ANNASAHEB VARTAK COLLEGE

Project on :

IMPACT OF MULTINATIONAL CORPORATION ON INDIAN ECONOMY
Submitted To:

Prof. Nair
Submitted By :

Abhijeet Kulshreshtha Roll No :

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CONTENT
Sr.No. TOPIC

1. 2. 3. 4. 5. 6.

MULTINATIONAL CORPORATION MULTINATIONAL CORPORATION IN INDIA Advantages & Disadvantages Indian economy MULTINATIONAL CORPORATION & Indian economy MULTINATIONAL CORPORATION IN INDIA

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Multi National Corporation
A multinational corporation (or transnational corporation) (MNC/TNC) is a corporation or enterprise that manages production establishments or delivers services in at least two countries. Very large multinationals have budgets that exceed those of many countries. Multinational corporations can have a powerful influence in international relations and local economies. Multinational corporations play an important role in globalization; some argue that a new form of MNC is evolving in response to globalization: the 'globally integrated enterprise'.

What is the difference between Multi National Corporation and Trans National Corporation?The
difference is more semantics than anything else. Multinationals operate in several different companies will trans national implies "just across the border" as in the US and Canada. Obviously, both operate internationally

History :
There is a dispute as to which was the first MNC. Some have argued that the Knights Templar, founded in 1117, became a multinational when it stumbled into banking in 1135. However,

which some see as the next development in the evolution of the multinational. (3) Multinational corporate structure : Multinational corporations can be divided into three broad groups according to the configuration of their production facilities: • • • Horizontally integrated multinational corporations manage production establishments located in different countries to produce the same or similar products. . The globally integrated enterprise. (example: Adidas) Diversified multinational corporations manage production establishments located in different countries that are neither horizontally nor vertically nor straight. nor non-straight integrated. (example: McDonalds) Vertically integrated multinational corporations manage production establishment in certain country/countries to produce products that serve as input to its production establishments in other country/countries. does away with this requirement.others claim that the Dutch East India Company was the first proper multinational. (example: Microsoft) Others argue that a key feature of the multinational is the inclusion of back office functions in each of the countries in which they operate.

countries and regional political districts offer incentives to MNCs such as tax breaks. To compete. and economic activity.(4) International power : Large multinational corporations can have a powerful influence in international relations. or lax environmental and labour standards. a push towards greater freedom for corporate bodies. employment. Countries and sometimes subnational regions must compete against one another for the establishment of MNC facilities. Tax Competition : Multinationals have played an important role in globalization. Largest Economies : An inaccurate claim is that out of the 100 largest economies in the world. This process of becoming more attractive to foreign investment can be characterized as a race to the bottom. 51 are multinational corporations. and the subsequent tax revenue.[2] This claim is based on a miscalculation. pledges of governmental assistance or improved infrastructure. where two numbers describing . or both. given their large economic influence in politicians' representative districts. as well as their extensive financial resources available for public relations and political lobbying.

multinationals can have a significant impact on government policy. When faced with that threat. governments have been forced to back down from their efforts. whereas (5) gross sales don't measure how much was produced outside the company. if one were to compare nations and corporations. which often leads to limited availability of advanced drugs. thereby artificially lowering the price.totally different things are compared: the GDP of nations to gross sales of corporations. For example. According to Swedish economist Johan Norberg. That correction would make only 37 of 100 largest economies corporations and all of them would be in bottom box: only 5 corporations would be in top 50. then one should be comparing GDP to goods only produced within the particular company (gross sales do not take into account goods purchased from 3rd party vendors and resold. in an effort to reduce health care costs. primarily through the threat of market withdrawal. multinational pharmaceutical firms have simply withdrawn from the market. Market Withdrawal : Because of their size. The problem with the comparison is that GDP takes into account only the final value. just as GDP does not take into account imported goods). In these cases. some countries have tried to force pharmaceutical companies to license their patented drugs to local competitors for a very low fee. Similar corporate and government confrontations have occurred when governments tried to force companies to make their .

intellectual property public in an effort to gain technology for local entrepreneurs. there is another multinational that wants the tariff raised. For every tariff category that one multinational wants to have reduced. Lobbying : Multinational corporate lobbying is directed at a range of business concerns. Countries that have been most successful in this type of confrontation with multinational corporations are large countries such as India and Brazil. there is much government action intended to affect corporate behavior. which have viable indigenous market competitors. Companies that have invested heavily in pollution control mechanisms may lobby for very tough environmental standards in an effort to force non-compliant competitors into a weaker position. The threat of nationalization . while others favor looser ones. the fraction of a company's imported components will vary. Even within the U. Government Power : In addition to efforts by multinational corporations to affect governments. There is no unified multinational perspective on any of these issues.S. When companies are faced with the option of losing a core competitive technological advantage (6) and withdrawing from a national market. This withdrawal often causes governments to change policy. they may choose the latter. from tariff structures to environmental regulations. auto industry. so some firms favor tighter import restrictions.

But more and more micro-multinationals are actively starting to market their products and services in various countries. These multinationals start operating in different countries from the very early stages. particularly software development companies.(forcing a company to sell its local assets to the government or to other local nationals) or changes in local business laws and regulations can limit a multinational's power. In most cases. a new breed of multinational companies is growing in numbers. Yahoo. MSN. Some of these micro-multinationals. Multinationals from Emerging Markets : . customer service and sales infrastructures. (7) Micro-Multinationals : Enabled by Internet based communication tools.Contrary to the traditional powerful image of the large MNCs. the micro-multinational companies are being run by technically savvy people who can use various Internet tools to overcome the challenges of remote collaboration. Ebay and Amazon make it easier for the micro-multinationals to reach potential customers in other countries. These companies are being called micro-multinationals. the micromultinationals face the limitations and the typical challenges of a small business. Internet tools like Google. have been hiring employees in multiple countries from the beginning of the Internet era.What differentiates micromultinationals from the large MNCs is the fact that they are small businesses.

Oil companies. the scenario for 'MNC in India' has changed a lot in recent years. But. Ford Motors. majority of these companies are of American origin but it did not take too long for other nations to realize the huge potential that India Inc offers. French Heavy Engineering major Alstom and Pharma major Sanofi Aventis is one of the earliest entrant in the scene and is expanding very fast. Although. Finland. Italy. Finnish mobile handset manufacturing giant Nokia has the second largest base in India. It is well documented that American companies accounts for around 37% of the turnover of the top 20 firms operating in India. Professor Rajesh K Pillania is bringing out a special issue on Multinationals from Emerging Markets in 2008. A host of automobile companies like Fiat. Piaggio etc from Italy have opened shop in India with R&D wing attached. since more and more firms from European Union like Britain. France. British Petroleum and Vodafone (to start operation soon) represents the British.Large number of multinationals are operating into emerging markets and at the same time a number of multinationals are coming from emerging markets. Infrastructure . Belgium etc have outsourced their work to India. Netherlands. Germany. 'Multinational Companies in India' represent a diversified portfolio of companies representing different nations. (8) Multinational Companies in India : The post financial liberation era in India has experienced huge influx of 'Multinational Companies in India' and propelled India's economy to greater heights.

Japan is also not far behind with host of (9) electronics and automobiles shops.builders from Middle East are also flocking in India to catch the boom. performance of 3 out of every 4 'Multinational Companies' has met or exceeded internal targets and expectations. Multinational Companies Operating in India cite India's highly educated workforce. cultural affinity. Malaysia. Moreover. Thailand. In spite of the huge growth India Inc have some bottlenecks. like • • • Irrational policies (tax structure and trade barriers). India's leadership in IT. India is perceived to be at par with China in terms of FDI attractiveness by 'Multinational Companies in India'. business processing. . and Philippines in terms of MNC performance. privatization and deregulation. In view of 'Multinational Companies' community. transparency. South Korean electronics giants Samsung and LG Electronics and small and mid-segment car major Hyundai Motors are doing excellent business and using India as a hub for global delivery. and regulatory environment as more favorable than others. and R&D investments. it ranks higher than China. Low invest in infrastructure . Slow reforms (political reforms to improve stability. they acknowledged. labor reforms). rule of law. Reports says. management talent.physical and information technology. Companies like Singtel of Singapore and Malaysian giant Salem Group are showing huge interest for investment.

They also provide various charitable services to the society. Macro-economic stability. For Government Advantage: Tax Source Economic Benefit Disadvantage: MNCs Strategy will influence various government policies making which may not always be good for the economy . Disadvantage: MNCs induces competition. For Society Advantage: MNCs remove established legacy businesses and promote local employment opportunities.'Multinational Companies in India' are bullish on • • • • India's market potential. FDI attractiveness. (10) What are advantages and disadvantages of MNCs? For a person individual Advantage: MNCs are globally recognized businesses so you have great potential for your Career growth in a Global level Disadvantage: Career path in MNC will take time to establish. and their profit minded operations may impact local market/produce. Labor competitiveness.

Have you ever given a second thought to what will happen to small retail shop owners & farmers? These big retailers would control the prices of commodities. were upbeat about the market conditions and the potential for further FDI inflows. 91 per cent. once they establish their presence. they expressed concerns about the quality of infrastructure in India. .MNCs???? Even Indian companies should not allow. According to FICCI's annual FDI survey. The survey said 84 per cent of the respondents gave a positive assessment of India. a study by FICCI has said. 70 per cent of the foreign companies here are earning profits from their Indian operations. it said. although they highlighted the need for building brand India and showcase India's potential as an investment destination. (11) Majority of MNC's in India making profits: A majority of foreign companies operating in India are making profits but the multinationals felt the need to build brand India so as to attract more investors. Despite an overwhelming majority. farm produce etc.

aviation and tourism are showing strong potentials with higher growth rates. However. manufacturing. is the twelfth largest in the world. The World Bank classifies India as a low-income economy. India's economy is diverse.25 trillion (2008). and the large number of young and educated populace fluent in English.089 at nominal (revised 2007 estimate). Although twothirds of the Indian workforce still earn their livelihood directly or indirectly through agriculture. foreign trade.542 at PPP and $1. textile. services are a growing sector and play an increasingly important role of India's economy. and software engineering. with a GDP of US $1. with a GDP growth rate of 9. when measured in USD exchange-rate terms.nanotechnology. India's huge population results in a per capita income of $4. (13) . India followed a socialist-inspired approach for most of its independent history. handicrafts. The advent of the digital age. encompassing agriculture.Othersectorslikemanufacturing. and a multitude of services. pharmaceuticals. biotechnology.(12) Economy of India The economy of India. India is a major exporter of highly-skilled workers in software and financial services. India is the second fastest growing major economy in the world. It is the third largest in terms of purchasing power parity. with strict government control over private sector participation. and foreign direct investment.4% for the fiscal year 2006–2007.shipbuilding. is gradually transforming India as an important 'back office' destination for global outsourcing of customer services and technical support.telecommunication.

Official surveys estimated that in the year 2004-2005.However. Religion. practised agriculture. India faces a fastly growing population and the challenge of reducing economic and social inequality. especially Hinduism.[10] The caste system functioned much like medieval European guilds. a permanent and predominantly urban settlement that flourished between 2800 BC and 1800 BC. 27% of Indians were poor. since the early 1990s. and the caste and the joint family systems. providing for the training of apprentices and. India has gradually opened up its markets through economic reforms by reducing government controls on foreign trade and investment. used uniform weights and measures. although it has declined significantly since independence. allowing manufacturers to achieve narrow specialization. and traded with other cities. (14) . Pre-colonial : The citizens of the Indus Valley civilisation. made tools and weapons. which included the world's first urban sanitation systems and the existence of a form of municipal government. The privatisation of publicly owned industries and the opening up of certain sectors to private and foreign interests has proceeded slowly amid political debate. a drainage system and water supply reveals their knowledge of urban planning. Evidence of well planned streets. ensuring the division of labour. Poverty remains a serious problem. in some cases. domesticated animals. played an influential role in shaping economic activities.

was a largely traditional agrarian economy with a dominant subsistence sector dependent on primitive technology. Textiles such as muslin. producing each variety of cloth was the speciality of a particular sub-caste. Assessment of India's pre-colonial economy is mostly qualitative. After the fall of the Mughals. One estimate puts the revenue of Akbar's Mughal Empire in 1600 at £17. manufacturing and credit. India. opium and indigo were exported to Europe.5 million. Estimates of the per capita income of India (1857–1900) as per 1948–49 prices. (15) . in contrast with the total revenue of Great Britain in 1800. in certain regions. owing to the lack of quantitative information. cinnamon. the Middle East and South East Asia in return for gold and silver.For instance. by the time of the arrival of the British. and agricultural products such as pepper. It existed alongside a competitively developed network of commerce. Calicos. which totalled £16 million. shawls.

While Indian leaders during the Independence struggle. capital markets. Colonial : Colonial rule brought a major change in the taxation environment from revenue taxes to property taxes resulting in mass impoverishment and destitution of the great majority of farmers. and significant growth in production and trade. one of the world's lowest life expectancies. and low rates of literacy.India was administered by Maratha Empire.3%. on paper.6% in 1700. The maratha empire's budget in 1740s. and created a single currency with fixed exchange rates. was Rs. guaranteed property rights among the colonizers. 100 million. a civil service that aimed to be free from political interference. at the end of colonial rule. adversarial legal system. and left-nationalist economic historians have (16) . and a common-law. India inherited an economy that was one of the poorest in the developing world. India's colonisation by the British coincided with major changes in the world economy—industrialisation. It also created an institutional environment that. a well developed system of railways and telegraphs. However. agriculture unable to feed a rapidly growing population. encouraged free trade. standardized weights and measures.8% in 1952. to a low of 3. comparable to Europe's share of 23. at its peak. with industrial development stalled. An estimate by Cambridge University historian Angus Maddison reveals that India's share of the world income fell from 22.

a broader macroeconomic view of India during this period reveals that there were sectors of growth and decline. with a strong emphasis on import substitution.blamed colonial rule for the dismal state of India's economy in its aftermath. Jawaharlal Nehru. Policy tended towards protectionism. along with the statistician Prasanta Chandra Mahalanobis. carried on by Indira Gandhi formulated and oversaw economic policy. a large public sector. because it involved both public and (17) . state intervention in labour and financial markets. resulting from changes brought about by colonialism and a world that was moving towards industrialisation and economic integration. Indian economic policy after independence was influenced by the colonial experience (which was seen by Indian leaders as exploitative in nature) and by those leaders' exposure to Fabian socialism. and central planning. industrialisation. business regulation. They expected favourable outcomes from this strategy. the first prime minister. Data Source: Penn World tables. Independence to 1991 : Growth rate of India's real GDP per capita (Constant Prices: Chain series) (1950–2006).

3 to 6.1%. While this increased the rate of growth. because of the unfavourable comparison with growth rates in other Asian countries. it also led to high fiscal deficits and a worsening current account.4% growth rate. (18) . India's low average growth rate from 1947–80 was derisively referred to as the Hindu rate of growth. and retard the development of small manufacturers. especially the "East Asian Tigers". Currently It is cruising at 9. who thought it would waste capital and labour. removed price controls and reduced corporate taxes.private sectors and was based on direct and indirect state intervention. rather than the more extreme Soviet-style central command system. The policy of concentrating simultaneously on capital. the government led by Rajiv Gandhi eased restrictions on capacity expansion for incumbents.and technology-intensive heavy industry and subsidising manual. low-skill cottage industries was criticized by economist Milton Friedman. In the late 80s. After 1991 : Goldman Sachs has predicted that India will become 3rd largest economy of the world by 2035 based on predicted growth rate of 5.

Private sector data relates to nonagriculture establishments with 10 or more employees. headed by the Prime Minister of India as its chairperson. including such services as the railways and postal system. of privatization. there have been phases of nationalizing such areas as banking and. India opted for a centrally planned economy to try to achieve an effective and equitable allocation of national resources and balanced economic development. The process of formulation and direction of the Five-Year Plans is carried out by the Planning Commission. Totals are rounded. The number of people employed in non-agricultural occupations in the public and private sectors.Government Intervention State planning and the mixed economy After independence. Since independence. (19) . more recently. but has shifted more towards the former over the past decade. The public sector generally covers areas which are deemed too important or not profitable enough to leave to the market. India's mixed economy combines features of both capitalist market economy and the socialist command economy.

social and economic services (education. postal deficit. agriculture. subsidies.Public expenditure : India's public expenditure is classified as development expenditure. states and union territories and foreign governments. pensions. central assistance refers to financial assistance and developmental loans given for plans of the state governments and union territories. loans to public enterprises. Interest payments are the single largest item of expenditure and accounted for more than 40% of the total non development expenditure in the 2003–04 budget. Central plan expenditure is allocated to development schemes outlined in the plans of the central government and public sector undertakings. Non-development capital expenditure comprises capital defense expenditure. administrative expenditure.Defence expenditure increased fourfold during the same period and has been increasing due to growing tensions in the region. debt relief to farmers. health. these categories can each be divided into capital expenditure and revenue expenditure. comprising central plan expenditure and central assistance and non-development expenditures. Administrative expenses are compounded by a (20) . while non-development revenue expenditure comprises revenue defence expenditure.grants to states and union territories and foreign governments. the expensive dispute with Pakistan over Jammu and Kashmir and an effort to modernise the military. science and technology).India's non-development revenue expenditure has increased nearly fivefold in 2003–04 since 1990–91 and more than tenfold since 1985–1986.

tax on entertainment and professions. initiated in 1991.The tax reforms. stamp duties on transfer of property and collect land revenue (levy on land owned). of which half come from Indirect taxes. Public receipts : India has a three-tier tax structure. tax on capital transactions (wealth tax. inheritance tax). customs and making it more progressive (21) . education and petroleum and other merit and nonmerit subsidies account are not only continuously rising. have sought to rationalise the tax structure and increase compliance by taking steps in the following directions: • Reducing the rates of individual and corporate income taxes. sales tax. The local governments are empowered by the state government to levy property tax.More than half of the revenues of the union and state governments come from taxes. especially because of rising crude oil and food prices. subsidies on food. which rises periodically due to revisions in wages. wherein the constitution empowers the union government to levy Income tax.large salary and pension bill. customs and excise duties and the state governments to levy sales tax on intra-state sale of goods. excise duties on manufacture of alcohol. dearness allowance etc. More than a quarter of the union government's tax revenues is shared with the state governments. excises. Octroi and charge users for public utilities like water supply. because of political compulsions. but are also harder to rein in. fertilizers. sewage etc. service tax.

economic and social services. The budget has to be passed by the Lok Sabha before it can come into effect on April 1. interest receipts. etc. 2005 to replace the complex and multiple sales tax system The non-tax revenues of the central government come from fiscal services. General budget : The Finance minister of India presents the annual union budget in the Parliament on the last working day of February..14. The Union budget is preceded by an economic survey which outlines the broad direction of the budget and the economic performance of the country for the outgoing financial year. (22) .Inter-State share in the federal tax pool is decided by the recommendations of the Finance Commission to the President. business people. while the non-tax revenues of the States are grants from the central government. women organizations. India's union budget for 2005–06. had an estimated outlay of Rs. old people associations etc.5. This economic survey involves all the various NGOs. the start of India's fiscal year. interest receipts. public sector dividends.344 crores ($118 billion). dividends and income from general.• • • • Reducing exemptions and concessions Simplification of laws and procedures Introduction of Permanent account number to track monetary transactions 21 of the 29 states introduced Value added tax (VAT) on April 1.

39. India's fiscal deficit amounts to 4.73. 2.231 crore ($32b). (23) .8% of GDP. by March 2007.5% or 1.466 crore ($63b).Earnings from taxes amount to Rs.The fiscal deficit is expected to be 3.

employed 60% of the total workforce and despite a steady decline of its share in the GDP. technology. international comparisons reveal that the average yield in India is generally 30% to 50% of the highest average yield in the world. application of modern agricultural practices and provision of agricultural credit and subsidies since Green revolution in India.6% of the GDP in 2005. in 2003–04. Yields per unit area of all crops have grown since 1950. logging and fishing accounted for 18. (24) . due to the special emphasis placed on agriculture in the fiveyear plans and steady improvements in irrigation.Sectors Agriculture : Composition of India's total production (million tonnes) of foodgrains and commercial crops. Agriculture and allied sectors like forestry. is still the largest economic sector and plays a significant role in the overall socio-economic development of India. However. India ranks second worldwide in farm output.

000 m²) and is subject to fragmentation. Such small holdings are often over-manned. family disputes. specifically the Monsoon season. which result in farmers still being dependent on rainfall. as revealed by the fact that only 53. A good monsoon results in a robust growth for the economy as a whole. Farm credit is regulated by NABARD. Irrigation facilities are inadequate. Adoption of modern agricultural practices and use of technology is inadequate. high costs and impracticality in the case of small land holdings. while a poor monsoon leads to a sluggish growth. general socio-economic backwardness. The average size of land holdings is very small (less than 20.6% of the land was irrigated in 2000– 01. hampered by ignorance of such practices.The low productivity in India is a result of the following factors: Illiteracy. slow progress in implementing land reforms and inadequate or inefficient finance and marketing services for farm produce. • • • • (25) . resulting in disguised unemployment and low productivity of labour. due to land ceiling acts and in some cases. which is the statutory apex agent for rural development in the subcontinent.

6% of the GDP and employ 17% of the total workforce. Economic reforms brought foreign competition. as a percentage of the US[20][54] India is fourteenth in the world in factory output. the Indian private sector. They together account for 27. led to privatisation of certain public sector industries. including the threat of cheaper Chinese imports.Industry : Per capita GDP (at PPP) of South Asian economies versus those of South Korea. focusing on designing new products and relying on low labour costs and technology. which was usually run by oligopolies of old family firms and required political connections to prosper was faced with foreign competition. revamping management.However. Post-liberalisation. about one-third of the industrial labour force is engaged in simple household manufacturing only. (26) . opened up sectors hitherto reserved for the public sector and led to an expansion in the production of fast-moving consumer goods. It has since handled the change by squeezing costs.

54 0.92 17.14 Services (27) Services : .09 26.66 Oil & Gas 34.[57] The 10 leading companies are: World Rank Company Oil and Natural Gas Corporation Reliance Industries State Bank of India Indian Oil Corporation NTPC ICICI Bank Steel Authority of India Limited Tata Consultancy Svcs Tata Steel Infosys Technologies Logo Industry Market Revenue Profits Assets Value (billion (billion (billion (billion $) $) $) $) 3.46 2.25 26.55 1.37 12.84 0.79 6.05 Operations Banking 13.62 156.06 10.34 Indian companies have been listed in the Forbes Global 2000 ranking for 2007.11 1.16 239 258 326 399 494 536 800 Oil & Gas 15.27 5.80 26.13 16.24 1.72 7.31 0.61 2.64 Operations Oil & Gas 18.75 42.22 Operations Utilities Banking Materials 6.67 0.19 21.98 Services Materials 4.06 5.19 Software & 2.68 10.30 1047 1128 1130 Software & 2.06 62.91 26.93 4.35 22.98 38.54 0.11 1.

growth rate 7. and it is growing fast. accounting for 53. information technology enabled services. availability of a large pool of low cost. educated and fluent English-speaking workers (a legacy of British Colonialism) on the supply side and on the demand side.8% in 2005 up from 15% in 1950. Business services (information technology. India's IT industry. accounted for only about 1% of the total GDP or 1/50th of the total services. The growth in the IT sector is attributed to increased specialisation.5% in 1951–80. the government has approved significant banking reforms. despite contributing significantly to its balance of payments. business process outsourcing) are among the fastest growing sectors contributing to one third of the total output of services in 2000. other reforms have opened up the banking and insurance sectors to private and foreign players. (28) Socio-economic characteristics .5% in 1991–2000 up from 4. While some of these relate to nationalised banks (like encouraging mergers. Since liberalisation. It has the largest share in the GDP. increased demand from foreign consumers interested in India's service exports or those looking to outsource their operations. It provides employment to 23% of work force. but highly skilled.India is fifteenth in services output. reducing government interference and increasing profitability and competitiveness).

Wealth distribution in India is improving since the liberalization and with the end of the socialist rule termed as the license raj.Poverty : Percent of population living under the poverty line Large numbers of India's people live in abject poverty."Since the early 1950s. official figures estimate that 27. All these programmes have relied upon the strategies of the Food for work programme and National Rural Employment Programme of the 1980s. under planning.5% of Indians still lived below the national poverty line in 2004-2005. successive governments have implemented various schemes. to alleviate poverty.While poverty in India has reduced significantly. living in abject poverty. lived on less than 20 rupees per day with most working in "informal labour sector with no job or social security. or 800 million people. which attempted to use the unemployed to generate (29) . that have met with partial success.A 2007 report by the state-run National Commission for Enterprises in the Unorganised Sector (NCEUS) found that 70% of Indians.

export obligations and government approvals.productive assets and build rural infrastructure. the largest programme of this type in terms of cost and coverage. restrictions on technology transfer. The question of whether economic reforms have reduced poverty or not has fuelled debates without generating any clear cut answers and has also put political pressure on further economic reforms. Foreign trade was subject to import tariffs. especially those involving the downsizing of labour and cutting agricultural subsidies. In August 2005. the Indian parliament passed the Rural Employment Guarantee Bill. a large percentage of the capital flows consisted of foreign aid. these approvals were needed for nearly 60% of new FDI in the industrial sector. export taxes and quantitative restrictions. to protect its fledging economy and to achieve self-reliance. External trade and investment Global trade relations : Until the liberalisation of 1991. India was largely and intentionally isolated from the world markets. while foreign direct investment was restricted by upper-limit equity participation. commercial borrowing and deposits (30) . which promises 100 days of minimum wage employment to every rural household in 200 of India's 600 districts. The restrictions ensured that FDI averaged only around $200M annually between 1985 and 1991.

109 crores in 2003–04 from Rs.898 4. the value of India's international trade has become more broad-based and has risen to Rs. India's major trading partners are China.1.250 crores in 1950–51. the UAE.16% 6. (1991– 2004)[81] Inflows (Million USD) 8. the UK.56% India's exports were stagnant for the first 15 years after independence. equipment and raw materials. 63.08% 7. due to nascent industrialisation. Japan and the EU.692 Rank Country Inflows (%) 1 2 3 4 5 Mauritius United States Japan Netherlands United Kingdom 34.The (31) .389 1. demand for which was generally inelastic.33% 7.of non-resident Indians. Share of top five investing countries in FDI inflows. due to the predominance of tea.891 1.080.847 1. jute and cotton manufactures.49%[82] 17. Imports in the same period consisted predominantly of machinery. Since liberalisation. the US.

In March 2005.16% over the previous year. hospitals. India has been crucial in voicing the concerns of the developing world. housing.A number of changes were approved on the FDI policy to remove the caps in most sectors. petroleum and natural gas. built-up infrastructure and construction development projects including housing. recreational facilities. and city.and regionallevel infrastructure.exports during August 2006 were $10. the World Trade Organization. construction development. Restrictions will be relaxed in sectors as diverse as civil aviation. (32) . removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment FDI. hotels. the government amended the rules to allow 100 per cent FDI in the construction business.3 billion up by 41. For instance. But this still leaves an unfinished agenda of permitting greater foreign investment in politically sensitive areas such as insurance and retailing.India is a founding-member of General Agreement on Tariffs and Trade (GATT) since 1947 and its successor. creditinformation services and mining. resorts. industrial parks. India has continued its opposition to the inclusion of such matters as labour and environment issues and other non-tariff barriers into the WTO policies. commodity exchanges.87 billion with an increase of 32. requirements. educational institutions. While participating actively in its general council meetings. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalized FDI regime.14% and import were $13.This automatic route has been permitted in townships. commercial premises.

This is a story. Many of the key drivers of their success has been their prowess at creating high quality but low cost Software & Outsourcing services in case of India and manufacturing in case of China. There have been isolated stories like rise of Rajat Gupta (ex-Chief Mckinsey). fascination & even fear in the global media. It will be interesting to trace the rise of IIMs along with India's rise in the world economy. which is still to unfold in a big way but already has started making waves in recent years.The Rise of India & the IIM Story The Rise of India In last couple of years. (33) . Victor Menzes of Citibank. However what seems to have missed the attention of media is emergence of Indian Managers in the top ladders of US Corporate arena. Most of these stories are inspired by the huge strides made by Indian & Chinese companies in Service & Manufacturing sectors. Some analysts have also highlighted the Research & Development investments being made in India by corporations as diverse as GE to Google leading to possible emergence of Asia as the R&D hub for world. but one big emerging trend has been the rise of Indian Managers or MBA. The Rise of India & China is a story being watched with much awe.

Thus best of breed students combined with best of breed professors and (34) . The competition for gaining a seat into these bschools was hyper competitive even after discounting the huge population of India. 10% for the top ivy-league schools of US.The Turnaround In late 90s when the current Indian PM. Also many of India’s top brains like IIT engineers. it opened up a wealth of opportunities for private sector enterprises and also drew a horde of MNCs to India. To cater to this market corporate needed a horde of management professionals to run & grow the new markets. The size of Indian middle class by then estimates of 200300MM was one of the fastest growing markets in the world. the middle class dream career was not to get into the Civil Service but rather to earn an MBA degree as a route of entry to the corporate world. The Economist in its recent ratings of B-Schools rated IIM-A (Ahmedabad) as the “toughest B-school in world to get into”. Also being able to attract many Indian profs who had acquired their doctorates at top US Universities added to their reputation as hubs for excellence. This brought in a tonne of opportunities to India’s thousands of MBA grads and more so for the students of IIMs who were the crème-la-crème of India. Slolwy but surely. Chartered Accountants were allured into seeking an MBA degree to their portfolio especially so from an IIM. Manmohan Singh. Only recently. Imagine an admission rate of . as the Finance Minister. began the liberalization of Indian economy.6% vs.

availability of rewarding placement opportunities. However impressed by the performance of the initial recruits they started recruiting for their global practices. JP Morgan in I-Banks thus were quick to use the IIMs as a recruiting ground mainly for their Indian Operations to start with. In corporate world especially US. Consulting & Investment Banks are among the most demanding careers and also most competitive in the war for talent globally. NYC and it also was the inaugural year for Goldman Sachs. Also given the profile of IIM students. Arrival of Mckinsey. all at a fraction of Ivy-league rates created a unique selling proposition in the hyper-competitive MBA school world. it became even more tempting for the leading recruiters to shun many 2nd rung b-schools elsewhere to get thesetalent (35) . 70% of who boast of an engineering degree from India’s top Colleges and mostly IITs. Year 2000 was a ground breaking year in the sense. more than 10% of IIM-A grads was recruited purely for placements in Manhattan. In fact the war for heads has become so hot these days that many of these try to pick the cream via the summer trainee route and offer Pre-Placement Offers. Lehman & Co. The likes of Mckinsey & BCG in consulting & Lehman Brothers.

made people note of the management behind these companies.One of the key facets of market economy is changing skill sets requirements and being able to deal with complexity and uncertainty. uncertainity.A random invenory of India's non-family. This is where Indian Managers were miles ahead and much of this success is credited to the IIMs & the second line of b-schools. ICICI's top (36) . Life in India or any developing world can be full of chaos. One key competitive advantage Indian companies had vis-à-vis Chinese ones was the breadth & depth of management talent.The Path Ahead More recently. scarcity and greys. This is one area where Indian students come with a unique advantage. India’s success were more in the higher end of value chain. This meant that most of these young MBA aspirants get the experience of many life times even in families and a 2 year structured thinking process and arming with tools & techniques of a typical b-school curricula would prepare them to take on the corporate world by thorns. the success of many Indian corporate in IT & BPO arena people. part of Unilevers) K V Kamath (IIM-A). non-govt sector WHO IS WHO would read like the alumni list of IIMs. which are no less competitive.Below are some examples from tradition sectorsVindi Banga (IIM-A) HLL's top gun ( HLL is India's largest consumer goods company. While China had a huge success in managing and running cheap assembly line production of goods at lowest price.

Just like technology innovation was the source of competitive advantage in past and IITians were a key enabler to that. Hopefully IIMs will live up to the great expactations !!! .As Indian economy becomes a bigger % of global economy not in terms of GDP alone but also as a bigger % of global innovation then many of these IIM grads to have step up and be counted. mphasis (Jerry Rao) .gun ( ICICI is India's largest private sector bank). Rediff.com (Ajit Balakrishnan) . Even in the new brave world of dot com. software & BPO we have many IIM alum leading the charge.However what is new or changing is that unlike in past. If things don't work well then you can always go back to the big corporate world. now Business Process & Management related innovations will be key to success in this hypercompetitive economy. This is what was needed. Genpact ( Tiger Tyagrajan). No more you needed to have spent a stable/secure career at Citi or GE or P&G but rather you can start with your own thing. we have relatively younger alums are taking the risk to start their own firms.

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