e 3ingtel of 3ingapore and Malaysian giant 3alem 1roup are sho$ing huge interest for investment. In spite of the huge growth India Inc have some bottlenecks like ! ;rrational policies (tax structure and trade barriers). 'o$ invest in infrastructure ! physical and information technology. 3lo$ reforms (political reforms to improve stability privatization and deregulation labor reforms). ?eports says performance of 5 out of every F ( Multinational Companies( has met or exceeded internal targets and expectations. ;ndia is perceived to be at par $ith )hina in terms of 9D; attractiveness by (Multinational )ompanies in ;ndia(. ;n vie$ of (Multinational Companies( community it ran#s higher than )hina Malaysia %hailand and 2hilippines in terms of M*) performance. Multinational Companies "perating in ;ndia cite ;ndia(s highly educated $or#force management talent rule of la$ transparency cultural

affinity and regulatory environment as more favorable than others. Moreover they ac#no$ledged ;ndia(s leadership in ;% business processing and ?DD investments. "Multinational Companies in India" are bullish on ! ;ndia(s mar#et potential. 'abor competitiveness. Macro!economic stability. 9D; attractiveness.
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What are ad antages and disad antages o# M$Cs%

#or a person individual
Advantage: M*)s are globally recognized businesses so you have great potential for your )areer gro$th in a 1lobal level Disadvantage: )areer path in M*) $ill ta#e time to establish.

#or $ociety
Advantage: M*)s remove established legacy businesses and promote local employment opportunities. %hey also provide various charitable services to the society. Disadvantage: M*)s induces competition and their profit minded operations may impact local mar#et/produce.

#or %overnment
Advantage: %ax 3ource <conomic 8enefit Disadvantage: M*)s 3trategy $ill influence various government policies ma#ing $hich may not al$ays be good for the economy

M*)sGGGG <ven ;ndian companies should not allo$. Eave you ever given a second thought to $hat $ill happen to small retail shop o$ners D farmersG %hese big retailers $ould control the prices of commodities farm produce etc. once they establish their presence.

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Ma&ority o# M$C's in India making pro#its:

A ma6ority of foreign companies operating in ;ndia are ma#ing profits but the multinationals felt the need to build brand ;ndia so as to attract more investors a study by 9;)); has said. According to 9;));(s annual 9D; survey 7, per cent of the foreign companies here are earning profits from their ;ndian operations. %he survey said AF per cent of the respondents gave a positive assessment of ;ndia although they highlighted the need for building brand ;ndia and sho$case ;ndia(s potential as an investment destination. Despite an over$helming ma6ority H+ per cent $ere upbeat about the mar#et conditions and the potential for further 9D; inflo$s they expressed concerns about the &uality of infrastructure in ;ndia it said.

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Economy of India
%he economy of India $hen measured in =3D exchange!rate terms is the t$elfth largest in the $orld $ith a 1D2 of =3 I+./- trillion (/,,A). ;t is the third largest in terms of purchasing po$er parity. ;ndia is the second fastest gro$ing ma6or economy in the $orld $ith a 1D2 gro$th rate of H.FB for the fiscal year /,,JK/,,7. Eo$ever ;ndia(s huge population results in a per capita income of IF -F/ at 222 and I+ ,AH at nominal (revised /,,7 estimate). %he :orld 8an# classifies ;ndia as a lo$!income economy. ;ndia(s economy is diverse encompassing agriculture handicrafts textile manufacturing and a multitude of services. Although t$o! thirds of the ;ndian $or#force still earn their livelihood directly or indirectly through agriculture services are a gro$ing sector and play an increasingly important role of ;ndia(s economy. %he advent of the digital age and the large number of young and educated populace fluent in <nglish is gradually transforming ;ndia as an important (bac# office( destination for global outsourcing of customer services and technical support. ;ndia is a ma6or exporter of highly!s#illed $or#ers in soft$are and financial services and soft$are engineering."thersectorsli#emanufacturing pharmaceuticals biotechnology nanotechnology telecommunication shipbuilding aviation and tourism are sho$ing strong potentials $ith higher gro$th rates. ;ndia follo$ed a socialist!inspired approach for most of its independent history $ith strict government control over private sector participation foreign trade and foreign direct investment.

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Eo$ever since the early +HH,s ;ndia has gradually opened up its mar#ets through economic reforms by reducing government controls on foreign trade and investment. %he privatisation of publicly o$ned industries and the opening up of certain sectors to private and foreign interests has proceeded slo$ly amid political debate. ;ndia faces a fastly gro$ing population and the challenge of reducing economic and social ine&uality. 2overty remains a serious problem although it has declined significantly since independence. "fficial surveys estimated that in the year /,,F!/,,- /7B of ;ndians $ere poor.

!re"colonial :
%he citizens of the ;ndus Calley civilisation a permanent and predominantly urban settlement that flourished bet$een /A,, 8) and +A,, 8) practised agriculture domesticated animals used uniform $eights and measures made tools and $eapons and traded $ith other cities. <vidence of $ell planned streets a drainage system and $ater supply reveals their #no$ledge of urban planning $hich included the $orld(s first urban sanitation systems and the existence of a form of municipal government. ?eligion especially Einduism and the caste and the 6oint family systems played an influential role in shaping economic activities..+,0 %he caste system functioned much li#e medieval <uropean guilds ensuring the division of labour providing for the training of apprentices and in some cases allo$ing manufacturers to achieve narro$ specialization.
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9or instance in certain regions producing each variety of cloth $as the speciality of a particular sub!caste.

<stimates of the per capita income of ;ndia (+A-7K+H,,) as per +HFAKFH prices. %extiles such as muslin )alicos sha$ls and agricultural products such as pepper cinnamon opium and indigo $ere exported to <urope the Middle <ast and 3outh <ast Asia in return for gold and silver. Assessment of ;ndia(s pre!colonial economy is mostly &ualitative o$ing to the lac# of &uantitative information. "ne estimate puts the revenue of A#bar(s Mughal <mpire in +J,, at L+7.- million in contrast $ith the total revenue of 1reat 8ritain in +A,, $hich totalled L+J million. ;ndia by the time of the arrival of the 8ritish $as a largely traditional agrarian economy $ith a dominant subsistence sector dependent on primitive technology. ;t existed alongside a competitively developed net$or# of commerce manufacturing and credit. After the fall of the Mughals
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;ndia $as administered by Maratha <mpire. %he maratha empire(s budget in +7F,s at its pea# $as ?s. +,, million.

Colonial :
)olonial rule brought a ma6or change in the taxation environment from revenue taxes to property taxes resulting in mass impoverishment and destitution of the great ma6ority of farmers. ;t also created an institutional environment that on paper guaranteed property rights among the colonizers encouraged free trade and created a single currency $ith fixed exchange rates standardized $eights and measures capital mar#ets a $ell developed system of rail$ays and telegraphs a civil service that aimed to be free from political interference and a common!la$ adversarial legal system. ;ndia(s colonisation by the 8ritish coincided $ith ma6or changes in the $orld economyMindustrialisation and significant gro$th in production and trade. Eo$ever at the end of colonial rule ;ndia inherited an economy that $as one of the poorest in the developing $orld $ith industrial development stalled agriculture unable to feed a rapidly gro$ing population one of the $orld(s lo$est life expectancies and lo$ rates of literacy. An estimate by )ambridge =niversity historian Angus Maddison reveals that ;ndia(s share of the $orld income fell from //.JB in +7,, comparable to <urope(s share of /5.5B to a lo$ of 5.AB in +H-/. :hile ;ndian leaders during the ;ndependence struggle and left!nationalist economic historians have
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blamed colonial rule for the dismal state of ;ndia(s economy in its aftermath a broader macroeconomic vie$ of ;ndia during this period reveals that there $ere sectors of gro$th and decline resulting from changes brought about by colonialism and a $orld that $as moving to$ards industrialisation and economic integration.

Independence to ())( :

1ro$th rate of ;ndia(s real 1D2 per capita ()onstant 2rices: )hain series) (+H-,K/,,J). Data 3ource: 2enn :orld tables.

;ndian economic policy after independence $as influenced by the colonial experience ($hich $as seen by ;ndian leaders as exploitative in nature) and by those leaders( exposure to 9abian socialism. 2olicy tended to$ards protectionism $ith a strong emphasis on import substitution industrialisation state intervention in labour and financial mar#ets a large public sector business regulation and central planning. 4a$aharlal *ehru the first prime minister along $ith the statistician 2rasanta )handra Mahalanobis carried on by ;ndira 1andhi formulated and oversa$ economic policy. %hey expected favourable outcomes from this strategy because it involved both public and
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private sectors and $as based on direct and indirect state intervention rather than the more extreme 3oviet!style central command system. %he policy of concentrating simultaneously on capital! and technology!intensive heavy industry and subsidising manual lo$!s#ill cottage industries $as criticized by economist Milton 9riedman $ho thought it $ould $aste capital and labour and retard the development of small manufacturers. ;ndia(s lo$ average gro$th rate from +HF7KA, $as derisively referred to as the Eindu rate of gro$th because of the unfavourable comparison $ith gro$th rates in other Asian countries especially the N<ast Asian %igersN.

*#ter ())( :

1oldman 3achs has predicted that ;ndia $ill become 5rd largest economy of the $orld by /,5- based on predicted gro$th rate of -.5 to J.+B. )urrently ;t is cruising at H.FB gro$th rate.

;n the late A,s the government led by ?a6iv 1andhi eased restrictions on capacity expansion for incumbents removed price controls and reduced corporate taxes. :hile this increased the rate of gro$th it also led to high fiscal deficits and a $orsening current account.
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Go ernment Inter ention

+tate planning and the mixed economy
After independence ;ndia opted for a centrally planned economy to try to achieve an effective and e&uitable allocation of national resources and balanced economic development. %he process of formulation and direction of the 9ive!>ear 2lans is carried out by the 2lanning )ommission headed by the 2rime Minister of ;ndia as its chairperson.

%he number of people employed in non!agricultural occupations in the public and private sectors. %otals are rounded. 2rivate sector data relates to non! agriculture establishments $ith +, or more employees.

;ndia(s mixed economy combines features of both capitalist mar#et economy and the socialist command economy but has shifted more to$ards the former over the past decade. %he public sector generally covers areas $hich are deemed too important or not profitable enough to leave to the mar#et including such services as the rail$ays and postal system. 3ince independence there have been phases of nationalizing such areas as ban#ing and more recently of privatization.
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!ublic expenditure :
;ndia(s public expenditure is classified as development expenditure comprising central plan expenditure and central assistance and non!development expendituresO these categories can each be divided into capital expenditure and revenue expenditure. )entral plan expenditure is allocated to development schemes outlined in the plans of the central government and public sector underta#ingsO central assistance refers to financial assistance and developmental loans given for plans of the state governments and union territories. *on!development capital expenditure comprises capital defense expenditure loans to public enterprises states and union territories and foreign governments $hile non!development revenue expenditure comprises revenue defence expenditure administrative expenditure subsidies debt relief to farmers postal deficit pensions social and economic services (education health agriculture science and technology) grants to states and union territories and foreign governments.;ndia(s non!development revenue expenditure has increased nearly fivefold in /,,5K,F since +HH,KH+ and more than tenfold since +HA-K+HAJ. ;nterest payments are the single largest item of expenditure and accounted for more than F,B of the total non development expenditure in the /,,5K,F budget.Defence expenditure increased fourfold during the same period and has been increasing due to gro$ing tensions in the region the expensive dispute $ith 2a#istan over 4ammu and @ashmir and an effort to modernise the military. Administrative expenses are compounded by a
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large salary and pension bill $hich rises periodically due to revisions in $ages dearness allo$ance etc. subsidies on food fertilizers education and petroleum and other merit and non! merit subsidies account are not only continuously rising especially because of rising crude oil and food prices but are also harder to rein in because of political compulsions.

!ublic receipts :
;ndia has a three!tier tax structure $herein the constitution empo$ers the union government to levy ;ncome tax tax on capital transactions ($ealth tax inheritance tax) sales tax service tax customs and excise duties and the state governments to levy sales tax on intra!state sale of goods tax on entertainment and professions excise duties on manufacture of alcohol stamp duties on transfer of property and collect land revenue (levy on land o$ned). %he local governments are empo$ered by the state government to levy property tax "ctroi and charge users for public utilities li#e $ater supply se$age etc.More than half of the revenues of the union and state governments come from taxes of $hich half come from ;ndirect taxes. More than a &uarter of the union government(s tax revenues is shared $ith the state governments.%he tax reforms initiated in +HH+ have sought to rationalise the tax structure and increase compliance by ta#ing steps in the follo$ing directions: ?educing the rates of individual and corporate income taxes excises customs and ma#ing it more progressive
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?educing exemptions and concessions

3implification of la$s and procedures ;ntroduction of 2ermanent account number to trac# monetary transactions /+ of the /H states introduced Calue added tax (CA%) on April + /,,- to replace the complex and multiple sales tax system

%he non!tax revenues of the central government come from fiscal services interest receipts public sector dividends etc. $hile the non!tax revenues of the 3tates are grants from the central government interest receipts dividends and income from general economic and social services.;nter!3tate share in the federal tax pool is decided by the recommendations of the 9inance )ommission to the 2resident.

General budget :
%he 9inance minister of ;ndia presents the annual union budget in the 2arliament on the last $or#ing day of 9ebruary. %he budget has to be passed by the 'o# 3abha before it can come into effect on April + the start of ;ndia(s fiscal year. %he =nion budget is preceded by an economic survey $hich outlines the broad direction of the budget and the economic performance of the country for the outgoing financial year. %his economic survey involves all the various *1"s $omen organizations business people old people associations etc. ;ndia(s union budget for /,,-K,J had an estimated outlay of ?s.- +F 5FF crores (I++A billion).
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<arnings from taxes amount to ?s. / 75 FJJ crore (IJ5b). ;ndia(s fiscal deficit amounts to F.-B or + 5H /5+ crore (I5/b).%he fiscal deficit is expected to be 5.AB of 1D2 by March /,,7.

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+ectors
*griculture :

Composition of India"s total production &million tonnes' of foodgrains and commercial crops in ())*+),-

;ndia ran#s second $orld$ide in farm output. Agriculture and allied sectors li#e forestry logging and fishing accounted for +A.JB of the 1D2 in /,,- employed J,B of the total $or#force and despite a steady decline of its share in the 1D2 is still the largest economic sector and plays a significant role in the overall socio!economic development of ;ndia. >ields per unit area of all crops have gro$n since +H-, due to the special emphasis placed on agriculture in the five! year plans and steady improvements in irrigation technology application of modern agricultural practices and provision of agricultural credit and subsidies since 1reen revolution in ;ndia. Eo$ever international comparisons reveal that the average yield in ;ndia is generally 5,B to -,B of the highest average yield in the $orld.
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%he lo$ productivity in ;ndia is a result of the follo$ing factors:

;lliteracy general socio!economic bac#$ardness slo$ progress in implementing land reforms and inade&uate or inefficient finance and mar#eting services for farm produce. %he average size of land holdings is very small (less than /, ,,, mP) and is sub6ect to fragmentation due to land ceiling acts and in some cases family disputes. 3uch small holdings are often over!manned resulting in disguised unemployment and lo$ productivity of labour. Adoption of modern agricultural practices and use of technology is inade&uate hampered by ignorance of such practices high costs and impracticality in the case of small land holdings. ;rrigation facilities are inade&uate as revealed by the fact that only -5.JB of the land $as irrigated in /,,,K ,+ $hich result in farmers still being dependent on rainfall specifically the Monsoon season. A good monsoon results in a robust gro$th for the economy as a $hole $hile a poor monsoon leads to a sluggish gro$th. 9arm credit is regulated by *A8A?D $hich is the statutory apex agent for rural development in the subcontinent.

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Industry :

2er capita 1D2 (at 222) of 3outh Asian economies versus those of 3outh @orea as a percentage of the =3./,0.-F0

;ndia is fourteenth in the $orld in factory output. %hey together account for /7.JB of the 1D2 and employ +7B of the total $or#force.Eo$ever about one!third of the industrial labour force is engaged in simple household manufacturing only. <conomic reforms brought foreign competition led to privatisation of certain public sector industries opened up sectors hitherto reserved for the public sector and led to an expansion in the production of fast!moving consumer goods. 2ost!liberalisation the ;ndian private sector $hich $as usually run by oligopolies of old family firms and re&uired political connections to prosper $as faced $ith foreign competition including the threat of cheaper )hinese imports. ;t has since handled the change by s&ueezing costs revamping management focusing on designing ne$ products and relying on lo$ labour costs and technology.

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5F ;ndian companies have been listed in the 9orbes 1lobal /,,, ran#ing for /,,7..-70 %he +, leading companies are:

.orld /ank

Company "il and *atural 1as )orporation ?eliance ;ndustries 3tate 8an# of ;ndia ;ndian "il )orporation *%2) ;);); 8an# 3teel Authority of ;ndia 'imited %ata )onsultancy 3vcs %ata 3teel ;nfosys %echnologies

0ogo

Industry

Market /evenue 2rofits 3ssets Value &billion &billion &billion &billion 1' 1' 1' 1' 5.FJ /.++ +./F +.++ +.5+ ,.-F ,.H+ /J.HA 5A.+H /+.7- F/.J/ +-J.57 +/.5//.JA +,.H/ +7./- /J.,J J/.+5 +J.7/ 7.,J +,.+J

/5H /-A 5/J 5HH FHF -5J A,,

"il D 1as +-.JF "perations "il D 1as +A.,"perations 8an#ing +5.JJ

"il D 1as 5F.// "perations =tilities 8an#ing Materials J.,J -.7H J.5,

+,F7 ++/A ++5,

3oft$are D /.HA 3ervices Materials F.-F

,.J7 ,.AF ,.--

+.H5 F.J+ /.,H

/J./7 -.A, /J.+H

3oft$are D /.+F 3ervices

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+er ices :
;ndia is fifteenth in services output. ;t provides employment to /5B of $or# force and it is gro$ing fast

gro$th rate 7.-B in +HH+K/,,, up from F.-B in +H-+KA,. ;t has the largest share in the 1D2 accounting for -5.AB in /,,- up from +-B in +H-,. 8usiness services (information technology information technology enabled services business process outsourcing) are among the fastest gro$ing sectors contributing to one third of the total output of services in /,,,. %he gro$th in the ;% sector is attributed to increased specialisation availability of a large pool of lo$ cost but highly s#illed educated and fluent <nglish!spea#ing $or#ers (a legacy of 8ritish )olonialism) on the supply side and on the demand side increased demand from foreign consumers interested in ;ndia(s service exports or those loo#ing to outsource their operations. ;ndia(s ;% industry despite contributing significantly to its balance of payments accounted for only about +B of the total 1D2 or +/-,th of the total services. 3ince liberalisation the government has approved significant ban#ing reforms. :hile some of these relate to nationalised ban#s (li#e encouraging mergers reducing government interference and increasing profitability and competitiveness) other reforms have opened up the ban#ing and insurance sectors to private and foreign players.

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+ocio"economic characteristics

!o erty :

2ercent of population living under the poverty line

'arge numbers of ;ndia(s people live in ab6ect poverty. :ealth distribution in ;ndia is improving since the liberalization and $ith the end of the socialist rule termed as the license ra6.:hile poverty in ;ndia has reduced significantly official figures estimate that /7.-B of ;ndians still lived belo$ the national poverty line in /,,F!/,,-.A /,,7 report by the state!run *ational )ommission for <nterprises in the =norganised 3ector (*)<=3) found that 7,B of ;ndians or A,, million people lived on less than /, rupees per day $ith most $or#ing in Ninformal labour sector $ith no 6ob or social security living in ab6ect poverty.N3ince the early +H-,s successive governments have implemented various schemes under planning to alleviate poverty that have met $ith partial success. All these programmes have relied upon the strategies of the 9ood for $or# programme and *ational ?ural <mployment 2rogramme of the +HA,s $hich attempted to use the unemployed to generate
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productive assets and build rural infrastructure. ;n August /,,- the ;ndian parliament passed the ?ural <mployment

1uarantee 8ill the largest programme of this type in terms of cost and coverage $hich promises +,, days of minimum $age employment to every rural household in /,, of ;ndia(s J,, districts. %he &uestion of $hether economic reforms have reduced poverty or not has fuelled debates $ithout generating any clear cut ans$ers and has also put political pressure on further economic reforms especially those involving the do$nsizing of labour and cutting agricultural subsidies.

External trade and in estment

Global trade relations :
=ntil the liberalisation of +HH+ ;ndia $as largely and intentionally isolated from the $orld mar#ets to protect its fledging economy and to achieve self!reliance. 9oreign trade $as sub6ect to import tariffs export taxes and &uantitative restrictions $hile foreign direct investment $as restricted by upper!limit e&uity participation restrictions on technology transfer export obligations and government approvalsO these approvals $ere needed for nearly J,B of ne$ 9D; in the industrial sector. %he restrictions ensured that 9D; averaged only around I/,,M annually bet$een +HA- and +HH+O a large percentage of the capital flo$s consisted of

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foreign aid commercial borro$ing and deposits of non!resident ;ndians.

$hare of top five investing countries in #DI inflows- &4554+ ()),'6748

Inflows (Million USD) 8,898 4,389 1,891 1,847 1,692

Rank

Country

Inflows ( )

1 2 3 4 5

Mauritius United States Ja an !et"er#ands United $in%d&'

34.49%[82] 17.08% 7.33% 7.16% 6.56%

;ndia(s exports $ere stagnant for the first +- years after independence due to the predominance of tea 6ute and cotton manufactures demand for $hich $as generally inelastic. ;mports in the same period consisted predominantly of machinery e&uipment and ra$ materials due to nascent industrialisation. 3ince liberalisation the value of ;ndia(s international trade has become more broad!based and has risen to ?s. J5 ,A, +,H crores in /,,5K,F from ?s.+ /-, crores in +H-,K-+. ;ndia(s ma6or trading partners are )hina the =3 the =A< the =@ 4apan and the <=.%he

exports during August /,,J $ere I+,.5 billion up by F+.+FB and import $ere I+5.A7 billion $ith an increase of 5/.+JB

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over the previous year.;ndia is a founding!member of 1eneral Agreement on %ariffs and %rade (1A%%) since +HF7 and its successor the :orld %rade "rganization. :hile participating actively in its general council meetings ;ndia has been crucial in voicing the concerns of the developing $orld. 9or instance ;ndia has continued its opposition to the inclusion of such matters as labour and environment issues and other non!tariff barriers into the :%" policies. re&uirements removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment 9D;. %he up$ard moving gro$th curve of the real!estate sector o$es some credit to a booming economy and liberalized 9D; regime. ;n March /,,- the government amended the rules to allo$ +,, per cent 9D; in the construction business.%his automatic route has been permitted in to$nships housing built!up infrastructure and construction development pro6ects including housing commercial premises hotels resorts hospitals educational institutions recreational facilities and city! and regional! level infrastructure.A number of changes $ere approved on the 9D; policy to remove the caps in most sectors. ?estrictions $ill be relaxed in sectors as diverse as civil aviation construction development industrial par#s petroleum and natural gas commodity exchanges credit! information services and mining. 8ut this still leaves an unfinished agenda of permitting greater foreign investment in politically sensitive areas such as insurance and retailing.
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The ,ise o# India - the IIM +tory

The

,ise

o#

India

;n last couple of years %he ?ise of ;ndia D )hina is a story being $atched $ith much a$e fascination D even fear in the global media. Most of these stories are inspired by the huge strides made by ;ndian D )hinese companies in 3ervice D Manufacturing sectors. Many of the #ey drivers of their success has been their pro$ess at creating high &uality but lo$ cost 3oft$are D "utsourcing services in case of ;ndia and manufacturing in case of )hina. 3ome analysts have also highlighted the ?esearch D Development investments being made in ;ndia by corporations as diverse as 1< to 1oogle leading to possible emergence of Asia as the ?DD hub for $orld. Eo$ever $hat seems to have missed the attention of media is emergence of ;ndian Managers in the top ladders of =3 )orporate arena. %here have been isolated stories li#e rise of ?a6at 1upta (ex!)hief Mc#insey) Cictor Menzes of )itiban# but one big emerging trend has been the rise of ;ndian Managers or M8A. %his is a story $hich is still to unfold in a big $ay but already has started ma#ing $aves in recent years. ;t $ill be interesting to trace the rise of ;;Ms along $ith ;ndia(s rise in the $orld economy.

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The Turnaround
;n late H,s $hen the current ;ndian 2M Manmohan 3ingh began the liberalization of ;ndian economy as the 9inance Minister it opened up a $ealth of opportunities for private sector enterprises and also dre$ a horde of M*)s to ;ndia. %he size of ;ndian middle class by then estimates of /,,! 5,,MM $as one of the fastest gro$ing mar#ets in the $orld. %o cater to this mar#et corporate needed a horde of management professionals to run D gro$ the ne$ mar#ets. %his brought in a tonne of opportunities to ;ndiaQs thousands of M8A grads and more so for the students of ;;Ms $ho $ere the crRme!la!crRme of ;ndia. 3lol$y but surely the middle class dream career $as not to get into the )ivil 3ervice but rather to earn an M8A degree as a route of entry to the corporate $orld. Also many of ;ndiaQs top brains li#e ;;% engineers )hartered Accountants $ere allured into see#ing an M8A degree to their portfolio especially so from an ;;M. %he competition for gaining a seat into these b! schools $as hyper competitive even after discounting the huge population of ;ndia. ;magine an admission rate of .JB vs. +,B for the top ivy!league schools of =3. "nly recently %he <conomist in its recent ratings of 8!3chools rated ;;M!A (Ahmedabad) as the Stoughest 8!school in $orld to get intoT. Also being able to attract many ;ndian profs $ho had ac&uired their doctorates at top =3 =niversities added to their reputation as hubs for excellence. %hus best of breed students combined $ith best of breed professors and
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availability of re$arding placement opportunities all at a fraction of ;vy!league rates created a uni&ue selling proposition in the hyper!competitive M8A school $orld.

*rri al o# Mckinsey. Lehman - Co/

;n corporate $orld especially =3 )onsulting D ;nvestment 8an#s are among the most demanding careers and also most competitive in the $ar for talent globally. %he li#es of Mc#insey D 8)1 in consulting D 'ehman 8rothers 42 Morgan in ;!8an#s thus $ere &uic# to use the ;;Ms as a recruiting ground mainly for their ;ndian "perations to start $ith. Eo$ever impressed by the performance of the initial recruits they started recruiting for their global practices. ;n fact the $ar for heads has become so hot these days that many of these try to pic# the cream via the summer trainee route and offer 2re!2lacement "ffers. >ear /,,, $as a ground brea#ing year in the sense more than +,B of ;;M!A grads $as recruited purely for placements in Manhattan *>) and it also $as the inaugural year for 1oldman 3achs. Also given the profile of ;;M students 7,B of $ho boast of an engineering degree from ;ndiaQs top )olleges and mostly ;;%s it became even more tempting for the leading recruiters to shun many /nd rung b!schools else$here to get thesetalent

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The !ath *head

More recently the success of many ;ndian corporate in ;% D 82" arena people made people note of the management behind these companies. "ne #ey competitive advantage ;ndian companies had vis!U!vis )hinese ones $as the breadth D depth of management talent. :hile )hina had a huge success in managing and running cheap assembly line production of goods at lo$est price ;ndiaQs success $ere more in the higher end of value chain. %his is $here ;ndian Managers $ere miles ahead and much of this success is credited to the ;;Ms D the second line of b!schools $hich are no less competitive."ne of the #ey facets of mar#et economy is changing s#ill sets re&uirements and being able to deal $ith complexity and uncertainty. %his is one area $here ;ndian students come $ith a uni&ue advantage. 'ife in ;ndia or any developing $orld can be full of chaos uncertainity scarcity and greys. %his meant that most of these young M8A aspirants get the experience of many life times even in families and a / year structured thin#ing process and arming $ith tools D techni&ues of a typical b!school curricula $ould prepare them to ta#e on the corporate $orld by thorns.A random invenory of ;ndia(s non!family non!govt sector :E" ;3 :E" $ould read li#e the alumni list of ;;Ms.8elo$ are some examples from tradition sectorsCindi 8anga (;;M!A) ! E''(s top gun ( E'' is ;ndia(s largest consumer goods company part of =nilevers) @ C @amath (;;M!A) ;););(s top
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gun ( ;);); is ;ndia(s largest private sector ban#) <ven in the ne$ brave $orld of dot com soft$are D 82" $e have many ;;M alum leading the charge ?ediff.com (A6it 8ala#rishnan) 1enpact ( %iger %yagra6an) mphasis (4erry ?ao) .Eo$ever $hat is ne$ or changing is that unli#e in past $e have relatively younger alums are ta#ing the ris# to start their o$n firms. %his is $hat $as needed. *o more you needed to have spent a stable/secure career at )iti or 1< or 2D1 but rather you can start $ith your o$n thing. ;f things don(t $or# $ell then you can al$ays go bac# to the big corporate $orld.As ;ndian economy becomes a bigger B of global economy not in terms of 1D2 alone but also as a bigger B of global innovation then many of these ;;M grads to have step up and be counted. 4ust li#e technology innovation $as the source of competitive advantage in past and ;;%ians $ere a #ey enabler to that no$ 8usiness 2rocess D Management related innovations $ill be #ey to success in this hyper! competitive economy. Eopefully ;;Ms $ill live up to the great expactations VVV