Globalization

Globalization refers to the absence of the walls of matchboxes that every country had, between
themselves based on suspicion, mutual distrust and ambition. We were different countries, in fact divided
into worlds, and therefore could never manage to deal with natural holocausts and deadly epidemics,
which time and again challenged us. Globalization has strengthened the nexus and has helped us to
know each other’s need in a better way. It has helped to demolish those walls that separated us and
curbed our natural identity of being fellow human beings. Globalization has primarily become a fiscal term
but its impact is not limited to the economy of the countries only, the term globalization actually refers to
every aspect of life like cultural, social, psychological and of course, political.

It is true that the impact of globalization is visible and affects largely the politics and the economy of the
country but its effect on the mindset and the culture is noticeable gradually in the way people think and
react. It’s like the Iceberg theory wherein what we do and say are at the tip and what we think and believe
is at the base. The base is not visible but manifestations at the top are conspicuous. It applies here as
well where people do not change abruptly but may be after a decade the change starts showing and
seems radical.

Pro-globalization

Globalization is not a new phenomena, the base was laid long back when the Dutch East India Company
and the British East India Company started trading with India. In history there were trade relations
between different countries like Arab and Egypt and now in modern times that has translated into
Globalization or Free Trade. It’s true that ultimately all the free trade resulted in the white man taking the
burden proactively but then globalization leads to more employment and higher standard of living,
especially among the developing countries. Theories suggest that globalization leads to efficient use of
resources and benefits all who are involved.

According to libertarians, globalization will help the whole world to deal with crises like unemployment and
poverty. It will help us to raise the global economy only when the involved power blocks have mutual trust
and respect for each other’s opinion. Globalization and democracy should go hand in hand. It should be
pure business with no colonialist designs. The way we have developed in the last 10 years, globalization
seems to have given us good returns. Globalization has made the life of the third world citizen completely
a different story. There are so many foreign companies that have made way to Orient and have made
India a brand name all over the world.

Aspects to Globalization
There are 4 aspects to globalization.
1. We are global in our information exchange–obviously the internet is the best example of
this.
2. We are also global in our travel–with airplanes and also cars, people move all over the
place,
and we get to see other countries across the world.
3. Thirdly, we are global in our resource depletion. No society can isolate itself from global
environmental degradation.Problems such as air pollution, acid rain, and climate change
don’t
respect international boundaries.
4. Finally, we are global in our economy.
There are 3 aspects to this global spread of capitalism:
1. Production
2. Finance
3. Markets
With regards to production, the products we buy are better traveled than we are! There are
many
social and environmental impacts from this practice of producing goods in the third world for
sale in
the first. This practice is called the global integration of production.
The second aspect to the global spread of capitalism is that of finance–financial trading is
now a
global practice. For example, you can buy stocks from a company anywhere in the world.
The third aspect is that of markets. Nowadays, a seller sees its market as not just Canada,
but as
North America. The same products are being sold all around the world. Conversely, you can
go
anywhere in the world and buy the same things; McDonalds is everywhere. This has led to
global
way of living, but it really has lead to the standardization of life

Pros and Cons of Globalization

The pros of Globalization are many and they are as follows:

 Now there is a worldwide market for the companies and for the
people there is more access to products of different countries.
 There is a steady cash flow into the developing countries, which
gradually decrease the dollar difference.
 Due to the presence of a worldwide market, there is an increase in
the production sector and there are lots of options for the companies
now.
 Gradually there is a world power that is being created instead of
compartmentalized power sectors. Politics is merging and decisions
that are being taken, are actually beneficial for people allover the
world.
 There is more influx of information between two countries, which do
not have anything in common between them.
 There is cultural intermingling and each other is trying to know about
the other’s cultural preferences and in the process of doing so, we
are actually coming across things that we like and in the course of
time adopt it.
 Since we share financial interests, corporate and governments are
trying to sort out ecological problems for each other.
 Socially we have become more open and tolerant towards each other
and they who live in the other part of the world are not aliens as we
always thought. There are examples like now Indian girls work in call
centers and work nights, which was a taboo even two years back. We
are celebrating Valentine’s Day, scraping on Orkut, watching the Idol
series, Fear factor, the Indian version Big Brother.
 There is a lot of technological development that we have undergone
over the years. There are fewer brain drains since Asians are working
in their own country though for a foreign company but are earning
foreign exchange for their country.

There are cons as many as pros, which are as follows:

 It is true that Europeans are losing jobs and that is posing a problem
for them since the companies are outsourcing work to the Asian
countries since the cost of labor is low and profits the company
considerably.
  There is immense pressure on the employed Europeans who are
always under the threat of the business being outsourced.
 Corporates are building up units in other countries equally well
equipped as they have done at their own country, thus transferring
the quality to other countries.
 There are some experts who think that globalization; along with the
positive aspects is also leading to the incursion of negatives like
communicable diseases and social degeneration.
 There is also a threat of corporates ruling the world because there is
a lot of power, which is invested in them due to globalization.
 For nations that are at the receiver’s end are also giving up the reins
in the ends of a foreign company which might again lead to a
sophisticated form of colonization.

Impact of Globalization
Globalization has made way for free trade and business and has communication between various parts of
the globe. It has potential to make this world a better place to live in. It is changing the political scenario
thus deep-seated problems like unemployment; poverty and shift in power are coming to the picture. The
marginal are getting a chance a to exhibit in the world market. The term "brand" is catching up in the
Asian countries.

It, however, is not only modernizing but also westernizing and to an extent also sinicizing the native
cultures. The power play is leading to the linguicide or linguistic, cultural and traditional genocide. That is
probably where we need to keep a check and not let diffusion go wild. There has been significant de-
localization that needs individuals to be more tolerant since face-to-face interaction is no more the order
of the day. One American is trying to sort out his billing issue of his mobile phone with an Indian who is
not a direct employee of the service provider. Now that sounds complicated and is complicated and has to
be dealt carefully

Globalization
Definitions
• According to International Monetary Fund,which stresses the growing economic
interdependence of countries worldwide through increasing volume and variety of
crossborder
transactions in goods and services, free international capital flows, and more rapid and
widespread diffusion of technology.
• According to Dr. Ismail Shariff, globalization is the worldwide process of homogenizing
prices,
products, wages, rates of interest and profits
• The term “globalization” is used to refer to these collective changes as a process, or else
as
the cause of turbulent change.
• Globalization relies on three forces for development:
• the role of human migration
• international trade, and rapid movements of capital
• integration of financial markets.

The Pros and Cons of Globalization

Pros
• Productivity grows more quickly when countries produce goods and services in which they
have a comparative advantage. Living standards can go up faster.
• Global competition and cheap imports keep a lid on prices, so inflation is less likely to
derail
economic growth.
• An open economy spurs innovation with fresh ideas from abroad.
• Export jobs often pay more than other jobs.
• Unfettered capital flows give the U.S. access to foreign investment and keep interest rates
low.
Cons
• Millions of Americans have lost jobs due to imports or production shifts abroad. Most find
new
jobs–that pay less.
• Millions of others fear losing their jobs, especially at those companies operating under
competitive pressure.
• Workers face pay-cut demands from employers, which often threaten to export jobs.
• Service and white-collar jobs are increasingly vulnerable to operations moving offshore.
• U.S. employees can lose their comparative advantage when companies build advanced
factories in low-wage countries, making them as productive as those at home.

Aspects to Globalization
There are 4 aspects to globalization.
1. We are global in our information exchange–obviously the internet is the best example of
this.
2. We are also global in our travel–with airplanes and also cars, people move all over the
place,
and we get to see other countries across the world.
3. Thirdly, we are global in our resource depletion. No society can isolate itself from global
environmental degradation.Problems such as air pollution, acid rain, and climate change
don’t
respect international boundaries.
4. Finally, we are global in our economy.
There are 3 aspects to this global spread of capitalism:
1. Production
2. Finance
3. Markets
With regards to production, the products we buy are better traveled than we are! There are
many
social and environmental impacts from this practice of producing goods in the third world for
sale in
the first. This practice is called the global integration of production.
The second aspect to the global spread of capitalism is that of finance–financial trading is
now a
global practice. For example, you can buy stocks from a company anywhere in the world.
The third aspect is that of markets. Nowadays, a seller sees its market as not just Canada,
but as
North America. The same products are being sold all around the world. Conversely, you can
go
anywhere in the world and buy the same things; McDonalds is everywhere. This has led to
global
way of living, but it really has lead to the standardization of life.
1) What is likely to happen to local employment and income distribution when a DC
chooses to open (or becomes exposed) to globalization?
As is obvious from the discussion in the previous sections, both the theory and the empirical
evidence did not give us black and white, clear-cut results, but rather nuanced research
outcomes. If
one is to be found, a general result is that the optimistic HO/SS predictions do not apply to
the
current wave of globalization; indeed, neither employment creation nor the decrease in
withincountry
inequality are automatically assured by increasing trade and FDI. In contrast, the
employment effect can be very diverse in different areas of the world, giving raise to
concentration
and marginalisation phenomena, with the scope for enhancing the “absorptive capacity” of
a given
socio-institutional system which is quite large.
In more detail, the employment impact depends on the initial labour-intensity, the output
effect and
the productivity effect characterizing traded goods and non traded goods sectors. According
to the
values of these three parameters and to the magnitude of possible constraints in the supply
of
capital, infrastructure and skilled labour, very different results in terms of job creation can
emerge.
Very similar arguments apply to the employment effects of FDI inflows.
As far as income distribution is concerned, while SS’s theorem definitely does not apply, it is
also
true that increasing trade and FDI do not emerge as the main culprits of increasing within-
country
income inequality in DCs. However, some evidence emerges that, in the early stages of
openness to
trade, import of capital goods may imply an increase in within-country inequality via SBTC.
Finally, increasing trade seems to foster growth and absolute poverty alleviation, although
some
important counter-examples emerge, especially in Sub-Saharan Africa. While FDIs seem to
be neutral
in terms of their impact on income distribution and poverty, financial liberalization seems to
have
adverse effects on relative poverty.
2) Which are the channels through which trade and FDI affect employment, within
country income distribution and poverty reduction?
The positive outcome of increasing trade on poverty reduction is mediated by increasing
economic
growth. Since overall trade (import+export) is neutral in terms of income distribution and
fosters
economic growth, the final outcome is an overall reduction in poverty.
As far as employment and income distribution are concerned, a clear message emerging
from many
studies is that technology matters. If trade (especially through importation of machinery)
and FDI are
characterized by labour-saving and skilled-biased technologies, globalization implies
consequences
which are opposite to the HO/SS predictions, i.e. decreasing employment and increasing
withincountry
income inequality. The concerning the spreading of SBTC from developed to middle income
DCs – open the way to a very promising avenue of further research.
Another important mediating channel of the social consequences of increasing trade and FDI
is the
institutional organization of the labour market (including the informal sector). The presence
of labour
market flexibility and extensive use of informal labour may increase the positive
employment
impact, in quantitative terms, of globalization.
However, possible counter-effects are quite serious and negative, and they entail increasing
incomeinequality
and social dumping (a sort of “race to the bottom” and “beggar thy neighbour” race
induced by globalization). In the end, this regressive race may imply a substantial reduction
in the
socio-economic capabilities of a given DC, finally affecting the “absorptive capacity” of that
country
in terms of political institutions, social cohesion and technological opportunities.
3) What is the role of the level of development and of the institutional framework of a
given DC?
On the whole, the level of economic and human development does matter in shaping the
direction
and the impact of the current wave of globalization. For instance, the role of the physical
and human
infrastructures within a DC is crucial in maximizing the positive employment and
distributional
effects of increasing trade and FDI. Conversely, bottlenecks in the supply of educated and
skilled
labour and in public and private investments (including R&D) may condemn a country to
marginalisation, exploitation and high levels of domestic unemployment and income
inequality.
Examples and policy implications are quite straightforward and concern: the role of
education and
training; the institutions regulating the labour and the capital markets; the modes of
“governance” at
the local, regional and national levels (including tax reforms and eradicating of corruption);
industrial
and innovation policies targeting new and fast growing sectors and products; the
construction of a
welfare system able to create safety nets for possible victims of the globalization process.
4) Given the results from the previous points, what policy suggestions can be made to a
globalizing DC?
Needless to say, here we cannot go into a deep analysis of possible national and
international policy
options; however, we can briefly highlight from the previous discussion four main avenues
for
policies devoted to amplifying the positive impacts of globalization in terms of a DC’s
domestic
employment and within-country income distribution.
a) Market failures and disparities in the initial levels of economic and human development,
technological “absorptive capacity” and “social capabilities” call for “controlled
liberalization” as the
best way to foster globalization. Indeed cautious globalizers seem to be characterised by the
best
employment performances, while faster globalization may imply a wider income inequality
trough
increasing import. Together with some form of policy controls on trade and FDI, financial
liberalization should be even more restrained in particular historical circumstances. In fact, a
sudden
financial liberalization can be accompanied by increasing vulnerability and increasing
poverty.
b) Given the crucial role of the specific institutional, structural and technological
characteristics and
the uneven distribution of the positive employment effects of globalization (both in terms of
countries and in terms of economic sectors), a possible new role emerges for regional,
industrial and
innovation policies at the national level.
c) Given the possible adverse distributional effect of importing pervasive SBTC, a crucial role
has to
be attributed to national and local education and training policies, in order to increase the
supply of
skills. Conversely, skill shortage implies an output constraint and an increasing wage
dispersion with
negative effects both in terms of domestic employment and within-country income
inequality.
d) Heterogeneous and country-specific impacts in terms of employment and income
distribution call
for preventive intervention (for instance through insurance schemes and/or social safety
nets) at the
international level by means of adequate social, labour and income multilateral policies.
FDI

Foreign Direct Investment or FDI literally means one country investing in other country. FDIs enable growth the
international business and multinational businesses. Find out how your country and the other countries have
benefited through such investments, the role play in economic slowdown and their future.

When a foreign direct investment (FDI) is made in any foreign country, by an established local firm, the
business objective is simple. It is to tap into the new economy's lucrative demand base and earn larger
profits through strategies such as achieving economies of scale, etc. Such a huge investment in an
unknown economy, with the added risk of entering a new plane with a business venture, cannot be
undertaken if the profits repatriation is limited by certain legalities. If the parent company is getting
peanuts from its subsidiaries, in return for all its efforts, it makes better business sense to halt the venture.
The profit repatriation legalities vary from country to country, so depending on where you want to set up
shop, you should first familiarize yourself with the local profit repatriation laws. It is a simple concept, if
you wish to have a greater degree of foreign direct investment in your economy, you need to liberalize it
first, i.e. encourage a conducive environment with liberal profit repatriation laws and low trade barriers.

Profit Repatriation Definition

The profit repatriation definition, according to the Webster's New World Finance and Investment
Dictionary, states that profit repatriation is "to return foreign-earned profits or financial assets back to the
company's home country." For example, when the Volkswagen Group earns huge profits anywhere in the
world, it takes a share back home to Germany, after converting it into Euro and this 'taking profits back
home' process is called profit repatriation. There are different legal and illegal ways of profit repatriations.
The next subsection of this article will deal with some legal ways to repatriate profits into the home
country, followed by profit repatriation rules and ways in a few countries.

Ways of Legal Profit Repatriation

There are many ways to repatriate profits without getting into any legal trouble. The idea is to circumvent
the restrictions on profit repatriations through innovative but completely legal ways. Let's have a look at a
few such legal profit repatriation methods.

 Transfer Pricing: When purchase and sale contracts are signed

between the subsidiary and the parent company, at trade terms that
favor the parent firm, it results in profit repatriation through transfer
pricing. This kind of tilted transfer pricing, that favors high prices
 when the parent company sells something to its subsidiary, allows for
effective transfer of profits from the subsidiary to the parent. Though
this method is legal, it can cross the borders of legality if the transfer
prices used are completely out of line with the market rates and are
also blatantly overinflated. It is legal but only if the transfer prices are
reasonable and justifiable.
 Royalty Payments: The best part about royalties is that they are not
considered as profit transfers and hence, lie outside the purview of
profit repatriation restrictions. A parent company can charge its
subsidiary with royalties, for the usage of the parent's trademarks and
copyrights. These royalties can serve as effective means for profit
repatriation.
 Leading and Lagging Payments: Profit repatriation can be
accomplished by leading or lagging payments between the parent
company and the subsidiary, based on calculated expectations of
currency exchange rate movements. If a subsidiary has to make a
payment to the parent firm, in a currency that's expected to
depreciate, the subsidiary can pay in advance (lead the payment)
and pay more after the currency depreciates. By paying more after
the depreciation of currency, you've legally passed over some of your
profits to the parent firm. Similarly, one can lag payments if the
payment currency is expected to appreciate, hereby again paying
more and passing over profits to the parent firm.
 Financing Structure: Funding an international business with a loan
from the parent company, can help the subsidiary to repatriate its
profits. This is better than equity because interest payments are tax
deductible on the subsidiary side while dividends are not. Even for
the parent company, loan repayments are non-taxable in the hands
of the parent company, unlike dividends which are taxed.
Repatriation restrictions can only be evaded through this if the
repatriation is controlled, i.e. the parent is not seen as charging an
overly excessive interest rate, etc.
 Parallel Inter Company Loans: Two parallel and independent
companies can give parallel loans to each others subsidiaries to
counter the fact that the subsidiaries may not be allowed a profit
repatriation according to the previous point. With the amount, timing
and interest payments matching on both the loans, both the
companies can effectively help each other out with their profit
repatriation. It pays to keep exchange rates out of this situation and
that can happen if both subsidiaries are situated in the same country.
 Re-invoicing Centers: Re-invoicing centers that act as invoicing
intermediaries between two parties, can be set up in countries that
have low capital controls. Non repatriable cash flows can be
converted into repatriable cash flows, when the payment to the
parent company is routed through them.
 Counter or Barter Trade: This can be established with both parties
(the parent and the subsidiary) buying and selling from each other.
This is a barter system with no payments and so to repatriate profits,
the subsidiary must sell the parent higher value goods than it
receives from the parent. Profits are repatriated to the amount of the
difference in value of the goods sent and received

India Profit Repatriation

Though also an FDI attraction, for its huge demand potential, India is lagging a little behind with economic
liberalization and reforms, but is actually very good when it comes to profit repatriation. India allows free
repatriation of profits once all the local and central (tax) liabilities are met. In fact, throughout history, there
has never been an incident that India has failed to provide foreign exchange for repatriation. Investment
exit decisions are also fairly simple, and profits can be repatriated once all the tax debt and other
obligations are satisfied. Problems only arise when people evade or circumvent the already simple rules,
or do so out of ignorance.

PROS AND CONS

The role of foreign direct investment (FDI) in promoting growth and sustainable development has never
been substantiated. There isn't even an agreed definition of the beast. In most developing countries, other
capital flows - such as remittances - are larger and more predictable than FDI and ODA (Official
Development Assistance).

Several studies indicate that domestic investment projects have more beneficial trickle-down effects on
local economies. Be that as it may, close to two-thirds of FDI is among rich countries and in the form of
mergers and acquisitions (M&A). All said and done, FDI constitutes a mere 2% of global GDP.

FDI does not automatically translate to net foreign exchange inflows. To start with, many multinational
and transnational "investors" borrow money locally at favorable interest rates and thus finance their
projects. This constitutes unfair competition with local firms and crowds the domestic private sector out of
the credit markets, displacing its investments in the process.

Many transnational corporations are net consumers of savings, draining the local pool and leaving other
entrepreneurs high and dry. Foreign banks tend to collude in this reallocation of financial wherewithal by
exclusively catering to the needs of the less risky segments of the business scene (read: foreign
investors).

Additionally, the more profitable the project, the smaller the net inflow of foreign funds. In some
developing countries, profits repatriated by multinationals exceed total FDI. This untoward outcome is
exacerbated by principal and interest repayments where investments are financed with debt and by the
outflow of royalties, dividends, and fees. This is not to mention the sucking sound produced by quasi-legal
and outright illegal practices such as transfer pricing and other mutations of creative accounting.

Moreover, most developing countries are no longer in need of foreign exchange. "Third and fourth world"
countries control three quarters of the global pool of foreign exchange reserves. The "poor" (the South)
now lend to the rich (the North) and are in the enviable position of net creditors. The West drains the bulk
of the savings of the South and East, mostly in order to finance the insatiable consumption of its denizens
and to prop up a variety of indigenous asset bubbles.

Still, as any first year student of orthodox economics would tell you, FDI is not about foreign exchange.
FDI encourages the transfer of management skills, intellectual property, and technology. It creates jobs
and improves the quality of goods and services produced in the economy. Above all, it gives a boost to
the export sector.

All more or less true. Yet, the proponents of FDI get their causes and effects in a tangle. FDI does not
foster growth and stability. It follows both. Foreign investors are attracted to success stories, they are
drawn to countries already growing, politically stable, and with a sizable purchasing power.
 Foreign investors of all stripes jump ship with the first sign of contagion, unrest, and declining fortunes. In
this respect, FDI and portfolio investment are equally unreliable. Studies have demonstrated how
multinationals hurry to repatriate earnings and repay inter-firm loans with the early harbingers of trouble.
FDI is, therefore, partly pro-cyclical.

What about employment? Is FDI the panacea it is made out to be?

Far from it. Foreign-owned projects are capital-intensive and labor-efficient. They invest in machinery and
intellectual property, not in wages. Skilled workers get paid well above the local norm, all others languish.
Most multinationals employ subcontractors and these, to do their job, frequently haul entire workforces
across continents. The natives rarely benefit and when they do find employment it is short-term and badly
paid. M&A, which, as you may recall, constitute 60-70% of all FDI are notorious for inexorably generating
job losses.

FDI buttresses the government's budgetary bottom line but developing countries invariably being
governed by kleptocracies, most of the money tends to vanish in deep pockets, greased palms, and
Swiss or Cypriot bank accounts. Such "contributions" to the hitherto impoverished economy tend to inflate
asset bubbles (mainly in real estate) and prolong unsustainable and pernicious consumption booms
followed by painful busts.

Meaning: -

A multinational corporation (MNC) or enterprise (MNE),[1] is a corporation or an enterprise

that manages production or delivers services in more than one country. It can also be referred to
as an international corporation. The International Labour Organization (ILO) has defined[citation
needed]
an MNC as a corporation that has its management headquarters in one country, known as
the home country, and operates in several other countries, known as host countries.

The term ‘Multinational’ is widely used all over the world to denote large companies having vast financial,
managerial and marketing resources. MNCs are like holding companies having its head office in one
country and business activities spread within the country of origin and other countries.

The Dutch East India Company was the first multinational corporation in the world and the first
company to issue stock.[2] It was also arguably the world's first megacorporation, possessing
quasi-governmental powers, including the ability to wage war, negotiate treaties, coin money,
and establish colonies.[3]

The first modern multinational corporation is generally thought to be the East India Company.[4]
Many corporations have offices, branches or manufacturing plants in different countries from
where their original and main headquarters is located.
 Some multinational corporations are very big, with budgets that exceed some nations' GDPs.
Multinational corporations can have a powerful influence in local economies, and even the world
economy, and play an important role in international relations and globalization

IBM computer and Pepsi-Cola from U.S.A., Siemens from Germany, Sony and Honda from Japan
Philips from Holland etc., are some of the MNCs operating at international levels.

Definition:-According to ILO report (i.e. International Labour Organisation) “The essential nature of the multinational
enterprises lies in the fact that its managerial headquarters are located in one country, while the
enterprise carries out operations in number of other countries’.

The following are the benefits/merits of MNCs:

1.      Economic Development: -The Developing countries need both foreign capital and technology to make
use of available resources for economic and industrial growth. MNCs can provide the required financial,
technical and other resources to needy countries in exchange for economic gains.

2.      Technology Gap: - MNCs are the instruments of transfer of technology to the host country. Technology
is necessary to bring down cost of production and produce quality goods on a large scale. The services of
MNCs can be of great help to bridge the technological gab between developed and developing countries.

3.      Industrial Growth: - MNCs are dynamic and offer growth opportunities for domestic industries. MNCs
assist local producers to enter the global markets through their well established international network of
production and marketing. And there by ensure industrial growth.

4.      Marketing Opportunities: - MNCs have access to many markets in different countries. They have the
necessary skills and expertise to market products at international level. For example, an Indian Company
can enter into Joint Venture with a foreign company to sell its product in the international market.

5.      Work Culture: - MNCs introduces a work culture of excellence, professionalism and fairness in deals.
The sole objective of Multinational is profit Maximation. To achieve this, the Multinationals use various
strategies like product innovation, technology up gradation, professional management etc.

6.      Export Promotion: - MNCs assist developing countries in earnings foreign exchange. This can be done
by promoting and developing export oriented and import substitute industries.

7.      Research and Development: -The resources and experience of MNCs in the field of research enables
the host country to establish efficient research and development system. It is a fact that many MNCs are
now shifting their research units to countries like India to avail of monetary incentives and cheap labour.

The following are the De-merits MNCs

1.      Problem of Technology: - Technology developed by MNCs from developed countries does not fully fit in
the needs of developing countries. This is because, such technology is mostly capital intensive.
2.      Political Interference: -The MNCs from developed countries are criticised for their interference in the
political affairs of developing nations. Through their financial and other resources, they influence the
decision-making process of the governments of developing nations.

3.      Self-Interest: -MNCs work towards their own self-interest rather than working for the development of
host country. They are more interested in making profits at any cost.

4.      Outflow of foreign Exchange: -The working of MNC is a burden on the limited resources of developing
countries. They charge high price in the form of commission and royalty paid by local subsidiary to its
parent company. This leads to outflow of foreign exchange.

5.      Exploitation: - MNCs are criticised for exploiting the consumers and companies in the host country.
MNCs are financially very strong and adopt aggressive marketing strategies to sell their products, adopt
all means to eliminate competition and create monopoly in the market.

6.      Investment: -MNCs prefer to invest in areas of low risk and high profitability. Issues like social welfare,
national priority do not find any place on the agenda of MNCs.

7.      Artificial Demand: -MNCs are criticised on the ground that they create artificial and unwarranted
demand by making extensive use of the advertising and sales promotion techniques

The FERA (Foreign Exchange Regulation Act) and FEMA (Foreign Exchange Management Act) deals with laws

which relate to foreign exchange in India. The laws were made to manage foreign investments in India.

Foreign Exchange Laws in India

Foreign Exchange Regulation Act, (FERA), 1973 controls India’s foreign exchange control regime. Comprehensive

amendments have been made to FERA, especially with respect to foreign investment, to add strength to the

liberalizations announced in the economic policies. FERA provisions that imposed restrictions on locally incorporated
companies with foreign equity holding in excess of 40 per cent (known as "FERA companies") have been removed.

Such companies are now permitted to operate in India without any special restrictions, effectively placing them on par

with wholly Indian owned companies.

Foreign exchange controls have been substantially relaxed. Effective from August 20, 1994, India announced its

movement to Article VII status in the IMF: the Indian Rupee is now fully convertible on the current account. For

authorized foreign investors, the Indian Rupee is already convertible on the capital account. Full capital account

convertibility is expected in the coming years.

Although the Indian foreign exchange market is not yet fully developed, a variety of instruments have been introduced

in the recent past. The dollar rupee forward market is very active, and firms have access to cross-currency options

The FERA has its origin at the time of Indian Independence. In the beginning, it was a temporary arrangement to

control the flow of foreign exchange. In 1957 the act was made permanent. As the industrialization grew in India,

there was an increase in the foreign exchange investments. As a result, there arose a need to protect it. Accordingly,

in 1973 the Foreign Exchange Regulation Act was amended.

The older version had very strict laws (for example, a person was assumed guilty unless proven otherwise.) All the

unnecessary restrictions were removed. The rules regarding foreign investments were simplified to encourage more

foreign investment in India and consequently ensure better foreign cash flow. However, FERA was not in

accordance with the pro-liberalization policies of the Indian Government. Finally, in 1999 the FEMA was passed

which replaced the FERA, though certain provisions of FERA 1973 still exist under FEMA 1999.

FEMA came into effect from 1st June, 2000. Some structural changes were made. The FEMA combines and

improves the laws relating to foreign exchange. It makes the procedure for foreign investment easy and consequently

encourages foreign exchange in India.

FEMA on NRI Money Exchanges

The Foreign Exchange Management Act, 1999 (FEMA) came into force with effect from June 1, 2000. With the
introduction of the new Act in place of FERA, certain structural changes were brought in. The Act consolidates and
amends the law relating to foreign exchange to facilitate external trade and payments, and to promote the orderly
development and maintenance of foreign exchange in India.

From the NRI perspective, FEMA broadly covers all matters related to foreign exchange, investment avenues for
NRIs such as immovable property, bank deposits, government bonds, investment in shares, units and other
securities, and foreign direct investment in India.

FEMA vests with the Reserve Bank of India, the sole authority to grant general or special permission for all foreign
exchange related activities mentioned above.

Section 2 - The Act here provides clarity on several definitions and terms used in the context of foreign exchange.
Starting with the identification of the Non-resident Indian and Persons of Indian origin, it defines "foreign
exchange" and "foreign security" in sections 2(n) and 2(o) respectively of the Act. It describes at length the foreign
exchange facilities and where one can buy foreign exchange in India. FEMA defines an authorised dealer, and
addresses the permissible exchange allowed for a business trip, for studies and medical treatment abroad, forex
for foreign travel, the use of an international credit card, and remittance facility

Section 3 prohibits dealings in foreign exchange except through an authorised person. Similarly, without the prior
approval of the RBI, no person can make any payment to any person resident outside India in any manner other
than that prescribed by it. The Act restricts non-authorised persons from entering into any financial transaction in
India as consideration for or in association with acquisition or creation or transfer of a right to acquire any asset
outside India.

Section 4 restrains any person resident in India from acquiring, holding, owning, possessing or transferring any
foreign exchange, foreign security or any immovable property situated outside India except as specifically provided
in the Act.

Section 6 deals with capital account transactions. This section allows a person to draw or sell foreign exchange
from or to an authorised person for a capital account transaction. RBI in consultation with the Central Government
has issued various regulations on capital account transactions in terms of sub-sect ion (2) and (3) of section 6.

Section 7 covers the export of goods and services. All exporters are required to furnish to the RBI or any other
authority, a declaration regarding full export value.

Section 8 puts the responsibility of repatriation on the persons resident in India who have any amount of foreign
exchange due or accrued in their favour to get the same realised and repatriated to India within the specific
period and in the manner specified by the RBI.

The duties and liabilities of the Authorised Dealers have been dealt with in Sections 10, 11 and 12, while Sections
13 to 15 cover penalties and enforcement of the orders of the Adjudicating Authority as well as the power to
compound contraventions under the Act.

Sections 36 and 37 deal with the establishment of an Enforcement Directorate, and empowers it to investigate the
violation of any provisions of the Act, rules, regulations, notifications, directions or order issued under this Act.

The FEMA mostly includes all the matters relating to foreign investments/exchange of NRIs. The investments could

be in the form of immovable property, bank deposits, government bonds, investment in shares, units and other

securities, and foreign direct investment in India.

The Reserve Bank of India is the power authority controlling FEMA. It can grant general or special permission for all

foreign exchange related activities when the need arises.

FERA vs. FEMA

Let us compare FEMA and FERA. There are some similarities and some differences between the two.

The similarities between FEMA and FERA are:

1. The RBI and central government would continue to be the regulatory bodies.
2. Presumption of extra territorial jurisdiction as envisaged in section (1) of FERA has been
retained.
3. The Directorate of Enforcement continues to be the agency for enforcement of the provisions
of the law such as conducting search and seizure.
The major differences are between the two are:
4. FERA consists of 81 complex sections, while FEMA has only 49 which are relatively simpler.
5. Some terms like Capital Account Transaction, current Account Transaction, person, service
etc were not defined at all in FERA while they have been defined in detail in FEMA.
6. Definition of “Authorized person” as per FERA was limited while in FEMA it has been extended
to include banks, money changes, off shore banking Units etc.
7. While defining “Resident”, FERA and Income Tax Act differed a lot. In FEMA, the term has
been defined in accordance with the act.
8. Under FERA, any offence was a criminal one which included imprisonment as per code of
criminal procedure, 1973. Under FEMA, offence is treated as civil offence. A penalty has to be paid in terms
of money and imprisonment is only for those people who do not pay the penalty.
9. The amount of money paid as penalty was quite large in FERA. It was five times the amount
involved. In FEMA, the amount has been considerably reduced to three times the amount involved.
10. Any appeal against the order of "Adjudicating office", before Foreign Exchange Regulation
Appellate Board went before High Court. The appellate authority under FEMA is the special Director
(Appeals). Appeal against the order of Adjudicating Authorities and special Director (appeals) lies before
"Appellate Tribunal for Foreign Exchange”. An appeal from an order of Appellate Tribunal would lie to the
High Court.
11. FERA does not have any provision for the complainant to take any legal help whereas FEMA
clearly recognizes the right of the complainant to take help from a lawyer or a chartered accountant.
12. With FERA, police officers (Deputy Superintendent of Police and above rank officers) were
granted extensive powers of search and seizure while FEMA has restricted the power to a great extent.

The most important changes made from FERA to FEMA were regarding the laws which deal with restrictions on

withdrawals and transactions of foreign exchange. Most of them have been removed. Yet, it may be noted that the

Central Government (with consultation with RBI) can still enforce restrictions on these transactions in public interest.

The main aim of FEMA is to control and regulate the forex market in India. It helps all concerned people to make

the financial transactions smoothly