The role of Indian MNCs in development of foreign market

The role of Indian MNCs in development of foreign market.

Dhwani Chheda 283005 Arbaaz Khan 283019 Mitesh Kothari 283028 Sujal Solanki 283055 Man al Dube! 28305" Khushal #eli 283059

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The role of Indian MNCs in development of foreign market

Synopsis

#he $ur$ose o% these $roje&ts is to understand the i'$a&t (ndian Multi)nationals ha*e in de*elo$'ent o% (ndian %orei n e+&han e 'arket, Sin&e 1991 till $resent- there were *arious $oli&ies %ra'ed- a'end'ent- ordinan&e $assed b! ./( to en&oura e its do'esti& industries to o lobal, #here%ore &entral o*ernin &oun&il o% (ndian %inan&ial institute- #he ./(- in Mar&h 2003- si ni%i&antl! liberalized the $oli&ies %or (ndian in*est'ent abroad, 0nablin (ndian $la!ers to lobalised their o$eration- whi&h in turn had a &onsiderable i'$a&t on (ndia and its %orei n 'arket, So throu h this $roje&t we would $ut li ht on those as$e&ts whi&h in turned has hel$ed and %a*ored (ndian &o'$anies to o lobal and i'$a&t o% this $oli&ies and 'easures on (ndian %orei n 'arket,

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The role of Indian MNCs in development of foreign market

INTRODUCTION
Multinational &or$orations are business entities that o$erate in 'ore than one &ountr!, #he t!$i&al 'ultinational &or$oration or M1C nor'all! %un&tions with a head2uarters that is based in one &ountr!- while other %a&ilities are based in lo&ations in other &ountries, (n so'e &ir&lesa 'ultinational &or$oration is re%erred to as 'ultinational enter$rise 3M/04 or a transnational &or$oration 3#1C4, #he e+a&t 'odel %or an M1C 'a! *ar! sli htl!, 5ne &o''on 'odel is %or the 'ultinational &or$oration is the $ositionin o% the e+e&uti*e head2uarters in one nation- while $rodu&tion %a&ilities are lo&ated in one or 'ore other &ountries, #his 'odel o%ten allows the &o'$an! to take ad*anta e o% bene%its o% in&or$oratin in a i*en lo&alit!- while also bein able to $rodu&e oods and ser*i&es in areas where the &ost o% $rodu&tion is lower, #he foreign e !hange market 3fore - "#- or !$rren!y market4 is a worldwide de&entralized o*er the &ounter %inan&ial 'arket %or the tradin o% &urren&ies, 6inan&ial &enters around the world %un&tion as an&hors o% tradin between a wide ran e o% di%%erent t!$es o% bu!ers and sellers around the &lo&k- with the e+&e$tion o% weekends, #he %orei n e+&han e 'arket deter'ines the relati*e *alues o% di%%erent &urren&ies, #he $ri'ar! $ur$ose o% the %orei n e+&han e is to assist international trade and in*est'ent- b! allowin businesses to &on*ert one &urren&! to another &urren&!, 6or e+a'$le- it $er'its a 7S business to i'$ort /ritish oods and $a! 8ound sterlin - e*en thou h the business9s in&o'e is in 7S dollars, (t also su$$orts s$e&ulation- and %a&ilitates the &arr! trade- in whi&h in*estors borrow low)!ieldin &urren&ies and lend 3in*est in4 hi h)!ieldin &urren&ies- and whi&h 3it has been &lai'ed4 'a! lead to loss o% &o'$etiti*eness in so'e &ountries, (n a t!$i&al %orei n e+&han e transa&tion- a $art! $ur&hases a 2uantit! o% one &urren&! b! $a!in a 2uantit! o% another &urren&!, #he 'odern %orei n e+&han e 'arket be an %or'in durin the 19"0s when &ountries raduall! swit&hed to %orei n e+&han e rate %ro' the $re*ious e+&han e rate re i'e- whi&h re'ained %i+ed as $er the /retton wood s!ste'

"OR%I&N M'R(%T
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The role of Indian MNCs in development of foreign market

"oreign % !hange Markets in India ) a *rief *a!kgro$nd #he %orei n e+&han e 'arket in (ndia started in earnest less than three de&ades a o when in 19"8 the o*ern'ent allowed banks to trade %orei n e+&han e with one another, #oda! o*er "0: o% the tradin in %orei n e+&han e &ontinues to take $la&e in the inter)bank 'arket, #he 'arket &onsists o% o*er 90 Authorized Dealers 3'ostl! banks4 who transa&t &urren&! a'on the'sel*es and &o'e out ;s2uare< or without e+$osure at the end o% the tradin da!, #radin is re ulated b! the 6orei n 0+&han e Dealers Asso&iation o% (ndia 360DA(4- a sel% re ulator! asso&iation o% dealers, Sin&e 2001- &learin and settle'ent %un&tions in the %orei n e+&han e 'arket are lar el! &arried out b! the Clearin Cor$oration o% (ndia =i'ited 3CC(=4 that handles transa&tions o% a$$ro+i'atel! 3,5 billion 7S dollars a da!- about 80: o% the total transa&tions, #he liberalization $ro&ess has si ni%i&antl! boosted the %orei n e+&han e 'arket in the &ountr! b! allowin both banks and &or$orations reater %le+ibilit! in holdin and tradin %orei n &urren&ies, #he Sodhani Co''ittee set u$ in 199> re&o''ended reater %reedo' to $arti&i$atin banks- allowin the' to %i+ their own tradin li'its- interest rates on 6C1. de$osits and the use o% deri*ati*e $rodu&ts, #he rowth o% the %orei n e+&han e 'arket in the last %ew !ears has been nothin less than 'o'entous, (n the last 5 !ears- %ro' 2000)01 to 2005) 0?- tradin *olu'e in the %orei n e+&han e 'arket 3in&ludin swa$s- %orwards and %orward &an&ellations4 has 'ore 3 than tripled- rowin at a &o'$ounded annual rate e+&eedin 25:, 6i ure 1 shows the rowth o% %orei n e+&han e tradin in (ndia between 1999 and 200?, #he inter)bank %ore+ tradin *olu'e has &ontinued to a&&ount %or the do'inant share 3o*er "":4 o% total tradin o*er this $eriod- thou h there is an un'istakable downward trend in that $ro$ortion, 38art o% this do'inan&e- thou h- result s %ro' double)&ountin sin&e $ur&hase and sales are added se$aratel!- and a sin le inter)bank transa&tion leads to a $ur&hase as well as a sales entr!,4 (n Mar&h 200?- about hal% 3>8:4 o% the transa&tions were s$ot tradeswhile swa$ transa&tions 3essentiall! re$ur&hase a ree'ents with a one)wa! transa&tion @ s$ot or %orward @ &o'bined with a lon er) horizon %orward transa&tion in the re*erse dire&tion4 a&&ounted %or 3>: and %orwards and %orward &an&ellations 'ade u$ 11: and ": res$e&ti*el!, About two)thirds o% all transa&tions had the ru$ee on one side, (n 200>a&&ordin to the triennial &entral bank sur*e! o% %orei n e+&han e and deri*ati*e 'arkets &ondu&ted b! the /ank %or (nternational Settle'ents 3/(S 32005a44 the (ndian .u$ee %eatured in the 20th $osition a'on all &urren&ies in ter's o% bein on one side o% all %orei n transa&tions around the lobe and its share had tri$led sin&e 1998, As a host o% %orei n e+&han e tradin a&ti*it!- (ndia ranked 23rd a'on all &ountries &o*ered b! the /(S sur*e! in 200> a&&ountin %or 0,3: o% the world turno*er, #radin is relati*el! 'oderatel! &on&entrated in (ndia with 11 banks a&&ountin %or o*er "5: o% the trades &o*ered b! the /(S 200> sur*e!,#he initiation o% e&ono'i& re%or's in Aul! 1991 saw si ni%i&ant two)ste$ downward adjust'ent in the e+&han e rate o% the ru$ee on Aul! 1 and 3- 1991 with a *iew to $la&in it at an a$$ro$riate le*el in line with the in%lation di%%erential to 'aintain the
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The role of Indian MNCs in development of foreign market

&o'$etiti*eness o% e+$orts, #here%ore *arious &o''ittees and $oli&ies- a'end'ents were laid down in this re ard, 6inall! #he a$$oint'ent o% an 0+$ert Brou$ on 6orei n 0+&han e 3$o$ularl! known as Sodhani Co''ittee4 in 1o*e'ber 199> is a land'ark in the desi n o% %orei n e+&han e 'arket in (ndia, #he Brou$ studied the 'arket in reat detail and &a'e u$ with %ar rea&hin re&o''endations to de*elo$- dee$en and widen the %ore+ 'arket, (n the $ro&ess o% de*elo$'ent o% %ore+ 'arkets- banks ha*e been a&&orded si ni%i&ant initiati*e and %reedo' to o$erate in the 'arket, #o 2uote a %ew i'$ortant 'easures relatin to 'arket de*elo$'ent and liberalization- banks were allowed %reedo' to %i+ their tradin li'its- $er'itted to borrow and in*est %unds in the o*erseas 'arkets u$ to s$e&i%ied li'its- a&&orded %reedo' to deter'ine interest rates on 6C1. de$osits within &eilin s and allowed to use deri*ati*e $rodu&ts %or asset) liabilit! 'ana e'ent $ur$oses, Si'ilarl!- &or$orates were i*en %le+ibilit! to book %orward &o*er based on $ast turno*er and allowed to use a *ariet! o% instru'ents like interest rates and &urren&! swa$s- &a$sC&ollars and %orward rate a ree'ents in the international %ore+ 'arket, .u$ee)%orei n &urren&! swa$ 'arket %or hed in lon er )ter' e+$osure has de*elo$ed substantiall! in the last %ew !ears, #he %orei n e+&han e 'arket 3%ore+- 6D- or &urren&! 'arket4 is a worldwide de&entralized o*er) the)&ounter %inan&ial 'arket %or the tradin o% &urren&ies, 6inan&ial &enters around the world %un&tion as an&hors o% tradin between a wide ran e o% di%%erent t!$es o% bu!ers and sellers around the &lo&k- with the e+&e$tion o% weekends, #he %orei n e+&han e 'arket deter'ines the relati*e *alues o% di%%erent &urren&ies, #he $ri'ar! $ur$ose o% the %orei n e+&han e is to assist international trade and in*est'ent- b! allowin businesses to &on*ert one &urren&! to another &urren&!, 6or e+a'$le- it $er'its a 7S business to i'$ort /ritish oods and $a! 8ound Sterlin - e*en thou h the business9s in&o'e is in 7S dollars, (t also su$$orts s$e&ulation- and %a&ilitates the &arr! trade- in whi&h in*estors borrow low)!ieldin &urren&ies and lend 3in*est in4 hi h)!ieldin &urren&ies- and whi&h 3it has been &lai'ed4 'a! lead to loss o% &o'$etiti*eness in so'e &ountries, The foreign e !hange market is $ni+$e *e!a$se, 14 (ts hu e tradin *olu'e- leadin to hi h lE 24 (ts eo ra$hi&al dis$ersionE 34 (ts &ontinuous o$erationF 2> hours a da! e+&e$t weekends- i,e, tradin %ro' 20F15 BM# on Sunda! until 22F00 BM# 6rida!E >4 #he *ariet! o% %a&tors that a%%e&t e+&han e rateE 54 #he low 'ar ins o% relati*e $ro%it &o'$ared with other 'arkets o% %i+ed in&o'eE and ?4 #he use o% le*era e to enhan&e $ro%it 'ar ins with res$e&t to a&&ount size, The gro.th of Indian MNCs help !o$ntry in follo.ing .ays, 5|Page

The role of Indian MNCs in development of foreign market

14 M1CGs hel$ to in&reases the in*est'ent le*el H thereb! the in&o'e H e'$lo!'ent in host &ountr!, 24 #he transnational &or$orations ha*e be&o'e *ehi&les %or the trans%er te&hnolo !es$e&iall! to de*elo$in &ountries, 34 #he! also kind a 'ana erial re*olution in host &ountries throu h $ro%essional 'ana e'ent and e'$lo!'ent o% hi hl! so$histi&ated 'ana e'ent te&hni2ues, >4 #he M1Cs enable that host &ountries to in&reases their e+$orts H de&reases their i'$ort re2uire'ents, 54 #he! work to e2ualize &ost o% %a&tors o% $rodu&tion around the world, ?4 M1CGs $ro*ide and e%%i&ient 'eans o% inte ratin national e&ono'ies, "4 #he enor'ous resour&es o% 'ultinational enter$rises enable the' to ha*e *er! e%%i&ient resear&h H de*elo$'ent s!ste's, #hus- the! 'ake a &o''endable &ontribution to in*entions H inno*ations, 84 M1CGs also sti'ulate do'esti& enter$rise be&ause to su$$ort their own o$erations- the M1CGs 'a! en&oura e H assist do'esti& su$$liers, 94 M1CGs hel$ to in&rease &o'$etition H break do'esti& 'ono$olies,

Indian M$ltinational res$lting in the gro.th of foreign market, (ndia (n&, is %l!in hi h, 1ot onl! o*er the (ndian sk!, Man! (ndian %ir's ha*e slowl! and surel! e'barked on the lobal $ath and lead to the e'er en&e o% the (ndian 'ultinational &o'$anies, Iith ea&h $assin da!- (ndian businesses are a&2uirin &o'$aniesG abroad- be&o'in world) $o$ular su$$liers and are re&ruitin sta%% &uttin a&ross nationalities, Ihile an Asian 8aint is $aintin the world red- #ata is rollin out (ndi&as %ro' /ir'in ha' and Sundra' 6asteners nails ho'e the %a&t that the (ndian &o'$an! is an entit! to be re&koned with,

#ata Motors sells its $assen er)&ar (ndi&a in the 7K throu h a 'arketin allian&e with .o*er and has a&2uired a Daewoo Co''er&ial Jehi&les unit i*in it a&&ess to 'arkets in Korea and China, .anba+! is the ninth lar est eneri&s &o'$an! in the world, An i'$ressi*e "? $er&ent o% its re*enues &o'e %ro' o*erseas, Dr .edd!9s =aboratories be&a'e the %irst Asia 8a&i%i& $har'a&euti&al &o'$an! outside Aa$an to list on the 1ew Kork Sto&k 0+&han e in 2001,
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The role of Indian MNCs in development of foreign market

Asian 8aints is a'on the 10 lar est de&orati*e $aints 'akers in the world and has 'anu%a&turin %a&ilities a&ross 2> &ountries, S'all auto &o'$onents &o'$an! /harat 6or e is now the world9s se&ond lar est %or in s 'aker, (t be&a'e the world9s se&ond lar est %or in s 'anu%a&turer a%ter a&2uirin Carl Dan 8eddin haus a Ber'an %or in s &o'$an! last !ear, (ts work%or&e in&ludes Aa$aneseBer'an- A'eri&an and Chinese $eo$le, (t has 31 &usto'ers a&ross the world and onl! 31 $er&ent o% its turno*er &o'es %ro' (ndia, 0ssel 8ro$a&k is the world9s lar est 'anu%a&turers o% la'itubes ) tubes used to $a&ka e tooth$aste, (t has 1" $lants s$read a&ross 11 &ountries and a turno*er o% .s ?09,2 &rore %or the !ear ended De&e'ber 2003, #he &o'$an! &o''ands a sta erin 30 $er&ent o% the 12,8 billion)units lobal tubes 'arket, About 80 $er&ent o% re*enues %or #ata Consultan&! Ser*i&es &o'e %ro' outside (ndia, #his 'onth- it raised .s 5>,2 billion 3L1,1" billion4 in Asia9s se&ond)bi est te&h (85 this !ear and (ndia9s lar est (85 e*er,

(n%os!s has 25-?3> e'$lo!ees in&ludin ?00 %ro' 33 nationalities other than (ndian, (t has 30 'arketin o%%i&es a&ross the world and 2?

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The role of Indian MNCs in development of foreign market

%!onomi! Reforms in India sin!e /00/

0&ono'i& re%or's were introdu&ed b! the .aji* Bandhi o*ern'ent 31985)894- it was the 1arasi'ha .ao Bo*ern'ent that a*e a de%inite sha$e and start to the new e&ono'i& re%or's o% lobalization in (ndia, 8resentin the 1991)92 /ud et- 6inan&e Minister Man'ohan Sin h saidF ;A%ter %our de&ades o% $lannin %or industrialization- we ha*e now rea&hed a sta e where we should wel&o'e- rather %ear- %orei n in*est'ent, Dire&t %orei n in*est'ent would $ro*ide a&&ess to &a$ital- te&hnolo ! and 'arket,< (n the Me'orandu' o% 0&ono'i& 8oli&ies dated Au ust 2"- 1991 to the (M6- the 6inan&e Minister sub'itted in the &on&ludin $ara ra$hF ;#he Bo*ern'ent o% (ndia belie*es that the $oli&ies set %orth in the Me'orandu' are ade2uate to a&hie*e the obje&ti*es o% the $ro ra'- but will take an! additional 'easures a$$ro$riate %or this $ur$ose, (n addition- the Bo*ern'ent will &onsult with the 6und on the ado$tion o% an! 'easures that 'a! be a$$ro$riate in a&&ordan&e with the $oli&ies o% the 6und on su&h &onsultations,< 0ra o% 1991 (ndian e&ono'! had e+$erien&ed 'ajor $oli&! &han es in earl! 1990s, #he new e&ono'i& re%or'$o$ularl! known as- =iberalization- 8ri*atization and Blobalization 3=8B 'odel4 ai'ed at 'akin the (ndian e&ono'! as %astest rowin e&ono'! and loball! &o'$etiti*e, #he series o% re%or's undertaken with res$e&t to industrial se&tor- trade as well as %inan&ial se&tor ai'ed at 'akin the e&ono'! 'ore e%%i&ient, Iith the onset o% re%or's to liberalize the (ndian e&ono'! in Aul! o% 1991- a new &ha$ter has dawned %or (ndia and her billion $lus $o$ulation, #his $eriod o% e&ono'i& transition has had a tre'endous i'$a&t on the o*erall e&ono'i& de*elo$'ent o% al'ost all 'ajor se&tors o% the e&ono'!- and its e%%e&ts o*er the last de&ade &an hardl! be o*erlooked, /esides- it also 'arks the ad*ent o% the real inte ration o% the (ndian e&ono'! into the lobal e&ono'!, (ndian e&ono'! was in dee$ &risis in Aul! 1991- when %orei n &urren&! reser*es had $lu''eted to al'ost L1 billionE (n%lation had roared to an annual rate o% 1" $er&entE %is&al de%i&it was *er! hi h and had be&o'e unsustainableE %orei n in*estors and 1.(s had lost &on%iden&e in (ndian 0&ono'!, Ca$ital was %l!in out o% the &ountr! and we were &lose to de%aultin on loans, So in order to o*er situation %ollow $oli&ies and ste$s were initiated b! then 78A o*ern'ent under the leadershi$ o% 1arasi'ha .ao,

Deval$ation,
(n 1991- (ndia still had a %i+ed e+&han e rate s!ste'- where the ru$ee was $e ed to the *alue o% a basket o% &urren&ies o% 'ajor tradin $artners, (ndia started ha*in balan&e o% $a!'ents $roble's sin&e 1985and b! the end o% 1990- it %ound itsel% in serious e&ono'i& trouble, #he o*ern'ent was &lose to de%ault and its %orei n e+&han e reser*es had dried u$ to the $oint that (ndia &ould barel! %inan&e three weeksG 8|Page

The role of Indian MNCs in development of foreign market

worth o% i'$orts, As in 19??- (ndia %a&ed hi h in%lation and lar e o*ern'ent bud et de%i&its, #his led the o*ern'ent to de*alue the ru$ee, At the end o% 1999- the (ndian .u$ee was de*alued &onsiderabl!, #here%ore the %irst ste$s towards lobalization were taken with the announ&e'ent o% the de*aluation o% (ndian &urren&! b! 18)19 $er&ent a ainst 'ajor &urren&ies in the international %orei n e+&han e 'arket, (n %a&t- this 'easure was taken in order to resol*e the /58 &risis,

Disinvestment-(n order to 'ake the $ro&ess o% lobalization s'ooth- $ri*atization and liberalization
$oli&ies are 'o*in alon as well, 7nder the $ri*atization s&he'e- 'ost o% the $ubli& se&tor undertakin s ha*e beenC are bein sold to $ri*ate se&tor, Co'$an! su&h as Modern 6oods (ndia =td,- /A=C5- an alu'iniu' &o'$an!, and *er! re&ent e+a'$le is &oal, Dismantling of the Ind$strial 1i!ensing Regime F at $resent- onl! si+ industries are under &o'$ulsor! =i&ensin 'ainl! on a&&ountin o% en*iron'ental sa%et! and strate i& &onsiderations, A si ni%i&antl! a'ended lo&ational $oli&! in tune with the liberalized li&ensin $oli&! is in $la&e, 1o industrial a$$ro*al is re2uired %ro' the o*ern'ent %or lo&ations not %allin within 25 k's o% the $eri$her! o% &ities ha*in a $o$ulation o% 'ore than one 'illion, 'llo.ing "oreign Dire!t Investment

Iith the initiation o% new e&ono'i& $oli&! in 1991 and subse2uent re%or's $ro&ess- (ndia has witnessed a &han e in the %low and dire&tion o% %orei n dire&t in*est'ent 36D(4 into the &ountr!, #his is 'ainl! due to the re'o*al o% restri&ti*e and re ulated $ra&ti&es su&h as
'*olition of the 2MRT34 Act

1e&essitated $rior a$$ro*al %or &a$a&it! e+$ansion

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The role of Indian MNCs in development of foreign market

The removal of +$antitative restri!tions on imports

#rade $oli&! re%or' has also 'ade $ro ress- thou h the $a&e has been slower than in industrial liberalization, /e%ore the re%or's- trade $oli&! was &hara&terized b! hi h tari%%s and $er*asi*e i'$ort restri&tions, ('$orts o% 'anu%a&tured &onsu'er oods were &o'$letel! banned, 6or &a$ital oods- raw 'aterials and inter'ediates- &ertain lists o% oods were %reel! i'$ortable- but %or 'ost ite's where do'esti& substitutes were bein $rodu&ed- i'$orts were onl! $ossible with i'$ort li&enses, #he &riteria %or issue o% li&enses were nontrans$arentE dela!s were ende'i& and &orru$tion una*oidable, #he e&ono'i& re%or's sou ht to $hase out i'$ort li&ensin and also to redu&e i'$ort duties, Muantitati*e restri&tions on i'$orts o% 'anu%a&tured &onsu'er oods and a ri&ultural $rodu&ts were %inall! re'o*ed on A$ril 1- 2001- al'ost e+a&tl! ten !ears a%ter the re%or's be an- and that in $art be&ause o% a rulin b! a Iorld #rade 5r anization dis$ute $anel on a &o'$laint brou ht b! the 7nited States #he redu&tion o% the $eak &usto's tari%% %ro' o*er 300 $er &ent $rior to the 30 $er &ent rate that a$$lies now, Thro.ing Open Ind$stries Reserved "or The 3$*li! Se!tor to 3rivate 3arti!ipation.

#he list o% industries reser*ed solel! %or the $ubli& se&tor )) whi&h used to &o*er 18 industries- in&ludin iron and steel- hea*! $lant and 'a&hiner!- tele&o''uni&ations and tele&o' e2ui$'ent- 'inerals- oil'inin - air trans$ort ser*i&es and ele&tri&it! eneration and distribution )) has been drasti&all! redu&ed to threeF de%ense air&ra%ts and warshi$s- ato'i& ener ! eneration- and railwa! trans$ort, (ndustrial li&ensin b! the &entral o*ern'ent has been al'ost abolished e+&e$t %or a %ew hazardous and en*iron'entall! sensiti*e industries, #he re2uire'ent that in*est'ents b! lar e industrial houses needed a se$arate &learan&e under the Monopolies and Restri!tive Trade 3ra!ti!es '!t to dis&oura e the &on&entration o% e&ono'i& $ower was abolished and the a&t itsel% is to be re$la&ed b! a new &o'$etition law whi&h will atte'$t to re ulate anti&o'$etiti*e beha*ior in other wa!s 6or e $ower eneration- trans'ission and distribution in Mu'bai 3#ata and relian&e $ower4

6orei n dire&t in*est'ent in (ndia in&reased %ro' 7S L 129 'illion in 1991)92 to 7SL 2-21> 'illion in A$ril 2010, #he &u'ulati*e a'ount o% 6D( e2uit! in%lows %ro' Au ust 1991 to A$ril 2010 stood at 7SL 13>-?>2 'illion- a&&ordin to the data released b! the De$art'ent o% (ndustrial 8oli&! and 8ro'otion 3D(884, #oda!- (ndia $ro*ides hi hest returns on 6D( than an! other &ountr! in the world, #here%ore- (ndia is e*ol*in as one o% the 9'ost %a*ored destination9 %or 6D( in Asia and the 8a&i%i&,
Non Resident Indian S!heme the eneral $oli&! and %a&ilities %or %orei n dire&t in*est'ent as a*ailable to %orei n in*estorsC Co'$anies are %ull! a$$li&able to 1.(s as well, (n addition- Bo*ern'ent has e+tended so'e &on&essions es$e&iall! %or 1.(s and o*erseas &or$orate bodies ha*in 'ore than ?0: stake b! 1.(s 10 | P a g e

The role of Indian MNCs in development of foreign market

5ide-ranging finan!ial se!tor reforms in the bankin - &a$ital 'arkets- and insuran&e se&tors- in&ludin the dere ulation o% interest rates- stron re ulation and su$er*isor! s!ste's- and the introdu&tion o% %orei nC$ri*ate se&tor &o'$etition, "inan!ial Se!tor Reform (ndiaGs re%or' $ro ra' in&luded wide)ran in re%or's in the bankin s!ste' and the &a$ital Markets relati*el! earl! in the $ro&ess with re%or's in insuran&e introdu&ed at a later sta e, /ankin se&tor re%or's in&ludedF 3a4 'easures %or liberalization- like dis'antlin the &o'$le+ s!ste' o% interest rate &ontrols- eli'inatin $rior a$$ro*al o% the .eser*e /ank o% (ndia %or lar e loans- and redu&in the statutor! re2uire'ents to in*est in o*ern'ent se&uritiesE 3b4 'easures desi ned to in&rease %inan&ial soundness- like introdu&in &a$ital ade2ua&! re2uire'ents and other $rudential nor's %or banks and stren thenin bankin su$er*isionE 3&4 'easures %or in&reasin &o'$etition like 'ore liberal li&ensin o% $ri*ate banks and %reer e+$ansion b! %orei n banks, #hese ste$s ha*e $rodu&ed so'e $ositi*e out&o'es, #here has been a shar$ redu&tion in the share o% non)$er%or'in assets in the $ort%olio and 'ore than 90 $er&ent o% the banks now 'eet the new &a$ital ade2ua&! standards, Nowe*er- these %i ures 'a! o*erstate the i'$ro*e'ent be&ause do'esti& standards %or &lassi%!in assets as non)$er%or'in are less strin ent than international standards, (ndiaGs bankin re%or's di%%er %ro' those in other de*elo$in &ountries in one i'$ortant res$e&t and that is the $oli&! towards $ubli& se&tor banks whi&h do'inate the bankin s!ste', #he o*ern'ent has announ&ed its intention to redu&e its e2uit! share to 33)1C3 $er&ent- but this is to be done while retainin o*ern'ent &ontrol, ('$ro*e'ents in the e%%i&ien&! o% the bankin s!ste' will there%ore de$end on the abilit! to in&rease the e%%i&ien&! o% $ubli& se&tor banks, #he abo*e %a&tors are so'e o% the i'$ortant %a&tors whi&h ha*e robust the rowth o% (ndian 'n&Gs

(ndia was a late&o'er to e&ono'i& re%or's- e'barkin on the $ro&ess in earnest onl! in 1991- in the wake o% an e+&e$tionall! se*ere balan&e o% $a!'ents &risis, #he need %or a $oli&! shi%t had be&o'e e*ident 'u&h earlier- as 'an! &ountries in east Asia a&hie*ed hi h rowth and $o*ert! redu&tion throu h $oli&ies whi&h e'$hasized reater e+$ort orientation and en&oura e'ent o% the $ri*ate se&tor, (ndia took so'e ste$s in this dire&tion in the 1980s- but it was not until 1991 that the o*ern'ent si naled a s!ste'i& shi%t to a 'ore o$en e&ono'! with reater relian&e u$on 'arket %or&es- a lar er role %or the $ri*ate se&tor in&ludin %orei n in*est'ent- and a restru&turin o% the role o% o*ern'ent, (ndiaGs e&ono'i& $er%or'an&e in the $ost)re%or's $eriod has 'an! $ositi*e %eatures, #he a*era e rowth rate in the ten !ear $eriod %ro' 1992)93 to 2001)02 was around ?,0 $er&ent- as shown in #able 1- whi&h $uts (ndia a'on the %astest rowin de*elo$in &ountries in the 1990s, #his rowth re&ord is onl! sli htl! better than the annual a*era e o% 5," $er&ent in the 1980s- but it &an be ar ued that the 1980s rowth was unsustainable- %uelled b! a buildu$ o% e+ternal debt whi&h &ul'inated in the &risis o% 1991, (n shar$ &ontrast- rowth in the 1990s was a&&o'$anied
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The role of Indian MNCs in development of foreign market

b! re'arkable e+ternal stabilit! des$ite the east Asian &risis, 8o*ert! also de&lined si ni%i&antl! in the $ost)re%or' $eriod- and at a %aster rate than in the 1980s a&&ordin to so'e studies 3as .a*allion and Datt dis&uss in this issue4,

Reforms in Ind$strial and Trade 3oli!y .e%or's in industrial and trade $oli&! were a &entral %o&us o% 'u&h o% (ndiaGs re%or' e%%ort in the earl! sta es, (ndustrial $oli&! $rior to the re%or's was &hara&terized b! 'ulti$le &ontrols o*er $ri*ate in*est'ent whi&h li'ited the areas in whi&h $ri*ate in*estors were allowed to o$erate- and o%ten also deter'ined the s&ale o% o$erations- the lo&ation o% new in*est'ent- and e*en the te&hnolo ! to be used, #he industrial stru&ture that e*ol*ed under this re i'e was hi hl! ine%%i&ient and needed to be su$$orted b! a hi hl! $rote&ti*e trade $oli&!- o%ten $ro*idin tailor)'ade $rote&tion to ea&h se&tor o% industr!, #he &osts i'$osed b! these $oli&ies had been e+tensi*el! studied 3%or e+a'$le- /ha wati and Desai- 19?5E /ha wati and Srini*asan- 19"1E Ahluwalia- 19854 and b! 1991 a broad &onsensus had e'er ed on the need %or reater liberalization and o$enness, A reat deal has been a&hie*ed at the end o% ten !ears o% radualist re%or's, Ind$strial 3oli!y (ndustrial $oli&! has seen the reatest &han e- with 'ost &entral o*ern'ent industrial &ontrols bein dis'antled, #he list o% industries reser*ed solel! %or the $ubli& se&tor )) whi&h used to &o*er 18 industries- in&ludin iron and steel- hea*! $lant and 'a&hiner!tele&o''uni&ations and tele&o' e2ui$'ent- 'inerals- oil- 'inin - air trans$ort ser*i&es and ele&tri&it! eneration and distribution )) has been drasti&all! redu&ed to threeF de%ense air&ra%ts and warshi$s- ato'i& ener ! eneration- and railwa! trans$ort, (ndustrial li&ensin b! the &entral o*ern'ent has been al'ost abolished e+&e$t %or a %ew hazardous and en*iron'entall! sensiti*e industries, #he re2uire'ent that in*est'ents b! lar e industrial houses needed a se$arate &learan&e under the Mono$olies and .estri&ti*e #rade 8ra&ti&es A&t to dis&oura e the &on&entration o% e&ono'i& $ower was abolished and the a&t itsel% is to be re$la&ed b! a new &o'$etition law whi&h will atte'$t to re ulate anti&o'$etiti*e beha*ior in other wa!s,

Trade 3oli!y #rade $oli&! re%or' has also 'ade $ro ress- thou h the $a&e has been slower than in industrial liberalization, /e%ore the re%or's- trade $oli&! was &hara&terized b! hi h tari%%s and $er*asi*e i'$ort restri&tions, ('$orts o% 'anu%a&tured &onsu'er oods were &o'$letel! banned, 6or &a$ital oods- raw 'aterials and inter'ediates- &ertain lists o% oods were %reel! i'$ortable- but %or 'ost ite's where do'esti& substitutes were bein $rodu&ed- i'$orts were onl! $ossible with
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The role of Indian MNCs in development of foreign market

i'$ort li&enses, #he &riteria %or issue o% li&enses were nontrans$arent- dela!s were ende'i& and &orru$tion una*oidable, #he e&ono'i& re%or's sou ht to $hase out i'$ort li&ensin and also to redu&e i'$ort duties, ('$ort li&ensin was abolished relati*el! earl! %or &a$ital oods and inter'ediates whi&h be&a'e %reel! i'$ortable in 1993- si'ultaneousl! with the swit&h to a %le+ible e+&han e rate re i'e, ('$ort li&ensin had been traditionall! de%ended on the rounds that it was ne&essar! to 'ana e the balan&e o% $a!'ents- but the shi%t to a %le+ible e+&han e rate enabled the o*ern'ent to ar ue that an! balan&e o% $a!'ents i'$a&t would be e%%e&ti*el! dealt with throu h e+&han e rate %le+ibilit!, .e'o*in 2uantitati*e restri&tions on i'$orts o% &a$ital oods and inter'ediates was relati*el! eas!- be&ause the nu'ber o% do'esti& $rodu&ers was s'all and (ndian industr! wel&o'ed the 'o*e as 'akin it 'ore &o'$etiti*e, (t was 'u&h 'ore di%%i&ult in the &ase o% %inal &onsu'er oods be&ause the nu'ber o% do'esti& $rodu&ers a%%e&ted was *er! lar e 3$artl! be&ause 'u&h o% the &onsu'er oods industr! had been reser*ed %or s'all s&ale $rodu&tion4, Muantitati*e restri&tions on i'$orts o% 'anu%a&tured &onsu'er oods and a ri&ultural $rodu&ts were %inall! re'o*ed on A$ril 1- 2001- al'ost e+a&tl! ten !ears a%ter the re%or's be an- and that in $art be&ause o% a rulin b! a Iorld #rade 5r anization dis$ute $anel on a &o'$laint brou ht b! the 7nited States,

"oreign Dire!t Investment =iberalizin %orei n dire&t in*est'ent was another i'$ortant $art o% (ndiaGs re%or's- dri*en b! the belie% that this would in&rease the total *olu'e o% in*est'ent in the e&ono'!- i'$ro*e $rodu&tion te&hnolo !- and in&rease a&&ess to world 'arkets, #he $oli&! now allows 100 $er&ent %orei n ownershi$ in a lar e nu'ber o% industries and 'ajorit! ownershi$ in all e+&e$t banksinsuran&e &o'$anies- tele&o''uni&ations and airlines, 8ro&edures %or obtainin $er'ission were reatl! si'$li%ied b! listin industries that are eli ible %or auto'ati& a$$ro*al u$ to s$e&i%ied le*els o% %orei n e2uit! 3100 $er&ent- "> $er&ent and 51 $er&ent4, 8otential %orei n in*estors in*estin within these li'its onl! need to re ister with the .eser*e /ank o% (ndia, 6or in*est'ents in other industries- or %or a hi her share o% e2uit! than is auto'ati&all! $er'itted in listed industries- a$$li&ations are &onsidered b! a 6orei n (n*est'ent 8ro'otion /oard that has established a tra&k re&ord o% s$eed! de&isions, (n 1993- %orei n institutional in*estors were allowed to $ur&hase shares o% listed (ndian &o'$anies in the sto&k 'arket- o$enin a window %or $ort%olio in*est'ent in e+istin &o'$anies, #hese re%or's ha*e &reated a *er! di%%erent &o'$etiti*e en*iron'ent %or (ndiaGs industr! than e+isted in 1991- whi&h has led to si ni%i&ant &han es, (ndian &o'$anies ha*e u$ raded their te&hnolo ! and e+$anded to 'ore e%%i&ient s&ales o% $rodu&tion, #he! ha*e also restru&tured throu h 'er ers and a&2uisitions and re%o&used their a&ti*ities to &on&entrate on areas o% &o'$eten&e, 1ew d!na'i& %ir's ha*e dis$la&ed older and less d!na'i& onesF o% the to$ 100 &o'$anies ranked b! 'arket &a$italization in 1991- about hal% are no lon er in this rou$,
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The role of Indian MNCs in development of foreign market

6orei n in*est'ent in%lows in&reased %ro' *irtuall! nothin in 1991 to about 0,5 $er&ent o% BD8, Althou h this %i ure re'ains 'u&h below the le*els o% %orei n dire&t in*est'ent in 'an! e'er in 'arket &ountries 3not to 'ention > $er&ent o% BD8 in China4- the &han e %ro' the $re) re%or' situation is i'$ressi*e, #he $resen&e o% %orei n)owned %ir's and their $rodu&ts in the do'esti& 'arket is e*ident and has added reatl! to the $ressure to i'$ro*e 2ualit!, #hese $oli&! &han es were e+$e&ted to enerate %aster industrial rowth and reater $enetration o% world 'arkets in industrial $rodu&ts- but $er%or'an&e in this res$e&t has been disa$$ointin , As shown in #able 1- industrial rowth in&reased shar$l! in the %irst %i*e !ears a%ter the re%or'sbut then slowed to an annual rate o% >,5 $er&ent in the ne+t %i*e !ears, 0+$ort $er%or'an&e has i'$ro*ed- but 'odestl!, #he share o% e+$orts o% oods in BD8 in&reased %ro' 5," $er&ent in 1990)91 to 9," $er&ent- but this re%le&ts in $art an e+&han e rate de$re&iation, (ndiaGs share in world e+$orts- whi&h had de&lined steadil! sin&e 19?0- in&reased sli htl! %ro' around 0,5 $er&ent in 1990)91 to 0,? $er&ent in 1999)2000- but 'u&h o% the in&rease in world 'arket share is due to a ri&ultural e+$orts, (ndiaGs 'anu%a&tured e+$orts had a 0,5 $er&ent share in world 'arkets %or those ite's in 1990 and this rose to onl! 0,55 $er&ent b! 1999, 7nlike the &ase in China and southeast Asia- %orei n dire&t in*est'ent in (ndia did not $la! an i'$ortant role in e+$ort $enetration and was instead oriented 'ainl! towards the do'esti& 'arket, 5ne reason wh! e+$ort $er%or'an&e has been 'odest is the slow $ro ress in lowerin i'$ort duties that 'ake (ndia a hi h &ost $rodu&er and there%ore less attra&ti*e as a base %or e+$ort $rodu&tion, 0+$orters ha*e lon been able to i'$ort in$uts needed %or e+$orts at zero dut!- but the &o'$le+ $ro&edure %or obtainin the ne&essar! dut!)%ree i'$ort li&enses t!$i&all! in*ol*es hi h transa&tions &ost and dela!s, Ni h le*els o% $rote&tion &o'$ared with other &ountries also e+$lains wh! %orei n dire&t in*est'ent in (ndia has been 'u&h 'ore oriented to the $rote&ted do'esti& 'arket- rather than usin (ndia as a base %or e+$orts, Nowe*er- hi h tari%%s are onl! $art o% the e+$lanation %or $oor e+$ort $er%or'an&e, #he reser*ation o% 'an! $otentiall! e+$ortable ite's %or $rodu&tion in the s'all s&ale se&tor 3whi&h has onl! re&entl! been rela+ed4 was also a rele*ant %a&tor, #he $oor 2ualit! o% (ndiaGs in%rastru&ture &o'$ared with in%rastru&ture in east and southeast Asia- whi&h is dis&ussed later in this $a$er- is !et another, (n%le+ibilit! o% the labor 'arket is a 'ajor %a&tor redu&in (ndiaGs &o'$etiti*eness in e+$orts and also redu&in industrial $rodu&ti*it! enerall! 38lannin Co''ission- 20014, An! %ir' wishin to &lose down a $lant- or to retren&h labor in an! unit e'$lo!in 'ore than 100 workers- &an onl! do so with the $er'ission o% the state o*ern'ent- and this $er'ission is rarel! ranted, #hese $ro*isions dis&oura e e'$lo!'ent and are es$e&iall! onerous %or labor)intensi*e se&tors, #he in&reased &o'$etition in the oods 'arket has 'ade labor 'ore willin to take reasonable $ositions- be&ause la&k o% %le+ibilit! onl! leads to %ir's losin 'arket share, Nowe*er- the le al $ro*isions &learl! re'ain 'u&h 'ore onerous than in other &ountries, #his is i'$ortant area o% re%or' that has !et to be addressed, #he la&k o% an! s!ste' o% une'$lo!'ent insuran&e 'akes it di%%i&ult to $ush %or 'ajor &han es in labor %le+ibilit! unless a suitable &ontributor! s!ste' that is %inan&iall! *iable &an be $ut in $la&e, #he o*ern'ent has re&entl! announ&ed its intention to
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The role of Indian MNCs in development of foreign market

a'end the law and raise the le*el o% e'$lo!'ent abo*e whi&h %ir's ha*e to seek $er'ission %or retren&h'ent %ro' 100 workers at $resent to 1000 while si'ultaneousl! in&reasin the s&ale o% retren&h'ent &o'$ensation, Nowe*er- the a'end'ent has !et to be ena&ted, #hese a$s in the re%or's $ro*ide a $ossible e+$lanation %or the slowdown in industrial rowth in the se&ond hal% o% the 1990s, (t &an be ar ued that the initial rela+ation o% &ontrols led to an in*est'ent boo'- but this &ould ha*e been sustained onl! i% industrial in*est'ent had been oriented to ta$$in e+$ort 'arkets- as was the &ase in east Asia, As it ha$$ened- (ndiaGs industrial and trade re%or's were not stron enou h- nor ade2uatel! su$$orted b! in%rastru&ture and labor 'arket re%or's to enerate su&h a thrust, #he one area whi&h has shown robust rowth throu h the 1990s with a stron e+$ort orientation is so%tware de*elo$'ent and *arious new t!$es o% ser*i&es enabled b! in%or'ation te&hnolo ! like 'edi&al trans&ri$tion- ba&ku$ a&&ountin - and &usto'er related ser*i&es, 0+$ort earnin s in this area ha*e rown %ro' L100 'illion in 1990)91 to o*er L? billion in 2000)01 and are e+$e&ted to &ontinue to row at 20 to 30 $er&ent $er !ear, (ndiaGs su&&ess in this area is one o% the 'ost *isible a&hie*e'ents o% trade $oli&! re%or's whi&h allow a&&ess to i'$orts and te&hnolo ! at e+&e$tionall! low rates o% dut!and also o% the %a&t that e+$orts in this area de$end $ri'aril! on tele&o''uni&ations in%rastru&ture- whi&h has i'$ro*ed &onsiderabl! in the $ost)re%or's $eriod,

Reforms in 'gri!$lt$re A &o''on &riti&is' o% (ndiaGs e&ono'i& re%or's is that the! ha*e been e+&essi*el! %o&used on industrial and trade $oli&!- ne le&tin a ri&ulture whi&h $ro*ides the li*elihood o% ?0 $er&ent o% the $o$ulation, Criti&s $oint to the de&eleration in a ri&ultural rowth in the se&ond hal% o% the 1990s 3shown in #able 24 as $roo% o% this ne le&t, i Nowe*er- the notion that trade $oli&! &han es ha*e not hel$ed a ri&ulture is &learl! a 'is&on&e$tion, #he redu&tion o% $rote&tion to industr!and the a&&o'$an!in de$re&iation in the e+&han e rate- has tilted relati*e $ri&es in %a*or o% a ri&ulture and hel$ed a ri&ultural e+$orts, #he inde+ o% a ri&ultural $ri&es relati*e to 'anu%a&tured $rodu&ts has in&reased b! al'ost 30 $er&ent in the $ast ten !ears 3Ministr! o% 6inan&e- 2002- Cha$ter 54, #he share o% (ndiaGs a ri&ultural e+$orts in world e+$orts o% the sa'e &o''odities in&reased %ro' 1,1 $er&ent in 1990 to 1,9 $er&ent in 1999- whereas it had de&lined in the ten !ears be%ore the re%or's, #he 'ain reason wh! $ubli& in*est'ent in rural in%rastru&ture has de&lined is the deterioration in the %is&al $osition o% the state o*ern'ents and the tenden&! %or $oliti&all! $o$ular but ine%%i&ient and e*en ini2uitous subsidies to &rowd out 'ore $rodu&ti*e in*est'ent, 6or e+a'$lethe dire&t bene%it o% subsidizin %ertilizer and under$ri&in water and $ower oes 'ainl! to %ertilizer $rodu&ers and hi h in&o'e %ar'ers while ha*in ne ati*e e%%e&ts on the en*iron'ent and $rodu&tion- and e*en on in&o'e o% s'all %ar'ers,ii A $hased in&rease in %ertilizer $ri&es and i'$osition o% e&ono'i&all! rational user &har es %or irri ation and ele&tri&it! &ould raise
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The role of Indian MNCs in development of foreign market

resour&es to %inan&e in*est'ent in rural in%rastru&ture- bene%itin both rowth and e2uit!, Co'$etiti*e $o$ulis' 'akes it $oliti&all! di%%i&ult to restru&ture subsidies in this wa!- but there is also no alternati*e solution in si ht,

Infrastr$!t$re Development .a$id rowth in a lobalized en*iron'ent re2uires a well)%un&tionin in%rastru&ture in&ludin es$e&iall! ele&tri& $ower- road and rail &onne&ti*it!- tele&o''uni&ations- air trans$ort- and e%%i&ient $orts, (ndia la s behind east and southeast Asia in these areas, #hese ser*i&es were traditionall! $ro*ided b! $ubli& se&tor 'ono$olies but sin&e the in*est'ent needed to e+$and &a$a&it! and i'$ro*e 2ualit! &ould not be 'obilized b! the $ubli& se&tor- these se&tors were o$ened to $ri*ate in*est'ent- in&ludin %orei n in*est'ent, Nowe*er- the di%%i&ult! in &reatin an en*iron'ent whi&h would 'ake it $ossible %or $ri*ate in*estors to enter on ter's that would a$$ear reasonable to &onsu'ers- while $ro*idin an ade2uate risk) return $ro%ile to in*estorswas reatl! underesti'ated, Man! %alse starts and disa$$oint'ents ha*e resulted, #he reatest disa$$oint'ent has been in the ele&tri& $ower se&tor- whi&h was the %irst area o$ened %or $ri*ate in*est'ent, 8ri*ate in*estors were e+$e&ted to $rodu&e ele&tri&it! %or sale to the State 0le&tri&it! /oards- whi&h would &ontrol o% trans'ission and distribution, Nowe*er- the State 0le&tri&it! /oards were %inan&iall! *er! weak- $artl! be&ause ele&tri&it! tari%%s %or 'an! &ate ories o% &onsu'ers were too low and also be&ause *er! lar e a'ounts o% $ower were lost in trans'ission and distribution, #his loss- whi&h should be between 10 to 15 $er&ent on te&hni&al rounds 3de$endin on the e+tent o% the rural network4- *aries %ro' 35 to 50 $er&ent, #he di%%eren&e re%le&ts the%t o% ele&tri&it!- usuall! with the &onni*an&e o% the distribution sta%%, 8ri*ate in*estors- %earin non$a!'ent b! the State 0le&tri&it! /oards insisted on arran e'ents whi&h uaranteed $ur&hase o% ele&tri&it! b! state o*ern'ents ba&ked b! additional uarantees %ro' the &entral o*ern'ent, #hese arran e'ents attra&ted &riti&is' be&ause o% &ontro*ersies about the reasonableness o% the tari%%s de'anded b! $ri*ate se&tor $ower $rodu&ers, Althou h a lar e nu'ber o% $ro$osals %or $ri*ate se&tor $roje&ts a'ountin to about 80 $er&ent o% e+istin eneration &a$a&it! were initiated- *er! %ew rea&hed %inan&ial &losure and so'e o% those whi&h were i'$le'ented ran into trouble subse2uentl!,iii Ci*il a*iation and $orts are two other areas where re%or's a$$ear to be su&&eedin - thou h 'u&h re'ains to be done, #wo $ri*ate se&tor do'esti& airlines- whi&h be an o$erations a%ter the re%or's- now ha*e 'ore than hal% the 'arket %or do'esti& air tra*el, Nowe*er- $ro$osals to attra&t $ri*ate in*est'ent to u$ rade the 'ajor air$orts at Mu'bai and Delhi ha*e !et to 'ake *isible $ro ress, (n the &ase o% $orts- 1" $ri*ate se&tor $roje&ts in*ol*in $ort handlin &a$a&it! o% ?0 'illion tons- about 20 $er&ent o% the total &a$a&it! at $resent- are bein i'$le'ented, So'e o% the new $ri*ate se&tor $ort %a&ilities ha*e set hi h standards o% $rodu&ti*it!,

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The role of Indian MNCs in development of foreign market

(ndiaGs road network is e+tensi*e- but 'ost o% it is low 2ualit! and this is a 'ajor &onstraint %or interior lo&ations, #he 'ajor arterial routes ha*e low &a$a&it! 3&o''onl! just two lanes in 'ost stret&hes4 and also su%%er %ro' $oor 'aintenan&e, Nowe*er- so'e $ro'isin initiati*es ha*e been taken re&entl!, (n 1998- a ta+ was i'$osed on asoline 3later e+tended to diesel4 - the $ro&eeds o% whi&h are ear'arked %or the de*elo$'ent o% the national hi hwa!s- state roads and rural roads, #his will hel$ %inan&e a 'ajor $ro ra' o% u$ radin the national hi hwa!s &onne&tin Delhi- Mu'bai- Chennai and Cal&utta to %our lanes or 'ore- to be &o'$leted b! the end o% 2003, (t is also $lanned to le*! 'odest tolls on these hi hwa!s to ensure a strea' o% re*enue whi&h &ould be used %or 'aintenan&e, A %ew toll roads and brid es in areas o% hi h tra%%i& densit! ha*e been awarded to the $ri*ate se&tor %or de*elo$'ent, #he railwa!s are a $otentiall! i'$ortant 'eans o% %rei ht trans$ortation but this area is untou&hed b! re%or's as !et, #he se&tor su%%ers %ro' se*ere %inan&ial &onstraints- $artl! due to a $oliti&all! deter'ined %are stru&ture in whi&h %rei ht rates ha*e been set e+&essi*el! hi h to subsidize $assen er %ares- and $artl! be&ause o*ern'ent ownershi$ has led to waste%ul o$eratin $ra&ti&es, 0+&ess sta%% is &urrentl! esti'ated at around 25 $er&ent, .esour&es are t!$i&all! s$read thinl! to res$ond to $oliti&al de'ands %or new $assen er trains at the &ost o% in*est'ents that would stren then the &a$a&it! o% the railwa!s as a %rei ht &arrier, #he 0+$ert Brou$ on (ndian .ailwa!s 320024 re&entl! sub'itted a &o'$rehensi*e $ro ra' o% re%or' &on*ertin the railwa!s %ro' a de$art'entall! run o*ern'ent enter$rise to a &or$oration- with a re ulator! authorit! %i+in the %ares in a rational 'anner, 1o de&isions ha*e been announ&ed as !et on these re&o''endations,

"inan!ial Se!tor Reform (ndiaGs re%or' $ro ra' in&luded wide)ran in re%or's in the bankin s!ste' and the &a$ital 'arkets relati*el! earl! in the $ro&ess with re%or's in insuran&e introdu&ed at a later sta e, /ankin se&tor re%or's in&ludedF 3a4 'easures %or liberalization- like dis'antlin the &o'$le+ s!ste' o% interest rate &ontrols- eli'inatin $rior a$$ro*al o% the .eser*e /ank o% (ndia %or lar e loans- and redu&in the statutor! re2uire'ents to in*est in o*ern'ent se&uritiesE 3b4 'easures desi ned to in&rease %inan&ial soundness- like introdu&in &a$ital ade2ua&! re2uire'ents and other $rudential nor's %or banks and stren thenin bankin su$er*isionE 3&4 'easures %or in&reasin &o'$etition like 'ore liberal li&ensin o% $ri*ate banks and %reer e+$ansion b! %orei n banks, #hese ste$s ha*e $rodu&ed so'e $ositi*e out&o'es, #here has been a shar$ redu&tion in the share o% non)$er%or'in assets in the $ort%olio and 'ore than 90 $er&ent o% the banks now 'eet the new &a$ital ade2ua&! standards, Nowe*er- these %i ures 'a! o*erstate the i'$ro*e'ent be&ause do'esti& standards %or &lassi%!in assets as non)$er%or'in are less strin ent than international standards,

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The role of Indian MNCs in development of foreign market

(ndiaGs bankin re%or's di%%er %ro' those in other de*elo$in &ountries in one i'$ortant res$e&t and that is the $oli&! towards $ubli& se&tor banks whi&h do'inate the bankin s!ste', #he o*ern'ent has announ&ed its intention to redu&e its e2uit! share to 33)1C3 $er&ent- but this is to be done while retainin o*ern'ent &ontrol, ('$ro*e'ents in the e%%i&ien&! o% the bankin s!ste' will there%ore de$end on the abilit! to in&rease the e%%i&ien&! o% $ubli& se&tor banks,

3rivati6ation #he $ubli& se&tor a&&ounts %or about 35 $er&ent o% industrial *alue added in (ndia- but althou h $ri*atization has been a $ro'inent &o'$onent o% e&ono'i& re%or's in 'an! &ountries- (ndia has been a'bi*alent on the subje&t until *er! re&entl!, (nitiall!- the o*ern'ent ado$ted a li'ited a$$roa&h o% sellin a 'inorit! stake in $ubli& se&tor enter$rises while retainin 'ana e'ent &ontrol with the o*ern'ent- a $oli&! des&ribed as ;disin*est'ent< to distin uish it %ro' $ri*atization, #he $rin&i$al 'oti*ation was to 'obilize re*enue %or the bud et- thou h there was so'e e+$e&tation that $ri*ate shareholders would in&rease the &o''er&ial orientation o% $ubli& se&tor enter$rises, #his $oli&! had *er! li'ited su&&ess, Disin*est'ent re&ei$ts were &onsistentl! below bud et e+$e&tations and the a*era e realization in the %irst %i*e !ears was less than 0,25 $er&ent o% BD8 &o'$ared with an a*era e o% 1," $er&ent in se*enteen &ountries re$orted in a re&ent stud! 3see Da*is et,al, 20004, #here was &learl! li'ited a$$etite %or $ur&hasin shares in $ubli& se&tor &o'$anies in whi&h o*ern'ent re'ained in &ontrol o% 'ana e'ent, (n 1998- the o*ern'ent announ&ed its willin ness to redu&e its shareholdin to 2? $er&ent and to trans%er 'ana e'ent &ontrol to $ri*ate stakeholders $ur&hasin a substantial stake in all &entral $ubli& se&tor enter$rises e+&e$t in strate i& areas, i* #he %irst su&h $ri*atization o&&urred in 1999- when "> $er&ent o% the e2uit! o% Modern 6oods (ndia =td, 3a $ubli& se&tor bread) 'akin &o'$an! with 2000 e'$lo!ees4- was sold with %ull 'ana e'ent &ontrol to Nindustan =e*er- an (ndian subsidiar! o% the An lo)Dut&h 'ultinational 7nile*er, #his was %ollowed b! se*eral si'ilar sales with trans%er o% 'ana e'entF /A=C5- an alu'iniu' &o'$an!E Nindustan Oin&E Co'$uter Maintenan&e Cor$orationE =a an Aute Ma&hiner! Manu%a&turin Co'$an!E se*eral hotelsE JS1=- whi&h was until re&entl! the 'ono$ol! ser*i&e su$$lier %or international tele&o''uni&ationsE (8C=- a 'ajor $etro&he'i&als unit and Maruti 7d!o - (ndiaGs lar est auto'obile $rodu&er whi&h was a joint *enture with Suzuki Cor$oration whi&h has now a&2uired %ull 'ana erial &ontrols, An i'$ortant re&ent inno*ation- whi&h 'a! in&rease $ubli& a&&e$tan&e o% $ri*atization- is the de&ision to ear'ark the $ro&eeds o% $ri*atization to %inan&e additional e+$enditure on so&ial se&tor de*elo$'ent and %or retire'ent o% $ubli& debt, 8ri*atization is &learl! not a $er'anent sour&e o% re*enue- but it &an hel$ %ill &riti&al a$s in the ne+t %i*e to ten !ears while lon er ter' solutions to the %is&al $roble' are atte'$ted, Man! states ha*e also started $ri*atizin state le*el $ubli& se&tor enter$rises, #hese are 'ostl! loss 'akin enter$rises and are unlikel! to !ield si ni%i&ant re&ei$ts but $ri*atization will eli'inate the re&urrin burden o% %inan&in losses,
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The role of Indian MNCs in development of foreign market

So!ial Se!tor Development in 7ealth and %d$!ation (ndiaGs so&ial indi&ators at the start o% the re%or's in 1991 la ed behind the le*els a&hie*ed in southeast Asia 20 !ears earlier- when those &ountries started to row ra$idl! 3Dreze and Sen19954, 6or e+a'$le- (ndiaGs adult litera&! rate in 1991 was 52 $er&ent- &o'$ared with 5" $er&ent in (ndonesia and "9 $er&ent in #hailand in 19"1, #he a$ in so&ial de*elo$'ent needed to be &losed- not onl! to i'$ro*e the wel%are o% the $oor and in&rease their in&o'e earnin &a$a&it!but also to &reate the $re&onditions %or ra$id e&ono'i& rowth, Ihile the lo i& o% e&ono'i& re%or's re2uired a withdrawal o% the state %ro' areas in whi&h the $ri*ate se&tor &ould do the job just as well- i% not better- it also re2uired an e+$ansion o% $ubli& se&tor su$$ort %or so&ial se&tor de*elo$'ent, Mu&h o% the debate in this area has %o&used on what has ha$$ened to e+$enditure on so&ial se&tor de*elo$'ent in the $ost)re%or' $eriod, De* and Moolji 320024 %ind that &entral o*ern'ent e+$enditure on towards so&ial ser*i&es and rural de*elo$'ent in&reased %ro' ",? $er&ent o% total e+$enditure in 1990)91 to 10,2 $er&ent in 2000)01- as shown in #able >, As a $er&enta e o% BD8- these e+$enditures show a di$ in the %irst two !ears o% the re%or's- when %is&al stabilization &o'$ulsions were do'inant- but there is a 'odest in&rease therea%ter, Nowe*ere+$enditure trends in the states- whi&h a&&ount %or 80 $er&ent o% total e+$enditures in this areashow a de%inite de&line as a $er&enta e o% BD8 in the $ost)re%or's $eriod, #akin &entral and state e+$enditures to ether- so&ial se&tor e+$enditure has re'ained 'ore or less &onstant as a $er&enta e o% BD8, Closin the so&ial se&tor a$s between (ndia and other &ountries in southeast Asia will re2uire additional e+$enditure- whi&h in turn de$ends u$on i'$ro*e'ents in the %is&al $osition o% both the &entral and state o*ern'ents, Nowe*er- it is also i'$ortant to i'$ro*e the e%%i&ien&! o% resour&e use in this area, Sa+ena 320014 has do&u'ented the 'an! $roble's with e+istin deli*er! s!ste's o% 'ost so&ial se&tor ser*i&es- es$e&iall! in rural areas, So'e o% these $roble's are dire&tl! &aused b! la&k o% resour&es- as when the bulk o% the bud et is absorbed in $a!in salaries- lea*in little a*ailable %or 'edi&ines in &lini&s or essential tea&hin aids in s&hools, #here are also o*ernan&e $roble's su&h as nonattendan&e b! tea&hers in rural s&hools and $oor 2ualit! o% tea&hin , 8art o% the solution lies in reater $arti&i$ation b! the bene%i&iaries in su$er*isin edu&ation and health s!ste's- whi&h in turn re2uires de&entralization to lo&al le*els and e%%e&ti*e $eo$lesG $arti&i$ation at these le*els, 1on o*ern'ent or anizations &an $la! a &riti&al role in this $ro&ess, Di%%erent state o*ern'ents are e+$eri'entin with alternati*e 'odalities but a reat deal 'ore needs to be done in this area,

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The role of Indian MNCs in development of foreign market

Ihile the &hallen es in this area are enor'ous- it is worth notin that so&ial se&tor indi&ators ha*e &ontinued to i'$ro*e durin the re%or's, #he litera&! rate in&reased %ro' 52 $er&ent in 1991 to ?5 $er&ent in 2001- a %aster in&rease in the 1990s than in the $re*ious de&ade- and the in&rease has been $arti&ularl! hi h in the so'e o% the low litera&! states su&h as /ihar- Madh!a 8radesh- 7ttar 8radesh and .ajasthan,

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The role of Indian MNCs in development of foreign market

Con!l$sions
#he i'$a&t o% ten !ears o% radualist e&ono'i& re%or's in (ndia on the $oli&! en*iron'ent $resents a 'i+ed $i&ture, #he industrial and trade $oli&! re%or's ha*e one %ar- thou h the! need to be su$$le'ented b! labor 'arket re%or's whi&h are a &riti&al 'issin link, #he lo i& o% liberalization also needs to be e+tended to a ri&ulture- where nu'erous restri&tions re'ain in $la&e, .e%or's ai'ed at en&oura in $ri*ate in*est'ent in in%rastru&ture ha*e worked in so'e areas but not in others, #he &o'$le+it! o% the $roble's in this area was underesti'atedes$e&iall! in the $ower se&tor, #his has now been re&o nized and $oli&ies are bein resha$ed a&&ordin l!, 8ro ress has been 'ade in se*eral areas o% %inan&ial se&tor re%or's- thou h so'e o% the &riti&al issues relatin to o*ern'ent ownershi$ o% the banks re'ain to be addressed, Nowe*er- the out&o'e in the %is&al area shows a worse situation at the end o% ten !ears than at the start, Criti&s o%ten bla'e the dela!s in i'$le'entation and %ailure to a&t in &ertain areas to the &hoi&e o% radualis' as a strate !, Nowe*er- radualis' i'$lies a &lear de%inition o% the oal and a deliberate &hoi&e o% e+tendin the ti'e taken to rea&h it- in order to ease the $ain o% transition, #his is not what ha$$ened in all areas, #he oals were o%ten indi&ated onl! as a broad dire&tionwith the $re&ise end $oint and the $a&e o% transition le%t unstated to 'ini'ize o$$ositionPand $ossibl! also to allow roo' to retreat i% ne&essar!, #his redu&ed $oliti&all! di*isi*e &ontro*ers!and enabled a &onsensus o% sorts to e*ol*e- but it also 'eant that the &onsensus at ea&h $oint re$resented a &o'$ro'ise- with 'an! interested rou$s joinin onl! be&ause the! belie*ed that re%or's would not o ;too %ar<, #he result was a $ro&ess o% &han e that was not so 'u&h radualist as %it%ul and o$$ortunisti&, 8ro ress was 'ade as and when $oliti&all! %easible- but sin&e the end $oint was not alwa!s &learl! indi&ated- 'an! $arti&i$ants were un&lear about how 'u&h &han e would ha*e to be a&&e$ted- and this 'a! ha*e led to less adjust'ent than was otherwise %easible, #he alternati*e would ha*e been to ha*e a 'ore thorou h debate with the obje&ti*e o% brin in about a &learer realization on the $art o% all &on&erned o% the %ull e+tent o% &han e neededthereb! $er'ittin 'ore $ur$ose%ul i'$le'entation, Nowe*er- it is di%%i&ult to sa! whether this a$$roa&h would indeed ha*e !ielded better results- or whether it would ha*e &reated ridlo&k in (ndiaGs hi hl! $luralist de'o&ra&!, (nstead- (ndia witnessed a haltin $ro&ess o% &han e in whi&h $oliti&al $arties whi&h o$$osed $arti&ular re%or's when in o$$osition a&tuall! $ushed the' %orward when in o%%i&e, #he $ro&ess &an be a$tl! des&ribed as &reatin a stron &onsensus %or weak re%or'sQ

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The role of Indian MNCs in development of foreign market

Na*e the re%or's laid the basis %or (ndia to row at 8 $er&ent $er !earR #he 'ain reason %or bein o$ti'isti& is that the &u'ulati*e &han e brou ht about is substantial, #he slow $a&e o% i'$le'entation has 'eant that 'an! o% the re%or' initiati*es ha*e been $ut in $la&e re&entl! and their bene%i&ial e%%e&ts are !et to be %elt, #he $oli&! en*iron'ent toda! is there%ore $otentiall! 'u&h 'ore su$$orti*e- es$e&iall! i% the &riti&al 'issin links are $ut in $la&e, Nowe*er- the %ailure on the %is&al %ront &ould undo 'u&h o% what has been a&hie*ed, /oth the &entral and state o*ern'ents are under se*ere %is&al stress whi&h seriousl! under'ines their &a$a&it! to in*est in &ertain t!$es o% in%rastru&ture and in so&ial de*elo$'ent where the $ubli& se&tor is the onl! &redible sour&e o% in*est'ent, (% these trends are not re*ersed- it 'a! be di%%i&ult e*en to 'aintain ? $er&ent annual rowth in the %uture- let alone a&&elerate to 8 $er&ent, Nowe*er- i% &redible &orre&ti*e ste$s are taken on the %is&al %ront- then the &u'ulati*e $oli&! &han es that ha*e alread! taken $la&e in 'an! areas- &o'bined with &ontinued $ro ress on the un%inished a enda- should 'ake it $ossible %or (ndia to a&&elerate to well be!ond ? $er&ent rowth o*er the ne+t %ew !ears,

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The role of Indian MNCs in development of foreign market

Indias &ro.th 3erforman!e 38er&ent $er !ear4

#otal BD8 Browth

Se&t oral Browth o% BD8 A ri&ulture (ndustr!

, Ser*i&es

19"0)"2 to 1980)81 3a*era e4 1981)82 to 1990)91 3a*era e4 1991)92 1992)93 1993)9> 199>)95 1995)9? 199?)9" 199")98 1998)99 1999)2000 2000)01 2001)02S 1992)93 to 199?)9" 3a*era e4 199")98 to 2001)02 3a*era e4

3,2 5," 1,3 5,1 5,9 ",3 ",3 ",8 >,8 ?,5 ?,1 >,0 5,> ?," 5,>

2,0 3,8 )1,1 5,> 3,9 5,3 )0,3 8,8 )1,5 5,9 1,> 0,1 5," >,? 2,3

>,0 ",0 )1,0 >,3 5,? 10,3 12,3 "," 3,8 3,8 5,2 ?,? 3,3 8,0 >,5

",2 ?," >,8 5,> "," ",1 10,5 ",2 9,8 8,3 9,5 >,8 ?,5 ",? ",8

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The role of Indian MNCs in development of foreign market

Sour&eF 0&ono'i& Sur*e! 2001)02- Ministr! o% 6inan&e- Bo*ern'ent o% (ndia- 2002, Browth rates %or 2001)02 are $roje&tions o% the Ministr! o% 6inan&e based

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Referen!es

Ahluwalia- (sher A,- Productivity and Growth in Indian Manufacturing, 5+%ord 7ni*ersit! 8ress1ew Delhi 1991, Ahluwalia- (sher A,- Industrial Growth in India: Stagnation since the mid-si ties, 5+%ord 7ni*ersit! 8ress- 1ew Delhi- 1995, Ahluwalia- Montek S,- India!s "conomic #eforms: $n $ppraisal, in Ae%%re! Sa&hs and 1iru$a' /aj$aGs 3eds,4- India in the "ra of "conomic #eform, 5+%ord 7ni*ersit! 8ress- 1ew Delhi- 2000, TTTTTTTTTTTT- State %evel Performance &nder "conomic #eforms in India, in ''''', b! Anne Krue er 3ed,4- Chi&a o 7ni*ersit! 8ress 3%orth&o'in 4, TTTTTTTTTTTT- India!s (ulnera)ility to " ternal *rises: $n $ssessment, in Macro-economics and Monetary Policy: Issues for a #eforming "conomy, Montek S, Ahluwalia- K,J, .edd! and S,S, #ara$ore 3editors4- 5+%ord 7ni*ersit! 8ress 3%orth&o'in 4, /ha wati- A,- and Srini*asan- #,1,- +utward-+rientation on ,evelopment: $re the #evisionists #ight, in -rade, ,evelopment and Political "conomy- b! Dee$ak =al and .i&hard Sna$e eds, 8al ra*e- 2001, Chaudhuri- Sudi$- "conomic #eforms and Industrial Structure in India, 0&ono'i& and 8oliti&al Ieekl!- Aanuar! 12- 2002, Da*is- Ae%%re!- .olando 5ssowski- #ho'as .i&hardson- and Ste*en /arnett- .iscal and Macroeconomic Impact of Privati/ation, (M6 5&&asional 8a$er 19>- 320004, De*- Mahendra S,- and Aos Mooli- Social Sector " penditures in the 0112s: $nalysis of *entral and State 3udgets, 0&ono'i& and 8oliti&al Ieekl!- Mar&h 2- 2002, Dreze- Aean- and A'art!a Sen- "conomic ,evelopment and Social +pportunities, 5+%ord 7ni*ersit! 8ress- 1ew Delhi 319954, 0+$ert Brou$ on (ndian .ailwa!s- -he Indian #ailways #eport 4 5220 Policy Imperatives for #einvention and Growth, 1CA0.C(D6C 320014, Bulati- Ashok- and See'a /athla- *apital .ormation in Indian $griculture: #evisiting the ,e)ate, 0&ono'i& and 8oliti&al Ieekl!- Ma! 19)25- 3?F20- $$,1?9")1"08, Ministr! o% 6inan&e ;0&ono'i& Sur*e! 2001)02<- 1ew Delhi 2002, 1a'biar- .,B,- /,=, Mu' ekar- and B,A, #adas- Is Import %i)erali/ation 6urting ,omestic Industry and "mployment7 0&ono'i& and 8oliti&al Ieekl!- 6ebruar! 13- 1999, 8arikh - Kirit S- ; Social Infrastructure : an important Physical Infrastucture8 Cha$ter " o% ;(ndia De*elo$'ent .e$ort<- 5+%ord 7ni*ersit! 8ress 2002,

8lannin Co''ission- #eport of the $dvisory Group on -a Policy and -a $dministration for the -enth Plan, 2001a, TTTTTTTTTTTT- #eport of the -as9 .orce on "mployment +pportunities, 2001b, 8ri'e MinistersG 0&ono'i& Ad*isor! Coun&il "conomic #eforms: $ Medium--erm Perspective, .odrik- Dani- Ma9ing +penness :or9: -he ;ew Glo)al "conomy and the ,eveloping *ountries, Iashin ton- D,C, #he 5*erseas De*elo$'ent TTTT 1999, Sa+ena- 1,C,- Improving "ffectiveness of Government Programmes: $n $genda of #eform for the 02 th Plan, $a$er $resented at a &on%eren&e on ;6is&al 8oli&ies to A&&elerate Browth-< or anized b! the Iorld /ank- 1ew Delhi- Ma! 8- 2001- a*ailable at www,%is&al&on%,or , Stern- 1i&holas- 3uilding a *limate for Investment, Growth and Poverty #eduction in India, in $ Strategy for ,evelopment, $ublished b! Iorld /ank 320014,

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