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By Dr Navin Chandra Joshi
Ever since the economic reforms process got under way in 1991, there has been a lot of discussion on whether multinational companies (MNCs) from other countries should be allowed to gain an entry into the Indian market through any activity?be it manufacturing, service or sale. However, many such MNCs have already been allowed to set up their units in India for one reason or the other. Yet, the issue whether these MNCs are doing any good for the country or they are a drag and serve as a setback to our own progress has remained undecided.
There have been arguments both in favour and against the proposition. Yet the last word on the subject has not been said so far, especially by the government. As such, over the years there has been a lurking skepticism on whether MNCs are a boon or a bane for Indian economy, offering as they do stiff competition to Indian producers and businessmen.
Time has now come when the issue needs to be seriously dealt with. No longer should there be any equivocation, uncertainty or bickering indulged in by any section of Indian industry or any sector of the economy. It may be recalled that the early years of liberalisation saw frequent debates in which nearly every section of industry supported the opening up of the economy to foreign investment, but sought protection for itself. The government'sdescription of the abysmal nature of our economy gave the multinationals a head start as a saviour in a salvaging operation in tandem with the policy of liberalisation.
But then, the mindset nurtured by decades of functioning in a sheltered economy had to be changed. Somehow, we came to terms with the fact that global integration with free market economies will make India more dependent on international relations. Therefore, the question was not that those who wanted greater ?Swadeshi? flavour were in effect demanding a situation of near autarky where trade relations, being insignificant, hardly matter for the economy.
No wonder, MNCs are here to make money and to take advantage of our huge consumer market in the country with rising incomes of the population. Besides, the export sector in India provides for ample opportunity to MNCs to play a lead role, as was the case in globalisation of the East Asian economies. MNCs were encouraged to invest in this sector in large numbers. It was felt that the need arose in view of the increasing debt servicing obligations and import requirements of the country.
The new economic policy of 1991 was, therefore, favourable for MNCs and they have been allowed to use their brand names in the domestic market. No doubt, India requires direct foreign investment in crucial sectors of the economy to improve its competitive strength in the international market. However, it should not become a victim of the machinations of MNCs. Our approach to MNCs must, therefore, be a cautious one. True, many MNCs have been functioning in India for a long time, but then, we must be wary of their shenanigans. This is so because they want to see that the world depends on them and their products. They do not mind if their activities enfeeble the environment in the host countries.
The early years of liberalisation witnessed frequent debates in which the major issue against them was the fact of their taking away the capital out of the country, thus depleting our investment resources. There is a lot of element of truth in this but the government has been just helpless as MNCs could legitimately do that in the regime of liberalisation.
What is more, we should not wish away the fact that the operations of MNCs result in transfer of inappropriate and outdated technologies into India in most of the cases. Other harmful effects include over-exploitation of scarce hard currencies in the form of dividends, royalties, patent fees and profits, excessive local borrowings, long-run technological dependency on the parent countries and exorbitant transfer prices for exports or imports and for technological inputs.
It must also be recognised that MNCs? investment in a project is spread out over a long period of time. A project that is relatively more technology intensive and requires a much higher capital outlay takes much longer to be implemented The total investment earmarked for a project covers the real estate and establishment costs, covers the expenditure envisaged for capital equipment and machinery, and also includes manpower cost. Obviously, the entire investment is not going to flow as liquid cash into the Indian economy.
What is worse, MNCs have no obligation to any nations, much less to their national sensibilities. Their sole interest is in expansionist policies. They can use their enormous resources even for political corruption and overthrowing of government democratically elected. Through their aggressive advertising, they encourage conspicuous consumption and wasteful expenditure. Obviously, the production patterns of developing countries become preposterous, much to the disadvantage of their poorer sections of society.
There is, therefore, a need to make foreign investment policy and approval for MNC projects transparent to avoid disputes like the one we had in the case of Enron Dhabol project, which though again put back on rails, has spoilt a lot of image in respect of India'sforeign investment policy. Presently some foreign investors are holding back their plans of investment till the new Union Government gives priority to the entry of MNCs in consumer goods sector. However, for a long time now, it has become a moot point, if MNCs should be allowed in the country in production/supply of consumer and food products. Are we not competent enough to marvel at least in such sectors?
To conclude, while there is much talk of accountability and regulatory mechanism, which may discipline MNCs not to work against the interests of this country, in practice to expect that they can be subjected to any local accountability is nothing but a wishful thinking. MNCs are unified, well-coordinated entities and their operations are conducted through centrally-located coordinators. In such a situation, to make them veer round the concept of local sensibilities seems rather very difficult if at all attempted in future. However, some kind of local regulatory system can be put in place to effectively monitor the working of multinationals. Whatever units of MNCs are functioning in India at present, they should be bound down to work only for the welfare of the people at large and for the prosperity of this country.
