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C H A P T E R II
INDIAN JOINT VENTURES ABROAD
In this chapter an attempt is made to study the
evolution and growth of Indian joint ventures ~broad and the
atmosphere in which they were conceived and promoted. Such a
study is essential to understand the rationale and
motivation behind Indian efforts in promoting
ventures. An analysis of the Government of India's
also reveals the scope and the limitations of the
joint
policy
joint
venture strategy. The study brings out how New Delhi
attempted to accomplish through joint ventures export
promotion, building an industrial image imbued with the
spirit of collective self-reliance among the Third World
countries,
developing
technology.
promoting regional economic
concept of transfer the
A critical appraisal of
co-operation and
of intermediate
the Indian joint
ventures abroad also enables one to understand how far India
can make use of the joint venture strategy as ~n instrument
of economic diplomacy.
The study also attempts an analysis of the Indian joint
ventures abroad by examining the specific fields of
collaboration, the patterns of investment, the region-wise
dispersal and the size of the units. The success and failure
of the joint ventures have also been focussed upon to
highlight the strong points ~nd the weaker aspects of Indian
technology and managerial ability besides the effect of the
policies adopted by the Government of India.
q~~~~ [~[ l~4~~~[iiLi~i~i~~ ~
With the underdeveloped countries waking up to the
15
reality that only industrialisation could pull them out of •1
backwardness , efforts were made on a big scale to
manufacturin•J industries in many of these countries. This
process involved import of technology and capital from the
developed affluent countries. In their quest for
technolo•Jical know-how and expertise, so essent.i.;;l for
accelerated development of their backward economies, the
developing countries have alw.a.ys been lookin9 to the 2
developed countries. Apart from technology, the need also
was felt For foreign assistance for import oF equipments,
components and spare parts, since the level of savings in
the developing countries and their ability to mobilise
resources were limited.
The multinational corporations of the West with their
enormous capital base, international linkages, sophisticated
technology and efficient management started availing of the
vast opportunities that opened up when the newly independent
countries were making effod"s to industl'i.:tlise their
economies. In fact, a substantial part of the international
capital Flows since the 1950s was closely linked with the
"1. Hans t.J. Singer, "The Distribution of Gains Bet~,o,•een
Investin9 and. 8orrowin9 Countl'ies", f!mg_r.i£.-iHi sf.Q.!:lQ.II!i£. B!1l!~ f§R!!! !D1 Er£S!!1iDg§ <Stanford, CaliFornia), vol.40, t1ay ·1950, p.473.
2. thi'bans Sin9h, "Indian Joint Ventures In Southea.st Asia", Paper presented in The International Seminar on India-Malaysia Relations, University Of Madras <Madras, •1980), p.·1.
16
3 growth and expansion of large international enterprises.
The multinational corporations started moving by
directly investing through their wholly owned subsidiaries.
It has been estimated that in 1970 there were 4,000
companies and nearly 50,000 affiliates which had set up
subsidiaries, joint ventures and overseas plants or sub-4
assemblies in different parts of the world. The investment
of the multinational corporations was estimated in the same
year to be over U.S. S 140 billion, growing at ~n annual 5
rate of, over ·10 per cent.
Multinational investments were always looked upon with 6
certain amount of suspicion in the developing countries.
Extreme views on the harmful effects of economic penetration
by multinational 7
corporations have very often been
e:-:pressed. The perception of the developing countries was 8
inevitably coloured by their colonial past. At the same
3.
4· •
these countries were also in dire need. of foreign
Grant L.Reuber, Eri~!l! [QL!ign Q!Y!l£RID!Dl <London, 1973), p.3.
P.N.Agarwa1.3, ·1978), p.48.
5. Ibid.
6. S.Venu, Ib! Q!~!!eeing g&QDRmi!i !Drt 1b! !Dl!LDiliRD!l E.r.~m!~Q.Lt <New Delhi, ·197·1), p.·176.
7. V.!<. Narasimh.:an, "t1ultination.3l Corporations <:~nd the Third World", Minoa Masani and Gotfried ~Juest, ed. l.b! I.blr~ ~2!1~- gyQ Y§~ll ? <Bombay, 1969), p.161.
8. Jagdish Bhagwati, ~£YDl!1!2 <London,
Ib! t&QDQ.mi&i ·1977) p.·14b.
Q£
17
capital, expertise and technology. As a result, depending
upon the political ideolO!JY of the rulin•J elites, each
country evolved its own policy towards multinational
corporations and forei!Jn capital. The trend towards joint
ventures was a. consequence of the Third World response to
meet the needs of development and, at the same time, to curb
the evil effects of unbridled foreign enterprise.
Under the changing international political and economic
scenario, the foreign investors realised that their own
interest \1.1 0Ul d be bettet' ·:;erved by securing the
participation of local capital and management. The risk of
nationa.lis~ton could be obviated by resorting to joint
venture approach. It also ensures a 'quiet life' for 9
the
oligopolisti.c investor. The local partner is in a better
position to secure '1 0
fa. i r treatment from the public and
government.
By making the shareholding d.ivided between the
multinational corporation and a domestic entrepreneur and,
in some cases, the investing public in the host countries,
the hold of the multinational corporation is
9. S.Venu "Alternative Theorie·:; of Forei•Jn Investment Rationale of f'1.N.C.s"., Ib.!i I.:.J.irlf!.'d, 7 December ·1982.
10. Taranath Bhat, ''Indian Overseas Joint Ventures with Special Reference to Sri Lanka.", Paper presented in the International Chamber of Commerce Symposium on Investment Possibilities in Sri Lanka <New Delhi, March •19£,·1), p.-1.
18
diluted and the element of proverbial exploitation reduced.
International sharing of technology via joint ventures would
be complementary and to the mutual adv-:l.ntage of the
participating countries. Achievement of
specialisation and diversification of production structure ·1 ·1
would also be easier through joint venture strategy. And,
in the national context, it could also lead to efficient
allocation and utilisation of available factors of
production.
The emergence of Third World intern~tional entreprises
was also partly due to restrictions imposed on the entry of •12
multinational corporations. Quite a few developing
countries have started'offering collaboration and investing
capital their national frontiers. t D -3.
study made by the United Nations Centre for Transnational
Corporations, by mid-1970 as much as U.S.$ 180 million worth
investment in Argentina, BraziL Chile, Columbia, Equador,
Mexico and Venezuela originated either from each other or
from the Latin American countries. In .O.sia too, South
Korea, Taiwan, Malaysia, Thailand, Hong Kong and Singapore
11. Indian Investment Centre, !n~i~n J£iD1 ~!Dl~L!~ 6bLQ!1: bD 8RR!iJjiJ <New Delhi, 19831, p.2.
·12. Ram Gopal Agarwal, "lb.ir.9. \1QL1.9. ~Q[QQ!.:~li2ni~ ln9.i~D (~Q!!.:i!Df!'', Paper presented in a S e rrd n a r 0 r 9 a n i s e d b y E a s t -- ~J e s t C e n t 1· e ( I t o n o 1 u 1 u , Hawaii), September ·197?, p.S.
·13. J.C.Srivastava, "India's Joint Ventures Abroad", Paper presented in a Seminar on "Indi.::1's Investment in Busi.ness"(New Delhi, ·1979), p.3.
have moved across their national borders and have made •14
investments in each other's economies.
In its efforts to get closer to the developin~J
countries, New Delhi also naturally wanted to play a benign
role within its limited means. The Third Five Year Plan
s pelt out the philosophy underlying the Indian joint
ventures abroad as follows
Assistance from one country to another had a significance no less for economic progress of the less developed countries than for the building of a world community in which each country contributes to development of others according to its capacity. This is an obligation which India fully accepts and as her economy develops, within the limits of her resources she will endeavour to share her experience with other developing nations.15
The question naturally arises, did India have the
capability to embark on joint venture scheme ? Joint
ventures abroad means internationalisation of
this presupposes growth of manufacturing
development of technology, skills .:1 nd •16
competitiveness.
business and
capabilities,
inter· nat i o na 1
Since the advent of independence in 1947 India had made
subst.3.ntial progress in several sectors of economy through
·14. Ibid., p.4.
•1 5.
·16.
Ind.i-3, De lhL
Planning Commission, •1962), p.27.
San.jaya Lall, Multinationals:;
"The Indian
Jd.§.Y.§l.QJ2ID.§D.1 p. ·127.
(London),
Fmergence of Third Joint Ventures £\bro.:~d",
vol.·10, no.2, February
~·Jorld
tJg.r:J.b1 ·1 ?82'
20
THESIS 327.5405493 R1414 In
II I II II II 111111111 \Ill Ill TH3157
a programme of planned development. The share of primary
production in its gross national product had gone down
considerably and industry, transport and other services
accounted for a much larger share of India's national •17
income.
Over the years there has been a stress on crPating an
industrial structure, from a traditional to a modern one
leading to expansion in the modern fields,
metallurgical and mechanical engineering besides H3
.:~. n d allied industries. The technologies
covering
chemical
originally
imported have been mastered and adapted to make the best use
of lower manpower costs. India has reached a level of
competence where it is in a positon to share its development ·19
with other developin•J countries. Further,
industrialisation efforts have been amply aided by
facilities for technical education and research .and
development activities which eventually helped India to
achieve the status of a technology exporting country.
New Delhi's confidence in its technical development
resulted in the setting up of the Indian Technical and
Economic Co-operaton <I.T.E.C.) in 1964. Over the years the
r.r.::::.c. has become the cornerstone of India's aid
programme. By the end of 1978 the I.T.E.C. has deputed 500
- ---·- -----·- -·--·----------- --'=-t-"\:-'= -~"-~-- --·----- ---- ----- ------- -·---------- -----
21
·17. Hari Shankar Singhani-:t, IQ.::Q~i -?.D.Q IQ.:.I!!Q.LLQ.~ Delhi), p.72.
( New;.r'·~· .. ·> , ~ . ·-... ()' ~-
1 8 • I b i d •
""• \ • .. C'· \ .. " - ... ,. t1 .. - '· ~)
."• .. " /
·~ 19. T.N.Chaturvedi, ILiD.ii!L Qt I££bD.Q.lQgi 6m2ng Q~~!!2e(D.2 ~QYDl!l!i <New Delhi, 1982), p.37.
\~ c-"
'.J l.-\ 4 I \ ~ L.\ "-\ \J (j-.) ~ S' ' ) ~s-
technical experts abroad and about 1,200 foreign nationals
were receiving training in Indian institutions. It may be
stated that about 35 per cent of India's aid in the 1970s 20
was for technical assistance.
The Indian ability to offer technical assistance was
internationally recognised in an increasing measure. At the
various meetings of the United N.3.tions Industrial
Development Organisation (U.N.I.D.O.l to promote specific
indu.stt··ial projects in Asian and African countries, I nd i .:1.
was identified as a potential country which could offer
technical and industrial collaboration. As a result of the
understanding arrived at between the Government of Indi~ and
U.N.I.D.O. and consequent to the International Science and
Technology Transfer Conference held in 1972, India had been
initiating exchange of missions with developing countries in 2 •1
technology familiarisation and transfer programme. At the
Third Asian Meeting on promotion of joint ventures between
developed and developing countries, organised by the
U.N.I.D.O. at Kuala Lampur in November 1973, India was again 22
identified as a resource giving country. India h.3.s thus
received international recognition as a country tapable of
transferring technology to other developing countries.
20. Dewan C.Vohra, lD~i§~j ~l~ QiRlQID§fY iD 1bJ !bir1 Ygrl~ (New Delhi, 1980), p.37.
2"1. Chaturvedi, n. ·19, p.34.
22. Ibid.
22
Apart from the technological progress, t h t: r t:· w e r e a J s r•
other F-3.ctors which prompted Indi'ln entrepr~neurs to venture
abroad. While the country made steady advancement in the
field of industrialisation, it must be point2d out that
there we>re cert.ain serious distortions in the industria.]
growth.
Indian pJ~nning in thP Jatr 1950s and Parly 1960s laid
emphasis on manufacture of capital ~nd interm~diate aoods.
An impflrt substi.t.ution strat.f.·gy aimf:'cl .;;t the futtdamet.t-::.1
transformation of the economy to strengthen the dom~stic
23 capacity for capital goods formation was Follow~d. As .:=;l.
result, heavy industry and heavy enginrPring industry 24
received gr~at emph.lsis and top most priority. High~r
priority to heavy m~chinrry was given because this would
facilitate a much quicker rate oF industrtalisation aFter ?.:i
the formative years. As a result of this policy,
indus t r i-3.1 production picked up and in the course oF the
Serond and Third Plans industrial production doubled. The
value add~d in intermediate goods industry incre~s~d hy
23. Francine R.Franknel, 1D~lj~l fgllllf§l gfQ~QIDi= J1~l=ZZ <London, 1978), p.117.
24. Oaldev Raj N.;;yar, Ih~ tl~dtcnL~~li~n lffig~c~lt~~ ~~g fl~DDlD.9 <Delhi, ·1972), pp.·1·14·-S.
25. P.C. M.a.halanobis, "The Approach of Operation.,d RE-'se.:Jrch to Pl.3.nnin•J in India",§~D1.bi§ <Calcutt.1, ·1?55), vo1.·16, parts 1 and 2, pp.3 - 130.
2·3
almost seven times and in machinery industry by ten 26
times, .3, s could be seen from Table 1 given in the
Anne:<ure.
increase in production was impressive in several
fields, no proper inter-industry and inter··sectoral balance
was worked out. The result had been the creation of serious
imbalances in the industrial ·;;tructure. ~1a ny industrial
projects had been completed without complement .. 3.t''Y inputs
from other industries, which were neglected or were without
adequate demand for their products, which were to feed into
other industries. One reflection of the imbalance in the
industrial structure was the excessively large unutilised
capacity in Indian industry which would seem to represent a 27
misallocation of investment resources.
Table 2 furthet·· illustrates the imb<'.llanc€' in the
grovJth. As could be seen, sugar production had gone up by
three times, whereas sugar mill machinery manufacturing went
up by 40 times. Again in cotton textiles industry, the cloth
produced increased by about 40 per cent but cotton textile
machinery production went up by 300 per cent. While
fertilizer production capacity had been enormously built up,
production oF petroleum, the primary input, had increased at
a much lesser rate. The increase in the pr0duction of
machine tools had been phenomenal, but metal industries
26. Nayar, n.24, p.·172.
27. Ibid., p.'174.
utilising these machine tools had grown at a much sluggish
pace.
Thus, by the second half of 1960s, India was left with
a surplus of machinery without a proper plan to absorb them
into the economy. There had been a sustained stagn~tion of
demand for industrial goods within the country's market.
Even in the existing industries, capacity utilisation was 28
poor. Textile and engineering were both industries where
Indian domestic capacity to manufacture the required
machines had over long period been in excess of the domestic
demand.
Under the circumstances emerged an approach of
expediency of ensuring export of capital goods by securing
industrial collaboration with the developing countries.
Motivating Indian companies to start overseas joint ventures
and restricting their participation by the export of plant
and machinery made in India was a novel strategy adopted to
tide over the crisis. This was indeed an ingenious method of
securing an export outlet for Indian surplus machinery. It
was an example of the government trying to turn an adversity
into a virtue. A renowned expert on Indian joint ventures,
M.K.Raju explains :-
The impetus given by the Government of India to the concept of Indian joint venture was clearly triggered by the capital goods recession in India. All regulations that governed the Indian joint ventures clearly reflected the desire of Government of India to
28. Ibid.
find outlets for idle capacity in the machine tool industry and to earn foreign exchange.29
Until 1976, about 50 per cent of the joint venture
units abroad were in engineering and textile industries.
These were the two industries in which, as seen earlier,
domestic capacity seemed to be far in excess of the domestic 30
demand. The use of international investment as ~ means to
f i 11 idle capacity in the capital goods industry has been
historically proved and widely cited in international
economics lite1·ature. The Indian experience was lHl
e:·:ception.
Joint ventures abroad mean export of c~rital from the
venturing country into the host country as the capital
market in most of the underdeveloped countries is not well 32
organised. It should be noted that India was in a
critically capital starved condition when the government
29. M.K. Raju and C.K. Prahalad, !b! giD!!~iD~ !bi!1 ~~Ll~ ~glliD~ll~D§l~ lD~i~D sD~!L]Li2! ln Ib! ~§g~N E!~l~D <Madra·::;, ·1980), p.26.
30. The number of closed textile mills increased from 45 in 1967 to 80 in 1968 and 103 in 1973. Between 1956 and 1965, engineering industry grew at the annual rate of 22 per cent, between 1966 and 1?71, the rate of growth came down to only 6 per cent. S.C. Kuchchal, ~~l£C
lD~Y2l!l!2 ~£ lD~ii <Allahabad, 1974l, pp.2 and 107.
3'1. K.Balakrishn..:l.n,"Indian Joint Ventutes t\broad Geographic and Industry P.1ttern·:;", g.f~D~mi.f .§D~ .E.Qlili.f-21 ~!!.tl:;:· <Bombay), vol. :d, no .22, 29 May ·1976, p.35.
32. S.M. Bijli, lD4~11Cifli~~li£D in lb~ Ibic4 H~cl4 <Aligath, 1973), pp.75-6.
26
st.'irted its 33
promotional activities for enc:our.=:.gi.ng joint
ventures. This is all the more clear when we note th-:~t
until •1964' according to the Foreign Exchange Regulations,
Indian companies were not .allowed even to e ;-:port their
capital in production form i.e., in the form of supply of
machinery and equipment to exchange for the shares 34
enterprises established in other countries.
of the
Although promotion of joint ventures ~bro~d was an
expediency devised to meet the crisis in c,3.pital
industry yet another reason was earning of the much needed
foreign exchange. During the first two plan periods, the·
strate·~Y of generating exports to pay for the development
could not be pursued because of several limitations. The
plans themselves implicitly assumed a closed economy for a
situation of stagnant export earnings through inelasticity
of e:-:port demand. Furthet'", the huge sterling
accumulated during the war created a sense of compl.:~.cency
about foreign exchange position. The Korean War also created
a temporary boom in export earnings from traditional
thus adding to the sense of complacency. Then ensued the era
of foreign aid which India obtained from both the cold war
33. J.b_g f:.f.Q.D.Q.[Ii1!.1 (London), ·1·1 December ·1?76, p.·1·13.
34. Ibid.
35. Martin Wolf, iD.£!.t~:_~ I;.;H.Q.L1.2. (LoTtdon, 1982), p.·18.
27
36 contestants, thus anaesthetising the need to think of
e:-:port earnin•JS.
India's exports between 1957 and 1966 presented a
picture of all round stagnation. While world exports had
increased by 80.8 per cent during this period, Incli.;::.n
e:<ports rose by only 14.4 per cent. To put
pointedly, on average between 1957 and 1966, India's export
earnings were sufficient to finance only 60.9 per cent _of
her import payments. The annual average growth rate of
exports was 1.4 per cent between 1957 and 1966 compared with 37
growth rates of per cent for imports.
There had been a continuous gap in the balance of trade
and balance of payment position since 1949. The wars imposed
on India by China and Pakistan further aggravated the
position. To meet the deficits, increasing rel~ance was
placed on foreign aid. But in an atmosphere of super-power
detente the developed countries were growing allergic to 38
foreign aid. India sought the help of the World Bank,
the Internatonal Monetary Fund <I.M.F.) and a few foreign
governments, but even with all these assistance the
36. Khub Chand, ''Import.:ance of Forei9n Tr.:ade Economic Growth", Ashok V Bhuleshkar, ed., lD.Qi~D b.f.QD.QJ!IY iD §g.fi~lli!J!i, <Delhi, ·1975),
37. Animesh Haldar, ·1976), p.30.
in Ind.i.:::.'s §.rg~..1b _g£
p.537.
38. U.S. aid was suspended soon after the War with Pakistan in 1965. See P.S. Jha, lD~i~ ~ ~ fgll..1if~l g.f.QD.QJ!IY .Q£ §..1~.9D~..1i.QD <Ne•,.o Delhi, ·1983), p. -L
28
situation could not be remedied. The h Ed ping a 9 e Tt c i €":> B. n d
aid giving countries apprehended further deterioration and 39
suggested/pressurised India to go in for devaluation.
Although it was claimed that declining world demand for
traditional export commodities was the main reason for the
slow gl"owth of India•s e~·~ports., what. is sought to be
focussed here is the lack of incentive and thrust f 0 t
the in.3dequacy of f<::cilities in the form of
information and bank crertit and a general f.~ilure 0 f
economic policy. The deteriorating situation led inevitably
to the jolt of devaluation of Indian currency in 1966 and,
as a result, export consciousness was sufficiently created.
An e:<plicit inttoduction of the "e:<pO!"t sector",
realised, could help to evolve a pattern of investment which
would attempt an effective e:-:ploit.ation of the =?:·=:port
potentialities of the various sectors and suh-sectors in the 40
economy. The concept of establishing joint ventures was
recognised as one of the strategies of export promo ton in
the Export Policy Resolution of 1970. It, w.::;, ~ increasingly
realised that promotion of joint ventores in developing
countries by India and projecting the im~ge as a supplier of
39. The Aid India Consortium exerted ~xtreme pressure on India in favour of devaluation. Gerald M.Meier, b!~~iD2 1~~~!~ iD J;.f.QD.Q!!!i.f l?!~.§.l.Q.P!It!D..1 (Nev.• York, N.Y., ·1976), p.67.
4-0. Leela Rangaswamy and N.Somashekhar, gf .El~DDiD2 <Bomb.3.y, ·1974), p.67.
29
capital goods and technology to these countries, 1,1,•ould also
yield recurring benefits in the form of foreign exchange
earnings from dividends, technical know-how fees and
royalties. In addition it was also realised that joint
ventures could be an effective tool for retaini~g and
expanding an already established market and also for opening 4·1
new avenues for exports.
The strategy 'to promote joint ventures must also be
viewed in the backdrop of various efforts to foster economic
co-operation among the developing countries. The first
United Nations Conference on Trade and Development
( U-. N • C • T • A • D • l emphasised the
significance of co-operative economic ventures and the
promotion of trade and efficient d. i v e r s i f i cat. i o n of 42
industries. Even eat··lier, in 1963 the India-Africa
Development Association was ~stablished with the objective L;.3
of promoting such co-operation. In 1966 in a tripartite
meeting between India, United Arab Republic <U.A.R.l and
Yugoslavia, the importance of joint ventures as a vehicle of 44
economic co-operation was highlighted.
4'1. Taranath Bhat, n.10; See also BQQ12 Q£ 1D1l3~2 [QL~l£D EQll~Y •198'11, p.79.
A.Appadorai, QQID&21lf 11~Z=12Zg <New Delhi,
42. Final Act of the U.N.C.T.A.D. <United Nations, 16 June 1965) quoted in S.Venu, Q&~~lQRlD£ g~QDQIDl!! ~Dg lb! lD1~LDi1lQDil £LiiD!~QL1 <Madras, 1971), p.32.
43. Indian Investment Centre, l2int ~!n1~L!i 6~L2!~ <NPw Delhi, 1972), p.2.
4·4. Ibid.
ao
It was also felt that overseas joint ventut·es would
-further enhance the India a.s an industri.=tlly
advanced country in many developing c:ountrjf::s by pt··ojecting
its capabilities as an exporter of technical know--how •3.nd
capital equipment. Such co-operation would also be a welcome
effort by developing countries to pool their resources and
know-how to the extent possible so that they need not depend
exclusively on the high cost technology of the developed
countries operating through their multinationals. The
government officials often maintain that the value of
building through the overseas joint ventures is to be rated 45
high. In this context, the role of joint ventures is to be
gauged not merely on the basis of dividends and other
earnings, but .=tlso through their indirect. result.
project in·~ the image of a developing India, interested in
sh.3.ring its e:-:pertise and e:-:perit::nce with other devel.opin9 46
countries.
To the big Indian entreprenPurs,
were also an escape valve from what
joint ventures abroad
they considered an
irksome atmosphere of government controls and regulations,
which curbed their expansion and slso resulted in high tax
burden. It is interesting to note that nearly 60 per cent of
45. Federaton of Indian Chambers of Commerce and Industry, ~Qr1~bQ£ gn ln.fli~D }gin1 ~~n1~r£2 ~n.fl ErgJ£f1 s~£gr12 E~£..9!1 <New Delhi, ·1982), p.L-:.
46. J • R. ' lD.fli~
"Joint Ventures Thrown Out. Of ~!oint", 12.\:!.§.i!l~ii <Bombay), no. 72, 8····2·1 December ·1980, p.73.
31
the joint ventures abroad emanate from the big industrial
houses who claimed that their activities have been either
regulated by the Monopolies and Restrictive Tr~de Practices 47
Act (M.R.T.P.) or may eventually come under M.R.T.P.
According to an expert on the subject, monopoly houses like
the Birlas went abroad primarily .in response to legislative
measures restricting the growth of monop~lies within the 48
country. Going to a low tax area for starting an industry
similar to their dome·::; tic enterpri·::;e thought 49
worthwhile.
Moreover, such ventures, in majority of the cases, did
not constitute a cash drain for the Indian partners, as the
machinery was purchased on deferred terms through loans from 50
Industrial Development Bank of India CI.D.3.I.l.
It is against this background that we have to examine
the Government of India's policy relating to overseas joint
ventures. Joint ventures 5 •1
in the late fifties ~nd early
si:·:ties, when there were no definite guidelines, were
allowed on the basis of a case by case study. It was only in
the late sixties the need to formulate an appropriate policy
47. Indian Institute of Foreign Trade, !n~i!:i J£iD1 Yl.D.1.!:!I.§.2 .6.Q.rg~g <New Delhi, ·1977), p. 75.
48. 8alakrishn.=tn, n.3·1, p • .tt8.
50. M.K. Raju, !Dl!tDili£Di!ii~li£D £f !D1i~D ~~iiD!i! <Bombay, 1980), p.4.
5"1. For a list of joint ventures promoted until Table 3 in the Annexure.
32
was clearly felt. The gener~l guidelines governing Indian
participation in joint ventures were issued in •19.S8 7 thus
marking a departure from an ad hoc state of affairs to
comprehensive 52
technology.
policy for the e:.;port of capital and
These guideline~: defined the Pxtent of
participation of Indians in promoting joint ventures in any
country. From the very beginning only minority participation 53
by Indian party was allowed. Association of local partiEs,
local development banks, financial institutions and local
government, wherever necessary, 54
wa.s .:tl~:;o faVOU!'ed fo1·
p!'omoting joint ventures. Barring small amounts to meet
the preliminary expenses for setting up a joint venture
abroad, ca:; h remi tt.;.J.nce f 0 I' the promotion of such ventures 55
abro.3.d wen:: not .allowed. The pr,licy .:>lso mad.r ft. cl er.::r
that indigenous Indian machinery, equipment and technical
know-how required for promoting new ventures should
represent the Indian share of equity participation. In case
the ~alue of machinery and know-how falls short to make up
the necessary reasonable equity required to be maintained
(at a level higher than what was obtainable through export
52. Institute of Company Secretaries of India, Y!DlY!!l ~~!2~~ <New Delhi, 1983), p.24.
53. Government of India, Guidelines Governing Indian Participation in Joint Overseas Industrial Ventures <New Delhi, ·19691, Cl.3.use (i). Indian Investment Centre booklet, lD~l~D l~lD1 ~!DlY!!~ 6~!~j~ <New Delhi,1772), p. •13. .
54. Ibid.
55. Ibid., Clause (ii), p.13.
3J
of capital goods alone) provision was also made to consider
the inclusion of structural steel items and consti'Uction
materials e:·:cludin·~ 56
component·3, as part of Indian equity
participation. Machinery to be exported was to be of
Indian make and no export of second-hand or re-·condi tioned
machinery against Indian investment allowed.
With a view to promoting Indian investment overseas, !:;7 .. ~ ;
normal import replenishment e:-:port
of such machinery and equipment, to a registered exporter
under the import policy in force, was also allowed on export 58
against equity capital. The level of cash assistance was
restricted to 10 per cent of the F.O.B. value of exports nf
machinery and equipment provided such an assistance was 59
otherwise admissible under the policy.
As far as pos~~ible, stress was laid on promoting
turnkey jobs with a view to lightening the responsibility of 60
the Indian investors. The guidelines also defined that to
the e:·:tent possible a provision in the joint venture
56. Ibid., Clause (iii I, p.13.
57. Import Replenishment means entitlement to import
58.
c:·o ::) I a
60.
licence. It is a kind of incentive to promote exports, intended to help the exporters obtain thP inputs easily by direct imports.
Cash assistance is an incentive given to exporters, promote exports by enabling them to quote low in international market.
to the
Government of India, Guidelines, Clause v, n.53, p.13.
Ibid. , Clause <viii p.14.
·'=iQt'·eement should be made for the tr-:~.ining f.:acilities of 6·1
forei•Jn n.:ation.:als in India.
lj Q.Q. if. i£~1.i9.Il?. i!l 1.b.§. l?.9.li£:i
In September •1978' the '] o vet'· nm en t rr1ndifit>d t. he
guidelines governing Indi~n joint ventur8s abroad and issued
a fresh set of guidelines to make them more comprehensive.
While a few of the provisions as contained in the old
guidelines were ret.;:l.ined. in th€' new policy, some new
guidelines were incorporated. The salient features of these 62
new guidelines were as follows
For speedy clearance of the joint venture
proposals a focal point was created in the form of an
inter-ministerial committee with comprt'hens1 ve
monitoring and evaluation facilities.
Indian equity participation was permitted in
e:·:ception,3.l cases in one or more forms like export of
~::nov.•···how, c.:J.ptalis.3.tion of service fees, t'·oyalit.ie~. ~nd
other payments and by raising of foreign exchange loans
abroad.
Cash remittances were also permitted in hard ~nd
deservin•J cases.
61. Ibid., Clause <viii), p.14.
62. Government of India, Guidelines Governing Inrtian Joint Ventures Abroad (As modified on 28 September 1778), Federation of Indian Chambers of Commerce and Industry, ~grt!b£R QD ln~i!D d£in1 ~~nlY!!1 !D~ Er£J!s1 g~R£!11 = B!R.Q!l <New Delhi 1 ·1932) 1 pp.29-3·1.
Schemes for commercial, tradin9 or servicf!
ventures were also permitted under the new 63
•3uidelines.
To make overseas joint ventures commercially attractive
for the Indian entrepreneurs, the Government of India
arranged for concessional credit through the mechanism of
refinance facilities of the LD.B.I. The intere·::;t
charged per cent pe1·· annum. To protect thE
investment, an overseas inve·.:;tment insurance was also 64
introduced.
8esides this, the Indian government provi.deci flthe·r
incentives to Indian entrepreneurs investing abroad. Several
concessions under the Income Tax Act were extendEd.
These included deduction from income, 65
profits and gain from
projects
dividends,
outside 66
India
royalties
and deduction in respect of
f !'"om certain enterprises and in
respect of remuneration received for services 67
rendered
outside India. The government also extended the avoidance
of double taxation agreements with more than 25 countries.
63. Ibid.
64. Indian Investment Centre, !n~i~n J£in1 ~!nL~L!i ~~L~id ·· §g.:y_gr.D!B.D.1 .E.f!ll.fl.st.§ <New Delhi, ·198·1), p.7.
65. See Income-Ta:{ Act, Section 80·-l1H8.
66. Ibid., Section 80-N.
67. Ibid., Section 80·-0.
36
Exports against equity participation in joint ventures are
entitled for facilities of import replenishment at pat with 6f!l
normal exports under the import policy.
Thus, we find that as a result of the policy
modification the regulations governing the joint venturss
were fairly relaxed. Allowing cash remittances in selected
cases is an important change. The decision to set up a
point clearing authority is intended to s;peed up
approval procedures. Also the decision to allow trading,
commercial and service activities is a mejor departure from
the earlier pattern of investments.
It is nearly two decades since India st..:trtect m-3king
concerted promotional activities and succeeded in generating
a large number of joint ventures. In the early 1970s, thanks
to the intensive export promotion activities, Indian exports
picked u~ in a big way. With it ther0 had been substantial
growth in other activities such .::ts project contracts,
consultancy service and technical co···oper-J.t.ion,
brought about better scope for interacting with other
countries. The result had been an impressively perceivable
spurt in joint venture activity in 1975, when in a single 69
year 23 units were commissioned for commercial operation.
Till the end of July 1978 more than 300 proposals for
joint ventures were approved. By then nearly 100 were under
68. Indian Investment Centre, n.64.
69. Balakrishnan, n.3·1, p.48
37
70 various stages of implementation. The year 1979 witn~ssed
a virtual explosion of foreign investmrnt activity as a
result of the policy changes mentioned earlier. By early
1980 the total ·equity invested overseas came to Rs.60Q
million in 195 projects, some of them in production and the
under construction. r. . ,, 1 n c €· then th~'l'e h.:;;s been
steady growth in the number of registration for joint
ventures. The factual position as on 1 July 1982 is given in
Table 4 in the Annexure.
An analysis of Indian joint ventures according to the
field of collaboration is given in Table 5 in the Annexure.
It may be seen from the Table that Indian joint ventures
have been into those which undertake
manufacturing activities and others. Out of the total of 134
joint ventures in operation, 87 or 65 per cent were engaged
in manufacturing activities but they accounted for 94 per
cent of the total Indian investment by way of equity share 72
capital. Among the joint ventures that have so far become
operational in the manufacturing sector, the maximum number
is in the field of light engineering (30) followed by
te:-:tiles (·19), the traditional fields in which Indian
7Q. Federation of Indian Chambers of Commerce and Industry, ~~Ll~G~~ ~n ln~i~n J~inl ~~nl~L~~ ~u1 EL~ls~l [~~~Ll~R!~~Ll <New Delhi,1979l, p.23.
71. Federation of Indian Chambers of Commerce and Industry, H2r12DQ£ QD lngi~D lQiD1 ~~D1gr£2 IgrD1~~ ~ng Ibirg ~Qgn1r~ ErQJ~..£12 ·- B~£QI1 <Nev.• Delhi, ·1980>, pp.Z--3.
7 r, C.. n Indian Investment Centre, n.·1·1, p.·lo.
as
entrepreneur·:. have Bcqui1··ed -3 Cf?rt.s.in d.E1gref:' (It
73 capability. Other industries i.n which Ind.ia.n joint
ventures have been S2t up include chemicals and
pharmaceuticals ( ·12) , palm ol.l refinin•j ( 9) ' i , .. on and s t E.' € 1 74·
products ( 5) 7 p.3.per ( 3) and gl,lSS ( 3) • In tenns of
investment in share capital, te:-:ti.les hf'ld. the prE• dominant
position with about 30 per cent of the total Indian equity
follriwed by palm oil refining <18 per cent),
cent), light engineering (15.3 per cent) and chemicals and
pharmaceuticals (4.3 per cent). In t.hP non-manufacturing
sector, the large·:;t number was in trading and marketing I ~-
foilo~,o.•ed by hotels a.nd rest.:;u1··.;~nts ( ·1ft ) 75
engineering contracts and construction (7).
Non-·manufacturing investments do not contribute to thr
value of equity but thi:!ir number',; h.3. v e
dramatically with the shift in policy to establish s<.~.les
agencies, consultancie·:;, civil construction and the lik~.
The Middle East has attracted a number of such investments \
since the prOITiOtion of various turnkey projects and
consultancies. Indian hoteliers have been notably successful
overseas, the Oberoi •]roup, operating mainly under
management contracts, has set up a chain of luxury hotels,
from Australi.::t, via Southeast Asia, Sri L.3.nk.3., E•;~ypt and
73. Ibid.
74. Ibid..
75. Ibid.
Spain to the U.S. The Taj g r a'-' p, ["'<:II'' t. of the T<:!t..s.
i s now venturing ~broad with a Sri Lanka 76
Rs.SOO million hotel in Sri Lanka.
India's main interest, however, lies in m~nufact.uring.
Here the aggregate figure shows that despite their late
entry, Indian firms have spread abroad in diverse range of
activities. While a number of simple, relatively· low
technology and labour intensive vent.urts SU9ar'!
simple metal products) are there, roughly half of th2
foreign equity is accounted fer by ventures in more complEx
capital intensive <steel mills, paper ·3.nd pulp, chemic,ll·:;)
or skill and technology intensive (pharmaceuticals, 77
machinery, transport equipmentsl activities.
Indian joint ventures currently in opPration are
dispersed over 26 countries. h.alf of them ·:tre
concentrated in four countries, t·1.a lays i .:J ( 28) '
(14), Indonesia (12l and Kenya (10). Regionwise, the largest
number of Indian joint ventures are located in the
neighbouring countries of Southeast Asia <73l, follo\l.'ed by
Africa ( 23) • Indian entrepreneurs were init.i~lly attracted
towards Africa, in which continent many countries became
politically independent in the 195Qs and 1960s anM many of
whom were looking to India as providing a model for their ;e,
economic development. As a constquence,there was a spurt
76. Sanjay.:a Lall, n.·16, p.'135.
77. Ibid.
78. Indian Investment Centre, n.11, p.7.
0 r- ptoposals for joint ventures in African
countries. However, pe1··ceptible orientation towards
Southeast Asia was visible in the last decade when a
share of the investment was directed to count1·ies like
Malaysia, Indonesia, Singapote and Thailand, because of
various incentives these countries offered and the rxistence
of stable political' conditions. This attraction towards
ASEAN area resulted in Southeast Asia accounting for 61 per
cent of the tJotal Indian Investment in joint '.Jentur:?s
.:1.broad. Of late, however, there has been a revival 79
of
interest in Africa especially in Nigeria. summarised
statement given in Table 6 in the Annexure shows the
regionwise distribution of effective joint
1,1} it h Indian investement in share c~pital. f v e n a. m o n 9 t. h e
Southeast Asian countries, which has been the
single largest recipient of IndiBn capitr.::l j !;. being
overtaken by Indonesia which accounts for the largest eo
·::; t 0 c k
of Indian equity.
A very noticeable missing link in India's joint venture
effort, t i 11 recently at le.ast, the absence of
79. Ibid.
80. As on 3'1.3.·1982 the approved <under implementa.t.ion-) Indian equity in Indonesia was over Rs. 4.75 crores as against Rs.0.39 crores in Malaysi~. Fquity investment in respect of units already in operation are, Malaysia Rs.12.5 crores and Indonesi~ Rs.10.93 crores with Malaysia leading marginally. Indian Investment Centre, n.·1·1, p.29.
successful penetration in the immediate and contiguous
neighbouring countries of Pakistan, Nepal,
8 hut an , S r i Lank -3. and the t'1 a 1 d i v e s • 1-: a r d 1 y any pI' o j e c t h -:i d
fructified in Nepal even though 11 proposals had been
approved so far for locating joint ventures in that country.
Even among the projects reported to b2 under implementation (?. ·1
the progress seems to be tardy.
It could be stated that so far as the South Asian
neighbours are concerned, India has not succeeded in
promoting a sizeable number of joint ventures although there 82
has been a spurt since 1977-78.
The principal reason for this is that on the political
plane India's relations with most of its neighbours have not
been cordi-3.1. "Wr: seem to b0: suffering ftom political hang
up in collabotating with contiguous countries in South 83
With Pakistan and later Bangladesh h&ving bPen ruled
out for reasons of strained relations, the other neighbours
left out are the small states of Nepal and Bhutan in the
north and the islands of Sri Lanka anct the Maldives in the
8·1. Ibid., p.·10.
82. Until 1978 thete were only 4 operating Indian joint ventures in the South Asian countries. The break-up is -3.5 follows :
Bangladesh··· ·1 N e p.l - ·1 Sri. Lr.1nka - 2
Federation of Indian Chambers of Commerce and Industry, ~2tt~b2e 2n in4iin J2in1 ~!nl~tei 6~tR24 in~ EtRl!£1 ~~22L1~- R!22L1 (New Delhi, 1982), pp.75-7 and 96-7.
83. Bal.3.kri.shnBn, n.3·1, p.43.
south. The economic potential for investment in Nepal and
Bhutan are very limited and there js no surprise in the
conspicuous absence of Indian investment there. The Maldives
is an infant economy with neither !'eSOUI''C€S nnr loc.:~.l
entrepreneurial talent to think of joint ventures. Th2 only
other neighbour is Sri Lanka which remained a closed economy
until ·1977. With the liberalisation of the economy a good
number of Indian joint ventures were sought to be put ur in
Sri Lanka.
The picture that emerged in 1982 with regard to Sri
Lanka was more promising thah had been the earlier.
Apart from the two old units which werr jn operation from
the 1960s, four more commenced operation in the early 1980s.
8 e s i de s .t he s e , there are 11 proposals under implementation,
among which thre2 are for the construction of 84
hotels.
five-star
India and the neighbouring countries like Sri l.anka
have a common socio-economic backdrop with a number of
common problems like poverty, u.nPmployment, 85
population and inflation. The consumption pattern and the
life styles are nearly similar in all these countries. India
has relatively large industrial growth and has built up its
c.3.pability to e:-:port it·:; The
pro:dmi ty and the mutually assimilable st..;:;te of
84. Indian Investment Centre, n.11, p.10.
85. M .C. Bhatt, "Indi.'£in Joint Ventures in South and Southeast f>;sia", I. J. B rJ. had u r Singh, E· d. , lmti.i!.n?. in §.QlL~.b.EE~.§.1 ~.§.L~ <New Delhi, ·1982)' p. ·177.
86 technologies of the countries make it appear that on the
face of it, all the neighbours could economically interact
with each other. But still the paradox is that Indi~n joint
ventures have limited acceptability in all these countries.
Earlier, minority participation hy thP Jndian promoters
was specifically insisted upon, but the present guidelines
are resilient enough to accommodate ruajority participation
if permitted by the host country where the joint ventures 87
are to be located. Nevertheless, with the rising trend of
assertion of economic independence in many developing
countries, insistence is increasingly being madf:.' that
foreign pa.rticipation in industrie·.:; that .3. r e being
established in their cou.nt1··ies should bP rrd ntH i t.y in
char.acter.
From an an.:dysis of t h€' joint ventures already
established abroad, it can be observed that in .':3. vast
rna j o ,,. it y of the u n i. t s ( i • e ., ·1 ·1 3 out of ·1 3 L; ~1 c: c: o u n t i n g f o ,,. 8 4·
per cent of the total) Indian participants held only
minority interests which l. s in consonance with t hf:'
aspir.ations of the developing countries. There were 21 joint
ventures in which the Indian participants had majority shart
It is also noteworthy that apart from these 21
86. Government of Sri Lanka, B!jl~Dgl g£~D~IDi£ ~~-
~R!!ili~D' 1D1~-~!Yl~D g£~D~IDi£ ~~=~Q!!ili~D ~~IDIDill!! <Colombo, 1968), p.8.
87. Indian Investment C~ntr~, n.11, p.4.
units with majority Indian shareholding, there were 69 units
accounting for 51.5 per cent of thr total number, 88
Indian share ranged from 31 to 50 per cent.
i.n which
Another significant feature of Indian joint ventures
that has had a vital bearing on their performance and
operating results, is the small size and scale of operation
of the majority of the units. The average size of an Indian
j a i n t v e n t u ,,. e i n t e r m s o f e q u i t y r .:;:;. r• i t a l. e m p 1 o y e ci w o r k s o u t
to about Rs.107 lakhs, but an analysis of the frequency
distribution of joint ventures according to thr size of the 89
equity base is l~s.·10 lakhs or 1 e s s • the non·-·
manufacturing units, whose equity is comparatively much
smaller than manufacturing units, are ·:;;egre•;p.ted, the
position would be somewhat better. T~bl8 7 in the Annexure
·~ives the frequency distribution of joint ventures
( manuf.3.ctur i n9 units) by the magnitude of their share
capital.
Howeve1·, this trend of establishment of s 1.1 b -· Cl p t i m a 1
units (at least in the manufacturing sector) is •;Jra.du.3.lly
being reversed in the case of units whirh h~v0 been
on stream during the last two or three years and also in the
case of units which are in the process of being implemented.
Table 8 in the Annexure shows the profitability
position of the Indian joint ventures abroad. The OV!I'.:J.ll
- ·- -- ··- .... ·- -- --0
- ·- ·- - ·- ·- -N ---- ·- ·- - R ... R- ·-- ·- ·-- ·-. H-- OR- - -- -· ·-·- N- ~·N .._ ·- 0•- -- - NP.- - 0
--
0
- - ·- - N -- NO
88. Ibid.
8?. Ibid.
I
sales turnover and the profit earned between the years 1975-
76 and 1979-80 are shown in this Table. The profitability
and the rate of considered quiet ~
successful, as those
return may not be 90
of other countries. It is argued that
allowing for the normal teething trouhles, requisite
gestation period and initial losses, the level of
remittances could not be reg~rded ~s insignificant. The
efficacy of the Indian joint ventures abroad have to be
evaluated taking into account the impact they have created
on promoting additional exports, contributing bigger
remittances and creating better image for the country. ThesP
aspects are more critically analysed in a subsequent chapter
after going into a detailed study of the working of the
Indian joint ventures abroad.
90. Indian Institute of Foreign Trade, n.47, p.87.