Growth of Multinational Companies in India
“MNCs are huge industrial organizations that open up income-generating assets in more than one country. They engage themselves in the production of goods or services outside the country of their origin. They are characterized by their huge assets and aim at profit maximization. They have initiated the development process in several underdeveloped countries and have helped in generating exports. But they gain supremacy in the host country and are known to influence the decision – making processes in developing countries. In India, attempts are being made to gain lost ground with economic liberalization.”
Multinational corporations (MNCs) are those private companies that work in more than one country. They produce or provide goods or services of the highest quality and according to the latest global norms. They also employ the best human resource in a country and thus build brand images that are unique, stable, and above all saleable.
The multi-nationalization of Indian companies has become possible mainly due to the liberalization of the Indian economy. In the last four years, there have been over 160 acquisitions of foreign companies by Indian firms. The pressure on them to face up to global competition has been crucial in making them competitive. In order to compete with foreign MNCs, they had to cut costs and improve their technology and management skills. The opening up of trade and industry had transformed them, into players in the global market. Capital account convertibility has enabled them to purchase foreign MNCs. If they had not been allowed to take their money abroad, this acquisition of foreign companies would not have been possible. There would have been another disadvantage. They could not take advantage of the scale and technology that is offered by such acquisitions. The acquisition of Nat Steel, a Singapore-based steel company by TISCO is part of a new trend in India’s globalization. This acquisition will give TISCO greater access to the worth of east Asian steel markets. This is the third overseas acquisition by the Tata group. Earlier in 2000, the group bought Tetley, the world’s second-largest tea company. It was for the first time an Indian brand name was seen prominently in foreign households. That deal for $ 431 million represented the largest take-over by the Tata group was the truck unit of Daewoo. In 2001 and 2002, foreign acquisitions by Indian companies was dominated by software farms. Most of these were small companies, priced around 10 million. Pharmaceutical Companies like Ranbaxy and Dr. Reddy’s followed in 2003-2004, making acquisitions of French, German and British Pharmaceuticals. Others, such as the Aditya Birla group, Reliance Infocom, ONGC, Videsh, and Indian stainless, have all gone global.
The control over the MNCs rests with the Ministry of Company Affairs, the Reserve Bank of India (RBI), the Ministry of Industrial Development, and the Ministry of Finance. The Foreign Exchange Regulation Act was enforced in January 1974 to regulate the operations of MNCs in India. The fourth phase began with the adoption of the economic liberalization policy announced in July 1991. It was aimed to attract a free flow of foreign investment. All laws governing Indian enterprises, like the companies, act the Income Tax Act and others were binding on all subsidiaries of foreign companies and all joint-ventures involving foreign collaborations. The Foreign Exchange Management Bill (FEMA) was introduced in August 1998 to consolidate and amend the law relating to foreign exchange with the objectives of facilitating external trade and payments and for promoting the orderly development and maintenance of the foreign exchange market in India with FEMA the emphasis has been shifted from regulation of foreign exchange to its management. It also specifies that the RBI would be the sole administrator for the permissible capital account transactions. With the relaxation of foreign exchange controls and the move towards convertibility, the Indian economy is bound to gain its lost ground.
We can conclude by stating that we need MNCs as we are a part of the global trading culture. We must allow them to operate in those high- technology areas in which we lack the expertise. We should also import technologies through them but we should manufacture products in India. It is relevant that Indian companies are not shackled by the remaining controls on the capital account in the future. The Ministry of Finance and RBI should ensure that outdated rules do not stand in the way of increasing the global competitiveness of Indian Firms. MNCs should not be viewed as saboteurs. But they must not be allowed to control the destiny of our nation.