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Impact of Multinational Corporation On Indian Economy
Impact of Multinational Corporation On Indian Economy
COLLEGE
Project on :
IMPACT OF MULTINATIONAL
CORPORATION ON INDIAN ECONOMY
Submitted To:
Prof. Nair
Submitted By :
Abhijeet Kulshreshtha
Roll No :
(1)
CONTENT
Sr.No.
TOPIC
1.
MULTINATIONAL CORPORATION
2.
MULTINATIONAL CORPORATION IN
INDIA
3.
4.
Indian economy
5.
6.
MULTINATIONAL CORPORATION IN
INDIA
(2)
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,
others claim that the Dutch East India Company was the
first proper multinational.
(3)
(4)
International power :
Large multinational corporations can have a powerful
influence in international relations, given their large economic
influence in politicians' representative districts, as well as
their extensive financial resources available for public
relations and political lobbying.
Tax Competition :
Multinationals have played an important role in globalization.
Countries and sometimes subnational regions must compete
against one another for the establishment of MNC facilities,
and the subsequent tax revenue, employment, and economic
activity. To compete, countries and regional political districts
offer incentives to MNCs such as tax breaks, pledges of
governmental assistance or improved infrastructure, or lax
environmental and labour standards. This process of
becoming more attractive to foreign investment can be
characterized as a race to the bottom, a push towards
greater freedom for corporate bodies, or both.
Largest Economies :
Market Withdrawal :
Because of their size, multinationals can have a significant
impact on government policy, primarily through the threat of
market withdrawal. For example, in an effort to reduce
health care costs, some countries have tried to force
pharmaceutical companies to license their patented drugs to
local competitors for a very low fee, thereby artificially
lowering the price. When faced with that threat,
multinational pharmaceutical firms have simply withdrawn
from the market, which often leads to limited availability of
advanced drugs. In these cases, governments have been
Lobbying :
Multinational corporate lobbying is directed at a range of
business concerns, from tariff structures to environmental
regulations. There is no unified multinational perspective on
any of these issues. 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. For every tariff category
that one multinational wants to have reduced, there is
another multinational that wants the tariff raised. Even
within the U.S. auto industry, the fraction of a company's
imported components will vary, so some firms favor tighter
import restrictions, while others favor looser ones.
Government Power :
Micro-Multinationals :
Enabled by Internet based communication tools, a new breed
of multinational companies is growing in numbers. These
multinationals start operating in different countries from
the very early stages. These companies are being called
micro-multinationals.What
differentiates
micromultinationals from the large MNCs is the fact that they are
small businesses. Some of these micro-multinationals,
particularly software development companies, have been
hiring employees in multiple countries from the beginning of
the Internet era. But more and more micro-multinationals are
actively starting to market their products and services in
various countries. Internet tools like Google, Yahoo, MSN,
Ebay and Amazon make it easier for the micro-multinationals
to reach potential customers in other countries.Contrary to
the traditional powerful image of the large MNCs, the micromultinationals face the limitations and the typical challenges
of a small business. In most cases, the micro-multinational
companies are being run by technically savvy people who can
use various Internet tools to overcome the challenges of
remote
collaboration,
infrastructures.
customer
service
and
sales
For Society
Advantage: MNCs remove established legacy businesses and
promote local employment opportunities. They also provide
various charitable services to the society.
Disadvantage: MNCs induces competition, and their profit
minded operations may impact local market/produce.
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
(11)
(12)
Economy of India
The economy of India, when measured in USD exchange-rate
terms, is the twelfth largest in the world, with a GDP of US
$1.25 trillion (2008). It is the third largest in terms of
purchasing power parity. India is the second fastest growing
major economy in the world, with a GDP growth rate of 9.4%
for the fiscal year 20062007. However, India's huge
population results in a per capita income of $4,542 at PPP and
$1,089 at nominal (revised 2007 estimate). The World Bank
classifies India as a low-income economy. India's economy is
diverse, encompassing agriculture, handicrafts, textile,
manufacturing, and a multitude of services. Although twothirds of the Indian workforce still earn their livelihood
directly or indirectly through agriculture, services are a
growing sector and play an increasingly important role of
India's economy. The advent of the digital age, and the large
number of young and educated populace fluent in English, is
gradually transforming India as an important 'back office'
destination for global outsourcing of customer services and
technical support. India is a major exporter of highly-skilled
workers in software and financial services, and software
engineering.Othersectorslikemanufacturing, pharmaceuticals,
biotechnology,nanotechnology,telecommunication,shipbuilding,
aviation and tourism are showing strong potentials with
higher growth rates. India followed a socialist-inspired
approach for most of its independent history, with strict
Pre-colonial :
The citizens of the Indus Valley civilisation, a permanent and
predominantly urban settlement that flourished between
2800 BC and 1800 BC, practised agriculture, domesticated
animals, used uniform weights and measures, made tools and
weapons, and traded with other cities. Evidence of well
planned streets, a drainage system and water supply reveals
their knowledge of urban planning, which included the world's
first urban sanitation systems and the existence of a form
of municipal government. Religion, especially Hinduism, and
the caste and the joint family systems, played an influential
role in shaping economic activities.[10] The caste system
functioned much like medieval European guilds, ensuring the
division of labour, providing for the training of apprentices
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. It also created an institutional environment that,
on paper, guaranteed property rights among the colonizers,
encouraged free trade, and created a single currency with
fixed exchange rates, standardized weights and measures,
capital markets, a well developed system of railways and
telegraphs, a civil service that aimed to be free from
political interference, and a common-law, adversarial legal
system. India's colonisation by the British coincided with
major changes in the world economyindustrialisation, and
significant growth in production and trade. However, at the
end of colonial rule, India inherited an economy that was one
of the poorest in the developing world, with industrial
development stalled, agriculture unable to feed a rapidly
growing population, one of the world's lowest life
expectancies, and low rates of literacy. An estimate by
Cambridge University historian Angus Maddison reveals that
India's share of the world income fell from 22.6% in 1700,
comparable to Europe's share of 23.3%, to a low of 3.8% in
Independence to 1991 :
Growth rate of India's real GDP per capita (Constant Prices: Chain series)
(19502006). Data Source: Penn World tables.
After 1991 :
Goldman Sachs has predicted that India will become 3rd largest economy of
the world by 2035 based on predicted growth rate of 5.3 to 6.1%. Currently
It is cruising at 9.4% growth rate.
Government Intervention
State planning and the mixed economy
After independence, 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,
headed by the Prime Minister of India as its chairperson.
Public expenditure :
India's public expenditure is classified as development
expenditure, comprising central plan expenditure and central
assistance and non-development expenditures; these
categories can each be divided into capital expenditure and
revenue expenditure. Central plan expenditure is allocated to
development schemes outlined in the plans of the central
government and public sector undertakings; central
assistance refers to financial assistance and developmental
loans given for plans of the state governments and union
territories. Non-development capital expenditure comprises
capital defense expenditure, loans to public enterprises,
states and union territories and foreign governments, while
non-development revenue expenditure comprises revenue
defence expenditure, administrative expenditure, subsidies,
debt relief to farmers, postal deficit, pensions, social and
economic services (education, health, agriculture, science and
technology),grants to states and union territories and foreign
governments.India's non-development revenue expenditure
has increased nearly fivefold in 200304 since 199091 and
more than tenfold since 19851986. Interest payments are
the single largest item of expenditure and accounted for
more than 40% of the total non development expenditure in
the 200304 budget.Defence expenditure increased fourfold
Public receipts :
India has a three-tier tax structure, wherein the
constitution empowers the union government to levy Income
tax, tax on capital transactions (wealth tax, inheritance tax),
sales tax, service tax, customs and excise duties and the
state governments to levy sales tax on intra-state sale of
goods, tax on entertainment and professions, excise duties
on manufacture of alcohol, stamp duties on transfer of
property and collect land revenue (levy on land owned). The
local governments are empowered by the state government to
levy property tax, Octroi and charge users for public utilities
like water supply, sewage etc.More than half of the revenues
of the union and state governments come from taxes, of
which half come from Indirect taxes. More than a quarter of
the union government's tax revenues is shared with the state
governments.The tax reforms, initiated in 1991, have sought
General budget :
The Finance minister of India presents the annual union
budget in the Parliament on the last working day of February.
The budget has to be passed by the Lok Sabha before it can
come into effect on April 1, the start of India's fiscal year.
The Union budget is preceded by an economic survey which
outlines the broad direction of the budget and the economic
(23)
Sectors
Agriculture :
(25)
Industry :
Per capita GDP (at PPP) of South Asian economies versus those of South
Korea, as a percentage of the US[20][54]
(26)
World
Rank
Company
239
Oil
and
Natural Gas
Corporation
3.46
26.98 38.19
258
Reliance
Industries
2.11
21.75 42.62
326
State Bank
of India
Banking
1.24
156.37 12.35
399
Indian
Oil
Corporation
1.11
22.68 10.92
494
NTPC
Utilities
6.06
1.31
17.25 26.06
536
ICICI Bank
Banking
5.79
0.54
62.13 16.72
800
Steel
Authority of
India
Limited
Materials
6.30
0.91
7.06
10.16
1047
Tata
Consultancy
Svcs
Software &
2.98
Services
0.67
1.93
26.27
1128
Tata Steel
Materials
0.84
4.61
5.80
Logo
Industry
13.66
4.54
1130
Infosys
Technologies
Software &
2.14
Services
0.55
2.09
26.19
(27)
Services :
India is fifteenth in services output. It provides
employment to 23% of work force, and it is growing fast,
growth rate 7.5% in 19912000 up from 4.5% in 195180. It
has the largest share in the GDP, accounting for 53.8% in
2005 up from 15% in 1950. Business services (information
technology, information technology enabled services,
business process outsourcing) are among the fastest growing
sectors contributing to one third of the total output of
services in 2000. The growth in the IT sector is attributed
to increased specialisation, availability of a large pool of low
cost, but highly skilled, educated and fluent English-speaking
workers (a legacy of British Colonialism) on the supply side
and on the demand side, increased demand from foreign
consumers interested in India's service exports or those
looking to outsource their operations. India's IT industry,
despite contributing significantly to its balance of payments,
accounted for only about 1% of the total GDP or 1/50th of
the total services. Since liberalisation, the government has
approved significant banking reforms. While some of these
relate to nationalised banks (like encouraging mergers,
reducing
government
interference
and
increasing
profitability and competitiveness), other reforms have
(28)
Socio-economic characteristics
Poverty :
(30)
Rank
Country
Inflows
(Million USD)
Inflows (%)
Mauritius
8,898
34.49%[82]
United States
4,389
17.08%
Japan
1,891
7.33%
Netherlands
1,847
7.16%
United Kingdom
1,692
6.56%
(31)
petroleum and natural gas, commodity exchanges, creditinformation services and mining. But this still leaves an
unfinished agenda of permitting greater foreign investment
in politically sensitive areas such as insurance and retailing.
(32)
Rise
of
India
(33)
The Turnaround
In late 90s when the current Indian PM, Manmohan Singh,
began the liberalization of Indian economy, as the Finance
Minister, it opened up a wealth of opportunities for private
sector enterprises and also drew a horde of MNCs to India.
The size of Indian middle class by then estimates of 200300MM was one of the fastest growing markets in the world.
To cater to this market corporate needed a horde of
management professionals to run & grow the new markets.
This brought in a tonne of opportunities to Indias thousands
of MBA grads and more so for the students of IIMs who
were the crme-la-crme of India. Slolwy but surely, 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. Also many of Indias top brains
like IIT engineers, Chartered Accountants were allured into
seeking an MBA degree to their portfolio especially so from
an IIM. The competition for gaining a seat into these bschools was hyper competitive even after discounting the
huge population of India. Imagine an admission rate of .6% vs.
10% for the top ivy-league schools of US. Only recently, The
(35)