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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 hasproduction and service facilities outside the country of its origin. They are also called TransNational Company (TNC) Their activities have both good and bad impacts on the economy. Theytake decisions on a global context or basis. Their maximum profit objectives take no account of thereactions produced in the countries felling in their orbit. They operate in different institutionalforms Some are: Subsidiaries companies wholly owned by MNC in other countriesSubsidiary company enter into joint venture with a company another company Agreement amongcompanies of different countries regarding production and discussion of market.

Development and Activities: Soon after independence foreign capital entered India in theform of direct investments through MNC's Companies had been formed in advanced countries withthe specific purpose of operating in India. Such companies started their subsidiaries, branches andaffiliates 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 tosecure advanced, technical and industrial know how. During the janata rule the policy was outrightpurchase of technical know how skills and machinery. They took two major decisions. Coco colawas asked to wind up their operation . Asked IBM to reduce their foreign equity to 40%. They didnot agree, so asked to wind up MNC's operate in several sectors like tobacco, toiletries beveragesetc.

Industrial Policy of 1991 accepted foreign investment essential for modernizationtechnology up gradation and industrial development. Several concessions were given FERAregulations were liberalized and permitted to use their trademarks in the domestic market. Now ithas become a wide spread phenomena with USA the biggest among them. Recently a largenumber 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 Indiancompanies. It is a great advantage for industrial growth. Along with capital transfer of technologyalso takes place. They transfer technology highly intensive to the use unskilled labour. But theiraim 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 ofthe expenditure of R&D is spent outside the country of MNC Salaries of research personnel ismuch in Indian than in the country of the MNC.

The marketing services that MNC make available for the goods and services from lessdeveloped countries is great. International competition is necessary involves several market relatedkey services such as Research, advertising warehousing package design, removal of barriers inimporting 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 internaltransaction of these companies. This will result in the Oligopolisation of market andconcentration of economy powers at the world level.

Harmful to producers and consumers: Their loyalty to any one is doubtful and they doanything and everything for profit and to eliminate competition. They impose their will onproducers 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 marketmanipulation of markets, products are valued at deceptive prices for maximum profit. Theseingenious techniques are called transfer pricing , Through dummy trading companies they buyfrom low tax countries and sell in high tax countries to maximize the profit.

Currency Manipulation : They deal in several national currencies. Accumulate their funds insafe places with strong currency at high interest rates in case of weak currencies they advisethe affiliates to go for large debts. Thus they make assets in strong currency and debts inweak 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 ofthe host counties US MNC's have paid bribes to influence people to get things done, mainly inAsia 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 thelimited 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 onthe capital market to suit their goals. They are increasing the shareholding in Indian companiesswallowing them. They transfer attractive and profitable business to this newly started subsidiariesso a large number of Indian share holders get cheated.

Summing up over dependence on MNC may be harmful in terms of economic dependenceand political interference. Capital flow of MNC's may be permitted but not at the cost of nationalinterest.Note : An oligopoly is a market form in which a market is dominated by a small number of sellers(oligopolists).

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Privatization of Public Sector

The wave of privatization spread all over the world, as a reaction to the inefficient working ofthe state-owned enterprises. The disillusionment witnessed in the socialist economies and the wave ofeconomic reforms under "perestroika" accelerated the process. The continued losses in the publicsector forced the governments to rethink about the virtues of P.S. IMF, World Bank and InternationalFinancial 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 alleconomic reforms. The [19913 new Industrial policy suggested reorientation of the working of theP.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. Insimple meaning, privatization involves a change in ownership from government to the private sectoror individuals. Ownership may be transferred by offering the shares to the general public or to theemployees wholly or partly.

The form of privatization to be adopted depends on the environment, whether competitiveor 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 inthe 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 differentobjectives. 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 tothe needs of the consumer, promote efficiency and reduce costs. Japan sold off the shares of the P.Sunits to raise funds to reduce the national debt. For Turkey, the objective was to reduce the cost ofsubsidies and raise capita for the economy. In India, though political parties speak of reforms in thePS, they not willing to take actions. Industrial policy of 1991 was a turning point. It limited priorityareas for public sector only to infrastructure and defense. More and more areas reserved for P.S arenow opened to the private sector.

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

Problem of Finance : Privatization in any form involve large finance. If it comes from publicfinancial institutions in the form of loans to private sector, it is only a transfer of ownership fromone public institution to another It is helping the private sector to own public sector unitsthrough public financial institutions. So new investments will suffer. The policy is fruitful only if newsavings are used to meet the required finance. In the sale of share also, only switching of oldinvestment takes place and no benefit to the economy.

Strong Trade Unions : The emergence of strong trade unions made privatization [in the sensedenationalization] difficult. Proposals for denationalization of banks, insurance, powergeneration etc aroused violent reactions from the unions. They forced the government towithdraw the proposal to transfer the ownership of loss-making Scooters India to Bajaj Auto Ltd.

â 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 inimport, licensing etc] and captive domestic market they did not work well. Most of them,much behind those in foreign countries in quality and technology.

â Inbuilt resistance : Another problem is the behavior of the owners, employers andcapitalists towards labour in private sector. There is exploitation, low wages, lack of amenitiesand benefits. Women and child labour are very common. So further privatization meansfurther exploitation.

â Improvement in the performance of P.S : At the time of privatization we cannot forgetthat the performance of public sector units are far better than before. This is due toexperience, completion of gestation period and improvement of managerial output [MOUj.The sector employs twice the manpower of private sector but with less labour disputes. Theyhave 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 upon the nature of the industry and need and circumstances of the country. Methods of transferringstate-owned enterprises to private ownership are :

Divestiture or Disinvestment : Disinvestment is one of the important methods of privatizinga public sector undertaking. Under the disinvestment, majority of the shares of the companyare sold or auctioned to the private companies. In selling the equity shares of the company tobe privatized, preference is given to the employees of the company.Denationalization: Denationalization or Re-privatization is the reverse process ofNationalization. This method is generally adopted for privatization of nationalized privateenterprises.Forming Joint Venture : Where total privatization is either not desirable for social, politicalor economic reasons or private sector is unable or unwilling to take over the ownership of theenterprise, the government opts for forming a joint venture transferring a part of the equityshares to the private sector.Liquidation : Under this method, the entire assets of the enterprise are sold to a person or toan organization.Formation of a Holding Company : Under this method, government forms a holdingcompany in which the government retains a majority share and power to control topmanagerial decisions. This method privatizes the operations not the ownership.Leasing : Under this method, the government leases the assets to the private bidders for aspecific period. This method transfers the ownership for a tenure.

GlobalizationGlobalization 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 andPepsi, 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 soilsalso. 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.

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Disinvestment of public sector undertakings

The term disinvestment refers to withdrawal of Govt. shares of capital invested inPublic Sector Undertakings. Government controlled Public Sector undertakings wereformed with the object of providing necessary infrastructure for the fast growth ofeconomy. They were to lead the industrialization programme of the country and act as asafeguard against monopoly. It was believed that they would also create employment andat the same time generate revenue surplus.

But either due to mismanagement or the lack of experience many of the PSU'scould not give -expected-ef satisfactory results and finally became a liability. In order todo away with the recurring loss the government in its Industrial Policy of 1991 envisageddisinvestment oil al of government holdings in the share capital of some selected sickPSU's. that this would provide market discipline and ultimately improve theperformance of such PSU's apart from releasing huge amount of capital which could beused for accelerating economic growth of the country.

Privatization of Public Sector Undertakings is giving the desired results. It resultsin efficient use of resources whereby scarce resources like land, capital and machineryare put to more efficient use. The economy as a whole is benefited by increase efficiencyof 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 takenthat either they are not thrown out of employment or alternate jobs are provided tothem. It is also argued that disinvestment would lead to massive unemploymentwhich 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 takeretirement 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 tothe controversy about the valuation of assets and their acquisition by companieswith 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 makingcompanies be distinguished from loss incurring companies.

There must be transparency in the deals made in disinvestment. Method ofvaluation of assets must be revealed to the public when a public undertaking issold off. This would eliminate suspicions of any malpractice and would fetchcompetitive price of assets.

7. The proceeds of disinvestment should be spent for social uplift..These-should not be—utilized—to—me • - Ihe aim of disinvestment -as--

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The information technology industry in India

The term information technology includes computers and communication technologyalong 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 rawmaterial. 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 before1995.Technology parks have been set up to cater to IT firmsIT sector has emerged as the major foreign exchange earner for our country.It has created a large number of high salary jobsIT enabled services like back-office operation medical transcription, insuranceclaim processing, data entry, content development all have large employmentpotentialIt has transformed the banking sector in India. If other industries and the govt.follow suit, it can transform India.

Problems FacedIt requires regular investment due to the rapid changes in hardware and softwaretechnologies.Communication and networking infrastructure has to be developed.Lack of computerization of govt.depts. and agenciesAdequate training to make job seekers more employable in IT sectorThe IT industry insists on quality that is up to international standards, hencequality 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 toother countries.Even the top Indian software companies have come up with very few productsthat they own. They have also not been able to market their brand names.Indian software companies' face the large-scale migration of software manpowerto western countries.The software companies, with the high salaries paid to its employees, have largelypriced themselves out of the Indian market. Expenditure in dollar terms cannot bematched by income in rupees.

Future prospects

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

and business process outsourcing (BPO) were responsible for India's success as aservices 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, aridCognizant Technology Solutions (CTS).

The IT industry has a tremendous potential to generate foreign exchange, highquality employment and improve productivity in the rest of the economy. As the ITindustry develops, it is looking at new ways of maintaining growth. Indian companiessuch as TCS, Wipro, Infosys and HCL may yet become household names around theworld.

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 lookedupon by a large section of people as liberating, rather than as yet another technology thatpushes them into the category of have-nots.

Fresh opportunities in IT includeCloud computing is the single most important factor that could impact IT in thenext few years.IT is now beginning to be widely used in monitoring and reducing energyconsumption.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 reducecosts and provide advanced care with the help of IT.Energy companies in the US are installing smart meters which will enablecustomers to see and control the energy usage of each appliance. Global spendingon 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.

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