ANNASAHEB VARTAK

COLLEGE
Project on :
IMPACT OF MULTINATIONAL
CORPORATION ON INDIAN ECONOMY
Submitted To:
Prof N!ir
Submitted "# :
Ab$ijeet %u&'$re'$t$!
Ro&& No :
(1)
CONTENT
SrNo TOPIC
( MULTINATIONAL CORPORATION
) MULTINATIONAL CORPORATION IN
INDIA
* Ad+!nt!,e' - Di'!d+!nt!,e'
. Indi!n econom#
/ MULTINATIONAL CORPORATION -
Indi!n econom#
0 MULTINATIONAL CORPORATION IN
INDIA
(2)
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
eceed those o! many countries. Multinational corporations
can have a power!ul in!luence in international relations and
local economies. Multinational corporations play an important
role in globali"ation# some argue that a new !orm o! MNC is
evolving in response to globali"ation$ the %globally integrated
enterprise%.
What is the difference between Multi National
Corporation and Trans National Corporation?The
di!!erence is more semantics than anything else.
Multinationals operate in several di!!erent companies will
trans national implies &'ust across the border& as in the ()
and Canada. *bviously+ both operate internationally
History :
There is a dispute as to which was the !irst MNC. )ome have
argued that the ,nights Templar+ !ounded in ---.+ became a
multinational when it stumbled into ban/ing in --01. 2owever+
others claim that the 3utch 4ast 5ndia Company was the
!irst proper multinational.
(3)
Multinational corporate structure :
Multinational corporations can be divided into three broad
groups according to the con!iguration o! their production
!acilities$
Horizontally integrated multinational corporations
manage production establishments located in di!!erent
countries to produce the same or similar products.
(eample$ Mc3onalds)
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. (eample$ Adidas)
Diersified multinational corporations manage
production establishments located in di!!erent
countries that are neither hori"ontally nor vertically nor
straight+ nor non6straight integrated. (eample$
Microso!t)
*thers argue that a /ey !eature o! the multinational is the
inclusion o! bac/ o!!ice !unctions in each o! the countries in
which they operate. The globally integrated enterprise+ which
some see as the net development in the evolution o! the
multinational+ does away with this re7uirement.
(4)
International poer :
8arge multinational corporations can have a power!ul
in!luence in international relations+ given their large economic
in!luence in politicians% representative districts+ as well as
their etensive !inancial resources available !or public
relations and political lobbying.
Ta! Co"petition :
Multinationals have played an important role in globali"ation.
Countries and sometimes subnational regions must compete
against one another !or the establishment o! MNC !acilities+
and the subse7uent ta revenue+ employment+ and economic
activity. To compete+ countries and regional political districts
o!!er incentives to MNCs such as ta brea/s+ pledges o!
governmental assistance or improved in!rastructure+ or la
environmental and labour standards. This process o!
becoming more attractive to !oreign investment can be
characteri"ed as a race to the bottom+ a push towards
greater !reedom !or corporate bodies+ or both.
Lar#est Econo"ies :
An inaccurate claim is that out o! the -99 largest economies
in the world+ 1- are multinational corporations.
:;<
This claim is
based on a miscalculation+ where two numbers describing
totally di!!erent things are compared$ the =3> o! nations to
gross sales o! corporations. The problem with the comparison
is that =3> ta/es into account only the !inal value+ whereas
(5)
gross sales don%t measure how much was produced outside
the company. According to )wedish economist ?ohan
Norberg+ i! one were to compare nations and corporations+
then one should be comparing =3> to goods only produced
within the particular company (gross sales do not ta/e into
account goods purchased !rom 0rd party vendors and resold+
'ust as =3> does not ta/e into account imported goods). That
correction would ma/e only 0. o! -99 largest economies
corporations and all o! them would be in bottom bo$ only 1
corporations would be in top 19.
Mar$et %it&'raal :
@ecause o! their si"e+ multinationals can have a signi!icant
impact on government policy+ primarily through the threat o!
mar/et withdrawal. Aor eample+ in an e!!ort to reduce
health care costs+ some countries have tried to !orce
pharmaceutical companies to license their patented drugs to
local competitors !or a very low !ee+ thereby arti!icially
lowering the price. Bhen !aced with that threat+
multinational pharmaceutical !irms have simply withdrawn
!rom the mar/et+ which o!ten leads to limited availability o!
advanced drugs. 5n these cases+ governments have been
!orced to bac/ down !rom their e!!orts. )imilar corporate
and government con!rontations have occurred when
governments tried to !orce companies to ma/e their
intellectual property public in an e!!ort to gain technology
!or local entrepreneurs. Bhen companies are !aced with the
option o! losing a core competitive technological advantage
(6)
and withdrawing !rom a national mar/et+ they may choose the
latter. This withdrawal o!ten causes governments to change
policy. Countries that have been most success!ul in this type
o! con!rontation with multinational corporations are large
countries such as 5ndia and @ra"il+ which have viable
indigenous mar/et competitors.
Lo((yin# :
Multinational corporate lobbying is directed at a range o!
business concerns+ !rom tari!! structures to environmental
regulations. There is no uni!ied multinational perspective on
any o! these issues. Companies that have invested heavily in
pollution control mechanisms may lobby !or very tough
environmental standards in an e!!ort to !orce non6compliant
competitors into a wea/er position. Aor every tari!! category
that one multinational wants to have reduced+ there is
another multinational that wants the tari!! raised. 4ven
within the (.). auto industry+ the !raction o! a company%s
imported components will vary+ so some !irms !avor tighter
import restrictions+ while others !avor looser ones.
Go)ern"ent *oer :
5n addition to e!!orts by multinational corporations to a!!ect
governments+ there is much government action intended to
a!!ect corporate behavior. The threat o! nationali"ation
(!orcing 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.
(7)
Micro+Multinationals :
4nabled by 5nternet based communication tools+ a new breed
o! multinational companies is growing in numbers. These
multinationals start operating in di!!erent countries !rom
the very early stages. These companies are being called
micro6multinationals.Bhat di!!erentiates micro6
multinationals !rom the large MNCs is the !act that they are
small businesses. )ome o! these micro6multinationals+
particularly so!tware development companies+ have been
hiring employees in multiple countries !rom the beginning o!
the 5nternet era. @ut more and more micro6multinationals are
actively starting to mar/et their products and services in
various countries. 5nternet tools li/e =oogle+ Cahoo+ M)N+
4bay and Ama"on ma/e it easier !or the micro6multinationals
to reach potential customers in other countries.Contrary to
the traditional power!ul image o! the large MNCs+ the micro6
multinationals !ace the limitations and the typical challenges
o! a small business. 5n most cases+ the micro6multinational
companies are being run by technically savvy people who can
use various 5nternet tools to overcome the challenges o!
remote collaboration+ customer service and sales
in!rastructures.
Multinationals ,ro" E"er#in# Mar$ets :
8arge number o! multinationals are operating into emerging
mar/ets and at the same time a number o! multinationals are
coming !rom emerging mar/ets. >ro!essor Da'esh , >illania is
bringing out a special issue on Multinationals from !merging
Mar"ets in ;99E.
(8)
Multinational Co"panies in In'ia :
The post !inancial liberation era in 5ndia has eperienced
huge in!lu o! %Multinational Companies in #ndia% and
propelled 5ndia%s economy to greater heights.
Although+ ma'ority o! these companies are o! American origin
but it did not ta/e too long !or other nations to reali"e the
huge potential that 5ndia 5nc o!!ers. %Multinational
Companies in #ndia% represent a diversi!ied port!olio o!
companies representing di!!erent nations. 5t is well
documented that American companies accounts !or around
0.F o! the turnover o! the top ;9 !irms operating in 5ndia.
@ut+ the scenario !or %MNC in 5ndia% has changed a lot in
recent years+ since more and more !irms !rom 4uropean
(nion li/e @ritain+ 5taly+ Arance+ =ermany+ Netherlands+
Ainland+ @elgium etc have outsourced their wor/ to 5ndia.
Ainnish mobile handset manu!acturing giant No/ia has the
second largest base in 5ndia. @ritish >etroleum and Voda!one
(to start operation soon) represents the @ritish. A host o!
automobile companies li/e Aiat+ Aord Motors+ >iaggio etc !rom
5taly have opened shop in 5ndia with DG3 wing attached.
Arench 2eavy 4ngineering ma'or Alstom and >harma ma'or
)ano!i Aventis is one o! the earliest entrant in the scene and
is epanding very !ast. *il companies+ 5n!rastructure
builders !rom Middle 4ast are also !loc/ing in 5ndia to catch
the boom. )outh ,orean electronics giants )amsung and 8=
4lectronics and small and mid6segment car ma'or 2yundai
Motors are doing ecellent business and using 5ndia as a hub
!or global delivery. ?apan is also not !ar behind with host o!
(9)
electronics and automobiles shops. Companies li/e )ingtel o!
)ingapore and Malaysian giant )alem =roup are showing huge
interest !or investment.
#n spite of the huge growth #ndia #nc hae some
bottlenec"s$ li"e %
5rrational policies (ta structure and trade barriers).
8ow invest in in!rastructure 6 physical and in!ormation
technology.
)low re!orms (political re!orms to improve stability+
privati"ation and deregulation+ labor re!orms).
Deports says+ per!ormance o! 0 out o! every H %Multinational
Companies% has met or eceeded internal targets and
epectations. 5ndia is perceived to be at par with China in
terms o! A35 attractiveness by %Multinational Companies in
5ndia%. 5n view o! %Multinational Companies% community+ it
ran/s higher than China+ Malaysia+ Thailand+ and >hilippines in
terms o! MNC per!ormance. Multinational Companies
*perating in 5ndia cite 5ndia%s highly educated wor/!orce+
management talent+ rule o! law+ transparency+ cultural
a!!inity+ and regulatory environment as more !avorable than
others. Moreover+ they ac/nowledged+ 5ndia%s leadership in
5T+ business processing+ and DG3 investments.
&Multinational Companies in #ndia& are bullish on %
5ndia%s mar/et potential.
8abor competitiveness.
Macro6economic stability.
A35 attractiveness.
(10)
%&at are a')anta#es an'
'isa')anta#es o, MNCs-
'or a person indiidual
Advantage$ MNCs are globally recogni"ed businesses so you
have great potential !or your Career growth in a =lobal level
3isadvantage$ Career path in MNC will ta/e time to establish.
'or (ociety
Advantage$ MNCs remove established legacy businesses and
promote local employment opportunities. They also provide
various charitable services to the society.
3isadvantage$ MNCs induces competition+ and their pro!it
minded operations may impact local mar/et/produce.
'or )oernment
Advantage$ Ta )ource 4conomic @ene!it
3isadvantage$ MNCs )trategy will in!luence various
government policies ma/ing which may not always be good !or
the economy
MNCsIIII 4ven 5ndian companies should not allow. 2ave you
ever given a second thought to what will happen to small
retail shop owners G !armersI These big retailers would
control the prices o! commodities+ !arm produce etc. once
they establish their presence.
(11)
Ma.ority o, MNC/s in In'ia "a$in#
pro0ts:

A ma'ority o! !oreign companies operating in 5ndia are
ma/ing pro!its but the multinationals !elt the need to build
brand 5ndia so as to attract more investors+ a study by
A5CC5 has said.
According to A5CC5%s annual A35 survey+ .9 per cent o! the
!oreign companies here are earning pro!its !rom their 5ndian
operations.
The survey said EH per cent o! the respondents gave a
positive assessment o! 5ndia+ although they highlighted the
need !or building brand 5ndia and showcase 5ndia%s potential
as an investment destination.
3espite an overwhelming ma'ority+ J- per cent+ were upbeat
about the mar/et conditions and the potential !or !urther
A35 in!lows+ they epressed concerns about the 7uality o!
in!rastructure in 5ndia+ it said.
(12)
Economy of India
The economy of #ndia+ when measured in ()3 echange6rate
terms+ is the twel!th largest in the world+ with a =3> o! ()
K-.;1 trillion (;99E).

5t is the third largest in terms o!
purchasing power parity. 5ndia is the second !astest growing
ma'or economy in the world+ with a =3> growth rate o! J.HF
!or the !iscal year ;99LM;99..

2owever+ 5ndia%s huge
population results in a per capita income o! KH+1H; at >>> and
K-+9EJ at nominal (revised ;99. estimate).

The Borld @an/
classi!ies 5ndia as a low6income economy. 5ndia%s economy is
diverse+ encompassing agriculture+ handicra!ts+ tetile+
manu!acturing+ and a multitude o! services. Although two6
thirds o! the 5ndian wor/!orce still earn their livelihood
directly or indirectly through agriculture+ services are a
growing sector and play an increasingly important role o!
5ndia%s economy. The advent o! the digital age+ and the large
number o! young and educated populace !luent in 4nglish+ is
gradually trans!orming 5ndia as an important %bac/ o!!ice%
destination !or global outsourcing o! customer services and
technical support. 5ndia is a ma'or eporter o! highly6s/illed
wor/ers in so!tware and !inancial services+ and so!tware
engineering.*thersectorsli/emanu!acturing+ pharmaceuticals+
biotechnology+nanotechnology+telecommunication+shipbuilding+
aviation and tourism are showing strong potentials with
higher growth rates. 5ndia !ollowed a socialist6inspired
approach !or most o! its independent history+ with strict
government control over private sector participation+ !oreign
trade+ and !oreign direct investment.
(13)
2owever+ since the early -JJ9s+ 5ndia has gradually opened
up its mar/ets through economic re!orms by reducing
government controls on !oreign trade and investment. The
privatisation o! publicly owned industries and the opening up
o! certain sectors to private and !oreign interests has
proceeded slowly amid political debate. 5ndia !aces a !astly
growing population and the challenge o! reducing economic
and social ine7uality. >overty remains a serious problem+
although it has declined signi!icantly since independence.
*!!icial surveys estimated that in the year ;99H6;991+ ;.F
o! 5ndians were poor.
*re+colonial :
The citi"ens o! the 5ndus Valley civilisation+ a permanent and
predominantly urban settlement that !lourished between
;E99 @C and -E99 @C+ practised agriculture+ domesticated
animals+ used uni!orm weights and measures+ made tools and
weapons+ and traded with other cities. 4vidence o! well
planned streets+ a drainage system and water supply reveals
their /nowledge o! urban planning+ which included the world%s
!irst urban sanitation systems and the eistence o! a !orm
o! municipal government. Deligion+ especially 2induism+ and
the caste and the 'oint !amily systems+ played an in!luential
role in shaping economic activities.
:-9<
The caste system
!unctioned much li/e medieval 4uropean guilds+ ensuring the
division o! labour+ providing !or the training o! apprentices
and+ in some cases+ allowing manu!acturers to achieve narrow
speciali"ation.
(14)
Aor instance+ in certain regions+ producing each variety o!
cloth was the speciality o! a particular sub6caste.
4stimates o! the per capita income o! 5ndia (-E1.M-J99) as
per -JHEMHJ prices. Tetiles such as muslin+ Calicos+ shawls+
and agricultural products such as pepper+ cinnamon+ opium and
indigo were eported to 4urope+ the Middle 4ast and )outh
4ast Asia in return !or gold and silver. Assessment o! 5ndia%s
pre6colonial economy is mostly 7ualitative+ owing to the lac/
o! 7uantitative in!ormation. *ne estimate puts the revenue
o! A/bar%s Mughal 4mpire in -L99 at N-..1 million+ in
contrast with the total revenue o! =reat @ritain in -E99+
which totalled N-L million.

5ndia+ by the time o! the arrival o!
the @ritish+ was a largely traditional agrarian economy with a
dominant subsistence sector dependent on primitive
technology. 5t eisted alongside a competitively developed
networ/ o! commerce+ manu!acturing and credit. A!ter the
!all o! the Mughals+
(15)
5ndia was administered by Maratha 4mpire. The maratha
empire%s budget in -.H9s+ at its pea/+ was Ds. -99 million.
Colonial :
Colonial rule brought a ma'or change in the taation
environment !rom revenue taes to property taes resulting
in mass impoverishment and destitution o! the great ma'ority
o! !armers. 5t also created an institutional environment that+
on paper+ guaranteed property rights among the coloni"ers+
encouraged !ree trade+ and created a single currency with
!ied echange rates+ standardi"ed weights and measures+
capital mar/ets+ a well developed system o! railways and
telegraphs+ a civil service that aimed to be !ree !rom
political inter!erence+ and a common6law+ adversarial legal
system. 5ndia%s colonisation by the @ritish coincided with
ma'or changes in the world economyOindustrialisation+ and
signi!icant growth in production and trade. 2owever+ at the
end o! colonial rule+ 5ndia inherited an economy that was one
o! the poorest in the developing world+ with industrial
development stalled+ agriculture unable to !eed a rapidly
growing population+ one o! the world%s lowest li!e
epectancies+ and low rates o! literacy. An estimate by
Cambridge (niversity historian Angus Maddison reveals that
5ndia%s share o! the world income !ell !rom ;;.LF in -.99+
comparable to 4urope%s share o! ;0.0F+ to a low o! 0.EF in
-J1;. Bhile 5ndian leaders during the 5ndependence
struggle+ and le!t6nationalist economic historians have
(16)
blamed colonial rule !or the dismal state o! 5ndia%s economy
in its a!termath+ a broader macroeconomic view o! 5ndia
during this period reveals that there were sectors o! growth
and decline+ resulting !rom changes brought about by
colonialism and a world that was moving towards
industrialisation and economic integration.
In'epen'ence to 1221 :
=rowth rate o! 5ndia%s real =3> per capita (Constant >rices$ Chain series)
(-J19M;99L). 3ata )ource$ >enn Borld tables.
5ndian economic policy a!ter independence was
in!luenced by the colonial eperience (which was seen by
5ndian leaders as eploitative in nature) and by those
leaders% eposure to Aabian socialism. >olicy tended towards
protectionism+ with a strong emphasis on import substitution+
industrialisation+ state intervention in labour and !inancial
mar/ets+ a large public sector+ business regulation+ and
central planning. ?awaharlal Nehru+ the !irst prime minister+
along with the statistician >rasanta Chandra Mahalanobis+
carried on by 5ndira =andhi !ormulated and oversaw
economic policy. They epected !avourable outcomes !rom
this strategy+ because it involved both public and
(17)
private sectors and was based on direct and indirect state
intervention+ rather than the more etreme )oviet6style
central command system. The policy o! concentrating
simultaneously on capital6 and technology6intensive heavy
industry and subsidising manual+ low6s/ill cottage industries
was critici"ed by economist Milton Ariedman+ who thought it
would waste capital and labour+ and retard the development
o! small manu!acturers. 5ndia%s low average growth rate
!rom -JH.ME9 was derisively re!erred to as the 2indu rate
o! growth+ because o! the un!avourable comparison with
growth rates in other Asian countries+ especially the &4ast
Asian Tigers&.
A,ter 1221 :
=oldman )achs has predicted that 5ndia will become 0rd largest economy o!
the world by ;901 based on predicted growth rate o! 1.0 to L.-F. Currently
5t is cruising at J.HF growth rate.
5n the late E9s+ the government led by Da'iv =andhi
eased restrictions on capacity epansion !or incumbents+
removed price controls and reduced corporate taes. Bhile
this increased the rate o! growth+ it also led to high !iscal
de!icits and a worsening current account.
(18)
Go)ern"ent Inter)ention
State plannin# an' t&e "i!e' econo"y
A!ter independence+ 5ndia opted !or a centrally planned
economy to try to achieve an e!!ective and e7uitable
allocation o! national resources and balanced economic
development. The process o! !ormulation and direction o! the
Aive6Cear >lans is carried out by the >lanning Commission+
headed by the >rime Minister o! 5ndia as its chairperson.
The number o! people employed in non6agricultural occupations in the public
and private sectors. Totals are rounded. >rivate sector data relates to non6
agriculture establishments with -9 or more employees.
5ndia%s mied economy combines !eatures o! both
capitalist mar/et economy and the socialist command
economy+ but has shi!ted more towards the !ormer over the
past decade. The public sector generally covers areas which
are deemed too important or not pro!itable enough to leave
to the mar/et+ including such services as the railways and
postal system. )ince independence+ there have been phases
o! nationali"ing such areas as ban/ing and+ more recently+ o!
privati"ation.
(19)
*u(lic e!pen'iture :
5ndia%s public ependiture is classi!ied as development
ependiture+ comprising central plan ependiture and central
assistance and non6development ependitures# these
categories can each be divided into capital ependiture and
revenue ependiture. Central plan ependiture is allocated to
development schemes outlined in the plans o! the central
government and public sector underta/ings# central
assistance re!ers to !inancial assistance and developmental
loans given !or plans o! the state governments and union
territories. Non6development capital ependiture comprises
capital de!ense ependiture+ loans to public enterprises+
states and union territories and !oreign governments+ while
non6development revenue ependiture comprises revenue
de!ence ependiture+ administrative ependiture+ subsidies+
debt relie! to !armers+ postal de!icit+ pensions+ social and
economic services (education+ health+ agriculture+ science and
technology)+grants to states and union territories and !oreign
governments.5ndia%s non6development revenue ependiture
has increased nearly !ive!old in ;990M9H since -JJ9MJ- and
more than ten!old since -JE1M-JEL. 5nterest payments are
the single largest item o! ependiture and accounted !or
more than H9F o! the total non development ependiture in
the ;990M9H budget.3e!ence ependiture increased !our!old
during the same period and has been increasing due to
growing tensions in the region+ the epensive dispute with
>a/istan over ?ammu and ,ashmir and an e!!ort to modernise
the military. Administrative epenses are compounded by a
(20)
large salary and pension bill+ which rises periodically due to
revisions in wages+ dearness allowance etc. subsidies on !ood+
!ertili"ers+ education and petroleum and other merit and non6
merit subsidies account are not only continuously rising+
especially because o! rising crude oil and !ood prices+ but are
also harder to rein in+ because o! political compulsions.
*u(lic receipts :
5ndia has a three6tier ta structure+ wherein the
constitution empowers the union government to levy 5ncome
ta+ ta on capital transactions (wealth ta+ inheritance ta)+
sales ta+ service ta+ customs and ecise duties and the
state governments to levy sales ta on intra6state sale o!
goods+ ta on entertainment and pro!essions+ ecise duties
on manu!acture o! alcohol+ stamp duties on trans!er o!
property and collect land revenue (levy on land owned). The
local governments are empowered by the state government to
levy property ta+ *ctroi and charge users !or public utilities
li/e water supply+ sewage etc.More than hal! o! the revenues
o! the union and state governments come !rom taes+ o!
which hal! come !rom 5ndirect taes. More than a 7uarter o!
the union government%s ta revenues is shared with the state
governments.The ta re!orms+ initiated in -JJ-+ have sought
to rationalise the ta structure and increase compliance by
ta/ing steps in the !ollowing directions$
Deducing the rates o! individual and corporate income
taes+ ecises+ customs and ma/ing it more progressive
(21)
Deducing eemptions and concessions
)impli!ication o! laws and procedures
5ntroduction o! >ermanent account number to trac/
monetary transactions
;- o! the ;J states introduced Value added ta (VAT)
on April -+ ;991 to replace the comple and multiple
sales ta system
The non6ta revenues o! the central government come
!rom !iscal services+ interest receipts+ public sector
dividends+ etc.+ while the non6ta revenues o! the )tates are
grants !rom the central government+ interest receipts+
dividends and income !rom general+ economic and social
services.5nter6)tate share in the !ederal ta pool is decided
by the recommendations o! the Ainance Commission to the
>resident.
General (u'#et :
The Ainance minister o! 5ndia presents the annual union
budget in the >arliament on the last wor/ing day o! Aebruary.
The budget has to be passed by the 8o/ )abha be!ore it can
come into e!!ect on April -+ the start o! 5ndia%s !iscal year.
The (nion budget is preceded by an economic survey which
outlines the broad direction o! the budget and the economic
per!ormance o! the country !or the outgoing !inancial year.
This economic survey involves all the various N=*s+ women
organi"ations+ business people+ old people associations etc.
5ndia%s union budget !or ;991M9L+ had an estimated outlay o!
Ds.1+-H+0HH crores (K--E billion).
(22)
4arnings !rom taes amount to Ds. ;+.0+HLL crore (KL0b).
5ndia%s !iscal de!icit amounts to H.1F or -+0J+;0- crore
(K0;b).The !iscal de!icit is epected to be 0.EF o! =3>+ by
March ;99..

(23)
Sectors
A#riculture :
Composition of #ndia&s total production *million tonnes+ of foodgrains and
commercial crops$ in ,--./-01
5ndia ran/s second worldwide in !arm output. Agriculture and
allied sectors li/e !orestry+ logging and !ishing accounted !or
-E.LF o! the =3> in ;991+ employed L9F o! the total
wor/!orce

and despite a steady decline o! its share in the
=3>+ is still the largest economic sector and plays a
signi!icant role in the overall socio6economic development o!
5ndia. Cields per unit area o! all crops have grown since -J19+
due to the special emphasis placed on agriculture in the !ive6
year plans and steady improvements in irrigation+ technology+
application o! modern agricultural practices and provision o!
agricultural credit and subsidies since =reen revolution in
5ndia. 2owever+ international comparisons reveal that the
average yield in 5ndia is generally 09F to 19F o! the highest
average yield in the world.
(24)
The low productivity in 5ndia is a result o! the !ollowing
!actors$
5lliteracy+ general socio6economic bac/wardness+ slow
progress in implementing land re!orms and inade7uate or
ine!!icient !inance and mar/eting services !or !arm
produce.
The average si"e o! land holdings is very small (less than
;9+999 mP) and is sub'ect to !ragmentation+ due to land
ceiling acts and in some cases+ !amily disputes. )uch
small holdings are o!ten over6manned+ resulting in
disguised unemployment and low productivity o! labour.
Adoption o! modern agricultural practices and use o!
technology is inade7uate+ hampered by ignorance o!
such practices+ high costs and impracticality in the case
o! small land holdings.
5rrigation !acilities are inade7uate+ as revealed by the
!act that only 10.LF o! the land was irrigated in ;999M
9-+ which result in !armers still being dependent on
rain!all+ speci!ically the Monsoon season. A good
monsoon results in a robust growth !or the economy as a
whole+ while a poor monsoon leads to a sluggish growth.
Aarm credit is regulated by NA@AD3+ which is the
statutory ape agent !or rural development in the
subcontinent.
(25)
In'ustry :
>er capita =3> (at >>>) o! )outh Asian economies versus those o! )outh
,orea+ as a percentage o! the ()
:;9<:1H<
5ndia is !ourteenth in the world in !actory output. They
together account !or ;..LF o! the =3> and employ -.F o!
the total wor/!orce.2owever+ about one6third o! the
industrial labour !orce is engaged in simple household
manu!acturing only. 4conomic re!orms brought !oreign
competition+ led to privatisation o! certain public sector
industries+ opened up sectors hitherto reserved !or the
public sector and led to an epansion in the production o!
!ast6moving consumer goods.

>ost6liberalisation+ the 5ndian
private sector+ which was usually run by oligopolies o! old
!amily !irms and re7uired political connections to prosper was
!aced with !oreign competition+ including the threat o!
cheaper Chinese imports. 5t has since handled the change by
s7uee"ing costs+ revamping management+ !ocusing on
designing new products and relying on low labour costs and
technology.
(26)
0H 5ndian companies have been listed in the Aorbes =lobal
;999 ran/ing !or ;99..
:1.<
The -9 leading companies are$
World
2an"
Company 3ogo #ndustry
2eenue
*billion
4+
5rofits
*billion
4+
6ssets
*billion
4+
Mar"et
Value
*billion
4+
;0J
*il and
Natural =as
Corporation
*il G =as
*perations
-1.LH 0.HL ;L.JE 0E.-J
;1E
Deliance
5ndustries
*il G =as
*perations
-E.91 ;.-- ;-..1 H;.L;
0;L
)tate @an/
o! 5ndia
@an/ing -0.LL -.;H -1L.0. -;.01
0JJ
5ndian *il
Corporation
*il G =as
*perations
0H.;; -.-- ;;.LE -9.J;
HJH NT>C (tilities L.9L -.0- -..;1 ;L.9L
10L 5C5C5 @an/ @an/ing 1..J 9.1H L;.-0 -L..;
E99
)teel
Authority o!
5ndia
8imited
Materials L.09 9.J- ..9L -9.-L
-9H.
Tata
Consultancy
)vcs
)o!tware G
)ervices
;.JE 9.L. -.J0 ;L.;.
--;E Tata )teel Materials H.1H 9.EH H.L- 1.E9
--09
5n!osys
Technologies
)o!tware G
)ervices
;.-H 9.11 ;.9J ;L.-J
(27)
Ser)ices :
5ndia is !i!teenth in services output. 5t provides
employment to ;0F o! wor/ !orce+ and it is growing !ast+
growth rate ..1F in -JJ-M;999 up !rom H.1F in -J1-ME9. 5t
has the largest share in the =3>+ accounting !or 10.EF in
;991 up !rom -1F in -J19. @usiness services (in!ormation
technology+ in!ormation technology enabled services+
business process outsourcing) are among the !astest growing
sectors contributing to one third o! the total output o!
services in ;999. The growth in the 5T sector is attributed
to increased specialisation+ availability o! a large pool o! low
cost+ but highly s/illed+ educated and !luent 4nglish6spea/ing
wor/ers (a legacy o! @ritish Colonialism) on the supply side
and on the demand side+ increased demand !rom !oreign
consumers interested in 5ndia%s service eports or those
loo/ing to outsource their operations. 5ndia%s 5T industry+
despite contributing signi!icantly to its balance o! payments+
accounted !or only about -F o! the total =3> or -/19th o!
the total services. )ince liberalisation+ the government has
approved signi!icant ban/ing re!orms. Bhile some o! these
relate to nationalised ban/s (li/e encouraging mergers+
reducing government inter!erence and increasing
pro!itability and competitiveness)+ other re!orms have
opened up the ban/ing and insurance sectors to private and
!oreign players.
(28)
Socio+econo"ic c&aracteristics
*o)erty :
>ercent o! population living under the poverty line
8arge numbers o! 5ndia%s people live in ab'ect poverty.
Bealth distribution in 5ndia is improving since the
liberali"ation and with the end o! the socialist rule termed as
the license ra'.Bhile poverty in 5ndia has reduced
signi!icantly+ o!!icial !igures estimate that ;..1F o! 5ndians
still lived below the national poverty line in ;99H6;991.A
;99. report by the state6run National Commission !or
4nterprises in the (norganised )ector (NC4()) !ound that
.9F o! 5ndians+ or E99 million people+ lived on less than ;9
rupees per day

with most wor/ing in &in!ormal labour sector
with no 'ob or social security+ living in ab'ect poverty.&)ince
the early -J19s+ successive governments have implemented
various schemes+ under planning+ to alleviate poverty+ that
have met with partial success. All these programmes have
relied upon the strategies o! the Aood !or wor/ programme
and National Dural 4mployment >rogramme o! the -JE9s+
which attempted to use the unemployed to generate
(29)
productive assets and build rural in!rastructure. 5n August
;991+ the 5ndian parliament passed the Dural 4mployment
=uarantee @ill+ the largest programme o! this type in terms
o! cost and coverage+ which promises -99 days o! minimum
wage employment to every rural household in ;99 o! 5ndia%s
L99 districts. The 7uestion o! whether economic re!orms
have reduced poverty or not has !uelled debates without
generating any clear cut answers and has also put political
pressure on !urther economic re!orms+ especially those
involving the downsi"ing o! labour and cutting agricultural
subsidies.
E!ternal tra'e an' in)est"ent
Glo(al tra'e relations :
(ntil the liberalisation o! -JJ-+ 5ndia was largely and
intentionally isolated !rom the world mar/ets+ to protect its
!ledging economy and to achieve sel!6reliance. Aoreign trade
was sub'ect to import tari!!s+ eport taes and 7uantitative
restrictions+ while !oreign direct investment was restricted
by upper6limit e7uity participation+ restrictions on technology
trans!er+ eport obligations and government approvals# these
approvals were needed !or nearly L9F o! new A35 in the
industrial sector. The restrictions ensured that A35
averaged only around K;99M annually between -JE1 and
-JJ-# a large percentage o! the capital !lows consisted o!
(30)
!oreign aid+ commercial borrowing and deposits
o! non6resident 5ndians.
5ndia%s eports were stagnant !or the !irst -1 years a!ter
independence+ due to the predominance o! tea+ 'ute and
cotton manu!actures+ demand !or which was generally
inelastic. 5mports in the same period consisted predominantly
o! machinery+ e7uipment and raw materials+ due to nascent
industrialisation. )ince liberalisation+ the value o! 5ndia%s
international trade has become more broad6based and has
(hare of top fie inesting countries in 'D# inflows1 *7887/
,--0+
9:7;
Rank Country
Inflows
(Million USD)
Inflows ()
1 Mauritius 8,898 34.49%
[82]
2 United States 4,389 17.08%
3 Jaan 1,891 7.33%
4 !et"er#ands 1,847 7.16%
5 United $in%d&' 1,692 6.56%
risen to Ds. L0+9E9+-9J crores in ;990M9H !rom Ds.-+;19
crores in -J19M1-.

5ndia%s ma'or trading partners are China+
the ()+ the (A4+ the (,+ ?apan and the 4(.The
(31)
eports during August ;99L were K-9.0 billion up by H-.-HF
and import were K-0.E. billion with an increase o! 0;.-LF
over the previous year.5ndia is a !ounding6member o! =eneral
Agreement on Tari!!s and Trade (=ATT) since -JH. and its
successor+ the Borld Trade *rgani"ation. Bhile
participating actively in its general council meetings+ 5ndia
has been crucial in voicing the concerns o! the developing
world. Aor instance+ 5ndia has continued its opposition to the
inclusion o! such matters as labour and environment issues
and other non6tari!! barriers into the BT* policies.
re7uirements+ removed restrictions on epansion and
!acilitated easy access to !oreign technology and !oreign
direct investment A35. The upward moving growth curve o!
the real6estate sector owes some credit to a booming
economy and liberali"ed A35 regime. 5n March ;991+ the
government amended the rules to allow -99 per cent A35 in
the construction business.This automatic route has been
permitted in townships+ housing+ built6up in!rastructure and
construction development pro'ects including housing+
commercial premises+ hotels+ resorts+ hospitals+ educational
institutions+ recreational !acilities+ and city6 and regional6
level in!rastructure.A number o! changes were approved on
the A35 policy to remove the caps in most sectors.
Destrictions will be relaed in sectors as diverse as civil
aviation+ construction development+ industrial par/s+
petroleum and natural gas+ commodity echanges+ credit6
in!ormation services and mining. @ut this still leaves an
un!inished agenda o! permitting greater !oreign investment
in politically sensitive areas such as insurance and retailing.
(32)
T&e Rise o, In'ia 3 t&e IIM Story
T&e Rise o, In'ia
5n last couple o! years+ The Dise o! 5ndia G China is a story
being watched with much awe+ !ascination G even !ear in the
global media. Most o! these stories are inspired by the huge
strides made by 5ndian G Chinese companies in )ervice G
Manu!acturing sectors. Many o! the /ey drivers o! their
success has been their prowess at creating high 7uality but
low cost )o!tware G *utsourcing services in case o! 5ndia
and manu!acturing in case o! China. )ome analysts have also
highlighted the Desearch G 3evelopment investments being
made in 5ndia by corporations as diverse as =4 to =oogle
leading to possible emergence o! Asia as the DG3 hub !or
world. 2owever what seems to have missed the attention o!
media is emergence o! 5ndian Managers in the top ladders o!
() Corporate arena. There have been isolated stories li/e
rise o! Da'at =upta (e6Chie! Mc/insey)+ Victor Men"es o!
Citiban/+ but one big emerging trend has been the rise o!
5ndian Managers or M@A. This is a story+ which is still to
un!old in a big way but already has started ma/ing waves in
recent years. 5t will be interesting to trace the rise o! 55Ms
along with 5ndia%s rise in the world economy.
(33)
T&e Turnaroun'
5n late J9s when the current 5ndian >M+ Manmohan )ingh+
began the liberali"ation o! 5ndian economy+ as the Ainance
Minister+ it opened up a wealth o! opportunities !or private
sector enterprises and also drew a horde o! MNCs to 5ndia.
The si"e o! 5ndian middle class by then estimates o! ;996
099MM was one o! the !astest growing mar/ets in the world.
To cater to this mar/et corporate needed a horde o!
management pro!essionals to run G grow the new mar/ets.
This brought in a tonne o! opportunities to 5ndiaQs thousands
o! M@A grads and more so !or the students o! 55Ms who
were the crRme6la6crRme o! 5ndia. )lolwy but surely+ the
middle class dream career was not to get into the Civil
)ervice but rather to earn an M@A degree as a route o!
entry to the corporate world. Also many o! 5ndiaQs top brains
li/e 55T engineers+ Chartered Accountants were allured into
see/ing an M@A degree to their port!olio especially so !rom
an 55M. The competition !or gaining a seat into these b6
schools was hyper competitive even a!ter discounting the
huge population o! 5ndia. 5magine an admission rate o! .LF vs.
-9F !or the top ivy6league schools o! (). *nly recently+ The
4conomist in its recent ratings o! @6)chools rated 55M6A
(Ahmedabad) as the Stoughest @6school in world to get intoT.
Also being able to attract many 5ndian pro!s who had
ac7uired their doctorates at top () (niversities added to
their reputation as hubs !or ecellence. Thus best o! breed
students combined with best o! breed pro!essors and
(34)
availability o! rewarding placement opportunities+ all at a
!raction o! 5vy6league rates created a uni7ue selling
proposition in the hyper6competitive M@A school world.
Arri)al o, Mc$insey4 Le&"an 3 Co5
5n corporate world especially ()+ Consulting G 5nvestment
@an/s are among the most demanding careers and also most
competitive in the war !or talent globally. The li/es o!
Mc/insey G @C= in consulting G 8ehman @rothers+ ?> Morgan
in 56@an/s thus were 7uic/ to use the 55Ms as a recruiting
ground mainly !or their 5ndian *perations to start with.
2owever impressed by the per!ormance o! the initial
recruits they started recruiting !or their global practices. 5n
!act the war !or heads has become so hot these days that
many o! these try to pic/ the cream via the summer trainee
route and o!!er >re6>lacement *!!ers. Cear ;999 was a
ground brea/ing year in the sense+ more than -9F o! 55M6A
grads was recruited purely !or placements in Manhattan+ NCC
and it also was the inaugural year !or =oldman )achs. Also
given the pro!ile o! 55M students+ .9F o! who boast o! an
engineering degree !rom 5ndiaQs top Colleges and mostly
55Ts+ it became even more tempting !or the leading
recruiters to shun many ;nd rung b6schools elsewhere to get
thesetalent
(35)
T&e *at& A&ea'
More recently+ the success o! many 5ndian corporate in 5T G
@>* arena people+ made people note o! the management
behind these companies. *ne /ey competitive advantage
5ndian companies had vis6U6vis Chinese ones was the breadth
G depth o! management talent. Bhile China had a huge
success in managing and running cheap assembly line
production o! goods at lowest price+ 5ndiaQs success were
more in the higher end o! value chain. This is where 5ndian
Managers were miles ahead and much o! this success is
credited to the 55Ms G the second line o! b6schools+ which
are no less competitive.*ne o! the /ey !acets o! mar/et
economy is changing s/ill sets re7uirements and being able to
deal with compleity and uncertainty. This is one area where
5ndian students come with a uni7ue advantage. 8i!e in 5ndia
or any developing world can be !ull o! chaos+ uncertainity+
scarcity and greys. This meant that most o! these young
M@A aspirants get the eperience o! many li!e times even in
!amilies and a ; year structured thin/ing process and arming
with tools G techni7ues o! a typical b6school curricula would
prepare them to ta/e on the corporate world by thorns.A
random invenory o! 5ndia%s non6!amily+ non6govt sector B2*
5) B2* would read li/e the alumni list o! 55Ms.@elow are
some eamples !rom tradition sectorsVindi @anga (55M6A) 6
288%s top gun ( 288 is 5ndia%s largest consumer goods
company+ part o! (nilevers) , V ,amath (55M6A)+ 5C5C5%s top
(36)
gun ( 5C5C5 is 5ndia%s largest private sector ban/)+ 4ven in
the new brave world o! dot com+ so!tware G @>* we have
many 55M alum leading the charge+ Dedi!!.com (A'it
@ala/rishnan) + =enpact ( Tiger Tyagra'an)+ mphasis (?erry
Dao) .2owever what is new or changing is that unli/e in past+
we have relatively younger alums are ta/ing the ris/ to start
their own !irms. This is what was needed. No more you
needed to have spent a stable/secure career at Citi or =4 or
>G= but rather you can start with your own thing. 5! things
don%t wor/ well then you can always go bac/ to the big
corporate world.As 5ndian economy becomes a bigger F o!
global economy not in terms o! =3> alone but also as a bigger
F o! global innovation then many o! these 55M grads to have
step up and be counted. ?ust li/e technology innovation was
the source o! competitive advantage in past and 55Tians were
a /ey enabler to that+ now @usiness >rocess G Management
related innovations will be /ey to success in this hyper6
competitive economy. 2ope!ully 55Ms will live up to the great
epactations VVV