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Multinational Companies(MNC's)
Impact on Indian Economy
MNC may be defined as a company, which operates in number of countries and has
production and service facilities outside the country of its origin. They are also called Trans
National Company (TNC) Their activities have both good and bad impacts on the economy. They
take decisions on a global context or basis. Their maximum profit objectives take no account of the
reactions produced in the countries felling in their orbit. They operate in different institutional
forms Some are: Subsidiaries companies wholly owned by MNC in other countries
Subsidiary company enter into joint venture with a company another company Agreement among
companies of different countries regarding production and discussion of market.
Development and Activities: Soon after independence foreign capital entered India in the
form of direct investments through MNC's Companies had been formed in advanced countries with
the specific purpose of operating in India. Such companies started their subsidiaries, branches and
affiliates in India . At times government gave some tax concession to them with in the FERA
(Foreign Exchange Regulation Act) and streamlined the licensing procedures. The purpose was to
secure advanced, technical and industrial know how. During the janata rule the policy was outright
purchase of technical know how skills and machinery. They took two major decisions. Coco cola
was asked to wind up their operation . Asked IBM to reduce their foreign equity to 40%. They did
not agree, so asked to wind up MNC's operate in several sectors like tobacco, toiletries beverages
etc.
Industrial Policy of 1991 accepted foreign investment essential for modernization
technology up gradation and industrial development. Several concessions were given FERA
regulations were liberalized and permitted to use their trademarks in the domestic market. Now it
has become a wide spread phenomena with USA the biggest among them. Recently a large
number of Indian brands were taken over by them some important takeovers are
Asian Paints ICI (UK)
Premier Automobiles transferred two plants to Peugeot (France)
Lakeme brand by Lever.
Hero Honda by TVS Suzuki etc.
Merits :
Capital and Technology: The Service of MNC's In respect of supply of capital is of great
importance . The investment of a single MNC's is much greater than that of several Indian
companies. It is a great advantage for industrial growth. Along with capital transfer of technology
also takes place. They transfer technology highly intensive to the use unskilled labour. But their
aim is cheep production and more profit. They also develop new technology needed by India.
Sophisticated technology in areas like petroleum, chemical, minerals are of great help to India,
since local development needs long time and resources, which our country cannot offered or wait.
Research and Development :
This is must for promotion of technology which involves huge expenditure. A goo past of
the expenditure of R&D is spent outside the country of MNC Salaries of research personnel is
much in Indian than in the country of the MNC.

The marketing services that MNC make available for the goods and services from less
developed countries is great. International competition is necessary involves several market related
key services such as Research, advertising warehousing package design, removal of barriers in
importing company.
Demerits :
Oligopolisation of Market : MNC's brought about the internationalization of investment,
production and marketing. A good past of their international trade is in the form of internal
transaction of these companies. This will result in the Oligopolisation of market and
concentration of economy powers at the world level.
Harmful to producers and consumers: Their loyalty to any one is doubtful and they do
anything and everything for profit and to eliminate competition. They impose their will on
producers and consumers. Their aim is global profit. The study of US companies showed that :
Prices for the consumer is raised.
Income of producer is lowered .
Quality is made inferior.
Best profit of MNC are increased
Evil of transfer pricing : These include an agreement between firms for sharing the market
manipulation of markets, products are valued at deceptive prices for maximum profit. These
ingenious techniques are called transfer pricing , Through dummy trading companies they buy
from low tax countries and sell in high tax countries to maximize the profit.
Currency Manipulation : They deal in several national currencies. Accumulate their funds in
safe places with strong currency at high interest rates in case of weak currencies they advise
the affiliates to go for large debts. Thus they make assets in strong currency and debts in
weak currency. Since the amount involved is huge they make currency crisis.
5. Bad business ethics: The activities of MNC's fall outside the basics ethics and legal system of
the host counties US MNC's have paid bribes to influence people to get things done, mainly in
Asia Africa and Europe. They are even known for interfering in political affairs.
Conclusion :
When we consider an overall picture of the MNCS, the beneficial role is much limited in the
limited stages of development they are helpful in area of needed technology and global marketing.
They care only to the need of upper middle and affluent classes. It create a new culture of colas,
jams, ice-creams and processed goods. Another threat to Indian economy is the manipulation on
the capital market to suit their goals. They are increasing the shareholding in Indian companies
swallowing them. They transfer attractive and profitable business to this newly started subsidiaries
so a large number of Indian share holders get cheated.
Summing up over dependence on MNC may be harmful in terms of economic dependence
and political interference. Capital flow of MNC's may be permitted but not at the cost of national
interest.
Note : An oligopoly is a market form in which a market is dominated by a small number of sellers
(oligopolists).
40

Privatization of Public Sector

The wave of privatization spread all over the world, as a reaction to the inefficient working of
the state-owned enterprises. The disillusionment witnessed in the socialist economies and the wave of
economic reforms under "perestroika" accelerated the process. The continued losses in the public
sector forced the governments to rethink about the virtues of P.S. IMF, World Bank and International
Financial Institutions also forced them to accept privatization as the new philosophy of regeneration.
Privatization wave that swept the world has its effects in India also. India was a late entrant in this field,
This issue much discussed in the 1980's came in to center stage in 1990's as a part of over all
economic reforms. The [19913 new Industrial policy suggested reorientation of the working of the
P.S along the principles of private sector or free market..
Privatization implies the induction of private ownership in the public or state owned enterprises.
Besides private ownership, it can be the induction of private management and control in the P.S. In
simple meaning, privatization involves a change in ownership from government to the private sector
or individuals. Ownership may be transferred by offering the shares to the general public or to the
employees wholly or partly.
The form of privatization to be adopted depends on the environment, whether competitive
or not, and the social obligations. If it is producing goods of fluctuating demand like textiles, watches,
two wheelers etc, where competitive environment is necessary, ownership should be changed. But in
the case of public utilities like water supply and public goods, non competitive or monopoly is good,
because the social obligations are strong.
Privatization is adopted mainly for the improvement of the performances but with different
objectives. In countries like U.K, France and Austria, the aim has been to improve efficiency,
profitability, productivity etc. In the newly privatized companies, competition forced them to respond to
the needs of the consumer, promote efficiency and reduce costs. Japan sold off the shares of the P.S
units to raise funds to reduce the national debt. For Turkey, the objective was to reduce the cost of
subsidies and raise capita for the economy. In India, though political parties speak of reforms in the
PS, they not willing to take actions. Industrial policy of 1991 was a turning point. It limited priority
areas for public sector only to infrastructure and defense. More and more areas reserved for P.S are
now opened to the private sector.

Scope :In spite of the need and urgency, the scope for privatization is much limited, because of
the difficulties that come across.

Problem of Finance : Privatization in any form involve large finance. If it comes from public
financial institutions in the form of loans to private sector, it is only a transfer of ownership from
one public institution to another It is helping the private sector to own public sector units
through public financial institutions. So new investments will suffer. The policy is fruitful only if new
savings are used to meet the required finance. In the sale of share also, only switching of old
investment takes place and no benefit to the economy.
Strong Trade Unions : The emergence of strong trade unions made privatization [in the sense
denationalization] difficult. Proposals for denationalization of banks, insurance, power
generation etc aroused violent reactions from the unions. They forced the government to
withdraw the proposal to transfer the ownership of loss-making Scooters India to Bajaj Auto Ltd.

 Inefficiency of Private Sector : The performance of private sector is also not satisfactory.
Many are sick with large over dues. In spite of the " Umbrella of Protection" [restrictions in
import, licensing etc] and captive domestic market they did not work well. Most of them,
much behind those in foreign countries in quality and technology.
Inbuilt resistance : Another problem is the behavior of the owners, employers and
capitalists towards labour in private sector. There is exploitation, low wages, lack of amenities
and benefits. Women and child labour are very common. So further privatization means
further exploitation.
Improvement in the performance of P.S : At the time of privatization we cannot forget
that the performance of public sector units are far better than before. This is due to
experience, completion of gestation period and improvement of managerial output [MOUj.
The sector employs twice the manpower of private sector but with less labour disputes. They
have better labour relations and the staff is rated higher than staff in the private sector.
The methods of privatization vary from country to country and from time to time depending up
on the nature of the industry and need and circumstances of the country. Methods of transferring
state-owned enterprises to private ownership are :
Divestiture or Disinvestment : Disinvestment is one of the important methods of privatizing
a public sector undertaking. Under the disinvestment, majority of the shares of the company
are sold or auctioned to the private companies. In selling the equity shares of the company to
be privatized, preference is given to the employees of the company.
Denationalization: Denationalization or Re-privatization is the reverse process of
Nationalization. This method is generally adopted for privatization of nationalized private
enterprises.
Forming Joint Venture : Where total privatization is either not desirable for social, political
or economic reasons or private sector is unable or unwilling to take over the ownership of the
enterprise, the government opts for forming a joint venture transferring a part of the equity
shares to the private sector.
Liquidation : Under this method, the entire assets of the enterprise are sold to a person or to
an organization.
Formation of a Holding Company : Under this method, government forms a holding
company in which the government retains a majority share and power to control top
managerial decisions. This method privatizes the operations not the ownership.
Leasing : Under this method, the government leases the assets to the private bidders for a
specific period. This method transfers the ownership for a tenure.

Globalization
Globalization refers to extensive and fast transactional flow of goods and services, finance,
manpower and technology across the globe. Italian Pizza, Foreign brands like McDonnell's and
Pepsi, Nokia, Samsung, Sony, Daewoo and Hyundai cars have become household names in India.
Similarly Indian origin companies like Airtel Bharati, Videocon, TCS have entered in foreign soils
also. Factors leading to globalization :
Economic compulsion of both developing and developed nations.
Changing world economic environment.
Efforts of international organizations like WTO.
Economic liberalization and Government support by individual countries.

** * * * * * ** * * * * * *
45

Disinvestment of public sector undertakings

The term disinvestment refers to withdrawal of Govt. shares of capital invested in
Public Sector Undertakings. Government controlled Public Sector undertakings were
formed with the object of providing necessary infrastructure for the fast growth of
economy. They were to lead the industrialization programme of the country and act as a
safeguard against monopoly. It was believed that they would also create employment and
at the same time generate revenue surplus.
But either due to mismanagement or the lack of experience many of the PSU's
could not give -expected-ef satisfactory results and finally became a liability. In order to
do away with the recurring loss the government in its Industrial Policy of 1991 envisaged
disinvestment oil al of government holdings in the share capital of some selected sick
that this would provide market discipline and ultimately improve the
PSU's.
performance of such PSU's apart from releasing huge amount of capital which could be
used for accelerating economic growth of the country.
Privatization of Public Sector Undertakings is giving the desired results. It results
in efficient use of resources whereby scarce resources like land, capital and machinery
are put to more efficient use. The economy as a whole is benefited by increase efficiency
of the units and the fiscal mess is reduced by lessening of liabilities.
Measures to be taken to ensure success of disinvestment
Legitimate demands of workers should not be overlooked and care must be taken
that either they are not thrown out of employment or alternate jobs are provided to
them. It is also argued that disinvestment would lead to massive unemployment
which is already high in the country.
Hence social implications of labour structuring should be properly studied.
Scheme-of voluntary retirement may be ac1oX.qc so that persons willing to take
retirement may lead a better liferhis will gamer support for Privatization.
Political parties of the country have been debating the sale of PSU's mainly due to
the controversy about the valuation of assets and their acquisition by companies
with doubtful credentials. iv)1R-..-)1/-*---There is opposition against the sale of profit giving establishments.
To make the disinvestment process a success it is essential that profit making
companies be distinguished from loss incurring companies.

There must be transparency in the deals made in disinvestment. Method of

valuation of assets must be revealed to the public when a public undertaking is
sold off. This would eliminate suspicions of any malpractice and would fetch
competitive price of assets.
7. The proceeds of disinvestment should be spent for social uplift..These-should not
-
Ihe aim of disinvestment -as-beutilizedtome
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The information technology industry in India

The term information technology includes computers and communication technology
along with associated software. It refers to all the devices and media used to transmit,
store and process information for use by society.
With the emergence of the knowledge economy, information is being treated as a raw
material. The activities of generating, processing, transmitting, disseminating, storing,
archiving and retrieving information constitute the IT industry.
Features
It has created a large number of new companies in a sector unheard of before
1995.
Technology parks have been set up to cater to IT firms
IT sector has emerged as the major foreign exchange earner for our country.
It has created a large number of high salary jobs
IT enabled services like back-office operation medical transcription, insurance
claim processing, data entry, content development all have large employment
potential
It has transformed the banking sector in India. If other industries and the govt.
follow suit, it can transform India.

Problems Faced
It requires regular investment due to the rapid changes in hardware and software
technologies.
Communication and networking infrastructure has to be developed.
Lack of computerization of govt.depts. and agencies
Adequate training to make job seekers more employable in IT sector
The IT industry insists on quality that is up to international standards, hence
quality of education in IT must be maintained.
Hardware prices in India are quite high.
Countries like the US now believe that outsourcing results in export of jobs to
other countries.
Even the top Indian software companies have come up with very few products
that they own. They have also not been able to market their brand names.
Indian software companies' face the large-scale migration of software manpower
to western countries.
The software companies, with the high salaries paid to its employees, have largely
priced themselves out of the Indian market. Expenditure in dollar terms cannot be
matched by income in rupees.

Future prospects
Today, even though the software tasks carried out by India for the West may
amount to a small portion of the worldwide IT industry, Indian companies. and
professionals are regarded as amongst the best in the world. Software services exports

and business process outsourcing (BPO) were responsible for India's success as a
services exporter. The top companies in India in software are TCS, Wipro, Infosys, HCL,
Tech Mahindra, Patni Computer Systems, i-flex Solutions, L&T Infotech, IBM India, arid
Cognizant Technology Solutions (CTS).
The IT industry has a tremendous potential to generate foreign exchange, high
quality employment and improve productivity in the rest of the economy. As the IT
industry develops, it is looking at new ways of maintaining growth. Indian companies
such as TCS, Wipro, Infosys and HCL may yet become household names around the
world.
A lot needs to be done to have IT in the hands of hundreds of millions of people.
A concrete program has to be made so that in some time frame, say 10 years, IT is looked
upon by a large section of people as liberating, rather than as yet another technology that
pushes them into the category of have-nots.
Fresh opportunities in IT include
Cloud computing is the single most important factor that could impact IT in the
next few years.
IT is now beginning to be widely used in monitoring and reducing energy
consumption.
It is being increasingly used in traffic management.
Shifting to cloud computing would need data security.
Countries are trying to use networked information systems to run their cities.
The US healthcare system which is the largest in the world is trying to reduce
costs and provide advanced care with the help of IT.
Energy companies in the US are installing smart meters which will enable
customers to see and control the energy usage of each appliance. Global spending
on software required for such smart grids is expected to be billions of dollars.
The media and entertainment sector, currently witnessing a wave of digitization,
will create enormous amount of work for IT firms.