Multinational Corporations or Transnational Corporations are very large firms with headquarters in one country but with several subsidiaries or centers distributed in various countries of the world. Such companies were in existence for a long time. The English East India Company and British South Africa Company were two such companies, associated with old fashioned colonialism.
Most of the former colonies of the erstwhile imperial powers gave way to independent states. At the same time the United States of America rose as the foremost industrial power in the world. Naturally, the giant corporations of US grew, beyond its borders, much quicker than those of other countries. The UK, France and Germany along with other European and Asian countries, including India, too have their multinationals. However, the US based ones outnumber others. All of the MNCs have tremendous clout, and they can raise capital easily to invest in other countries.
The MNCs invest in developing countries not motivated by humanitarian considerations but with the aim of maximizing their profit. They find lower labour cost and lower social and environmental costs in the poor countries attractive. Among such countries wherever the government policy allows the repatriation of money easily, they are likely to invest liberally. Recently, after the liberalization of the economy policy of India, there is a remarkable spurt in the investment of MNCs in India. Liberalization means on these giant corporations, easier and quicker recovery of their invested money. They had the present economic policy of India congenial to their aims and naturally their investments have increased.
The effect of Multi National Companies on Indian economy is a debatable one. There are many fine points which need to be deliberated before we can come to any conclusion about their effects on Indian economy and society. On one hand, they have brought tremendous economic development in India but on the other hand they have also worked, though unintentionally, to change the societal picture, which is not very easy for the Indian society.
The Indian industry has progressed a lot from the time of independence to the present day. Except one or two steel mills India didn’t have any large scale industry in the forties. Now we have gone very much ahead, in heavy and light engineering, petroleum, chemical, pharmaceutical and IT industries. Without the technical knowhow, managerial skill and capital flowing is from advanced countries, this development would not have taken place. Still we have to proceed much further if we have to gain our due share in the world industrial scene, a share in accordance with the size and population of the country. One has to admit that for rapid progress in industrialization, we still need state of the art technology, modern managerial skill and massive induction of capital. However, we do feel constrained in all the three. Multinationals can play a very useful role here. They can help to solve the unemployment and poverty problems also one of the stumbling blocks in the path of India’s progress. The enormous investment that is needed to create job opportunity to all, or nearly all, is beyond the resources of the country.
The MNCs with their clout in money market world over can raise the needy capital easily. Large scale investment in new ventures creates job opportunities, directly in those ventures they plunge in. There is a general spurt in the economy leading to more demand for services, skilled and unskilled. When the economy leaps up, the trickling down effect it causes in society, those at the lower levels too are also benefited. If the process works well, society will be freed from the throttling effect of unemployment and poverty. Better educational facilities arise wiping out ignorance amid superstition. One should expect the MNCs to bring in the latest in technical knowledge. For their aim will be to get profited from best possible performance and managerial skill.
The MNCs can also help giving a boost to India’s international trade which has sagged after the independence. At independence, India had a 5% share in the world trade, even ahead of that of Japan. Now at 0.5% it is much lower than even that of some tiny countries. Whether we like it or not, India has to go global, if we have to be abreast of the modern trends. The insular, or near insular policy of the past many decades has made us helpless onlookers, when even small countries like Singapore steal a march ahead of us. The coming of MNCs in a big way can help India to become more outward looking getting profited by the new interdependence.
A multinational corporation is neither a saviour as its protagonist’s claim, nor a saboteur as its detractors make it out to be. It is a mix of virtues and vices, boons and banes. India from independence onwards viewed the MNCs with suspicion. The association of colonialism with the MNCs is a hangover from the British rule in India, middle independence struggle we fought against the rule. Further the incidents like association with the Suez Canal Company in Egypt, Western Oil companies in Iran and the US based IT in Chile gave some credence to the belief that the MNCs can help sabotage the stability of nations by interfering in internal politics; The opponents, of MNCs bring toward many reasons to support their view. For instance, often the MNCs will be bringing in only obsolete or second rate technology and discarded machinery to the developing countries. But this is not always the case. There are many cases in India where Philips Petroleum introduced the latest technology in Madras in their refineries and shell in the latest pipelines from Assam. If the MNCs find the introduction of the latest technologies in a country profitable they will do so. Volkswagens have done it even in recent times. Many Japanese companies are still doing it.
Other concerns raised are like that the MNCs are likely to repatriate the profit and that too with an intention of recouping their investment in the shortest possible time. There is record of repatriating more money from India than their investment during the seventies. Many critics also argue that it is a myth that the MNCs will help disseminate the latest technology in India. Many MNCs as they go into agreement with its subsidiaries specifically include a clause that the technology they provide is not to be copied. There is another side to this. The local scientists and technocrats working in the firms will have access to the knowhow. As Sam Putrid brought in latest technology in electronics communications into India from his experience with MNCs in the US other Indians in the MNCs too can help in the dissemination of latest technology. Often it is pointed out that the MNCs import too much and create a strain on foreign exchange. They exploit the local market, without aiming at earning from export. This argument is true when there is no profit accruing by exporting. If export is to be promoted, then conditions are to be created to make export profitable.
Not only MNCs, but also Indian owned companies will hesitate to export if there is a better profit in the local market. To expect a firm to export a produce on patriotic motive rather than on business reason is not commonsense. At the same time, there is statistical evidence to show that the ratio of foreign earnings to the total out go is consistently higher for MNCs than for Indian owned companies. With better technology, managerial skill and capital in their hands, MNCs can smother Indian enterprises, some critics feel. True, some inefficient firms may die in competition with the multinationals. But they ought to die in any case if we are to make headway in world market. The success of Rasna, Nirma, Videocon and Onida over the MNCs in the Indian market is enough to prove that Indian industry has come of age. With good business sense Indian firms can well compete with the multinationals, on a level play ground. And the government of the country is there to oversee that the game is played according to rules.
There is some evidence to show that by over invoicing imports and under invoicing exports MNCs divert their profit illegally to other countries. But, then, many Indian companies too are guilty of this practice. It is natural for a firm to show low income in a high tax rate country like India and divert to a low tax rate country like Thailand. This real practice can be eradicated only by tax reforms. It is true the MNC investment in India so far, despite the liberalization, is of a lower order than that goes into China or some other small ASEAN countries. Sometimes MNCs can indulge in political sabotage. MNCs have caused the fall of governments when their interests are challenged. Mosadique’s government fell after a coup, when he nationalized Iranian oil companies. Allende of Chile was killed and the Chilean Government was overthrown in the tussle with ITT, the American giant. But those are incidents of the past. Now business has become sophisticated enough to steer clear of politics. However, the influence of local shareholders can still play politics in the interest of the MNCs. Then the big Indian companies to do this and India with enough experience of its own is to be on its own guard.
With the opening up of Indian economy, many MNCs entered into India. They brought tremendous amount of job opportunities and employment with them. In a very short span of time, standard of living of people working with these companies improved drastically. India started boasting some of the richest people on the Earth. The increased income of individuals, in turn, made government also richer by earning much more taxes than before. This growth of economy further attracted more and more MNCs and Nation’s face changed within five years. India is now called an IT Superpower instead of ‘The Land of Snake Charmers’.
But, if we scratch beneath the surface, we will find that everything has not bettered with the rise of MNCs in India. The effect on society has been scary. Indians, in a race to ape everything from West, have started forgetting their own culture and values. Money has concentrated in the hands of very few people, which has given rise to great resentment in the lower classes of society. Crime in the urban areas is on the rise. People have started living with insecurity because of the rise of nuclear families. People working in these companies are living much more stressed life in a bid to always perform better under pressure.
Hence, if MNCs have brought happiness to this country, it has its own miseries attached to it. Like a swan we need to pick the pearls and discard the unwanted. MNCs coming to India in a large way are bringing in a mixed bag. It has its perils as well as blessings. If things work well, it can bring in massive foreign investment leading to an economic spurt. The consequence can be alleviation of poverty, full or near full employment and social upliftment. They can usher in an age, where modernized industry uses the state of the art technology, the best managerial skill. And an affluent society can be created. At the same time the government should be aware of the pit falls. Like any business concern that thinks of maximizing its profit, the multinationals too will try to get the maximum from their investment. The congenial atmosphere is to be created to welcome them by providing the right infrastructure and lessening the redtapism in government departments. Further, they should not be given a chance to do harm to the country by indulging in transfer pricing, monopolistic competition and above all interfering in internal politics.
If the government is on its guard and makes use of the available opportunity sagaciously, possibly, the coming of multinationals can be a blessing to India. They can help India raise itself into an industrial giant. If India is able to maintain its cultural values, MNCs can definitely help her grow as the biggest superpower in the world.