The role of Multinationals in Indian economy
The role of Multinationals in Indian economy
Multinational corporations, as the name implies, are large corporate institutions They have a variety of business interests with their headquarters in one country. They carry on their business in more than one country. There are a number of criteria to define a multinational company. But the only criterion that comes to mind is their global and transnational activities.
What is the real truth about the multinational operations in the context of India? Multinationals are not an unmixed blessings for the developing coun¬tries like ours. Do they really contribute to the economic stability and progress of the host countries? As a matter of fact their utility lies in the field in which they are working. They must not be allowed to work in non-priority areas indiscriminately. In the case of India, foreign investment has flowed in non¬priority areas in quite a significant proportion. Around 40% multinational companies in India are operating in sectors like hotels, tourism, food process¬ing, service sector etc. There are very high rates of return in these sectors. Out of the total foreign investment in India by various countries, the share of USA alone is about 40%. Again out of total 3700 collaborations almost half of them are financial in nature. The result is that financial sector in India remains erratic.
The foreign investment in non-priority sector has resulted in a new kind of consumerism in the form of colas, ice-creams, music system, potato wafers, expensive bikes and cars. These items serve the need of only about 20% of population living in urban areas. On the other hand the rest of the population is suffering from the lack of basic amenities. Again the portfolio investment in India is in the form of hot money. This money can be easily diverted to their own countries. So it is a mistake to treat portfolio investment as a stable factor. The increased foreign Direct Investment leads to inflationary trends. It is again a mistake to think that the entry of multinationals would ensure the transfer of high technology to India. There is no indication that technology is being transferred to the country. We just get the taste of screw driver technology.
At present multinational companies are operating in the areas where they get excessively high rate of return. Take the example of Colgate Palmolive. Their rate of return is estimated to be 80%. It is strange that we have not got response from multinational companies engaged in oil production, power gen¬eration and other priority areas. They have, in fact, made three solid contributions to our national economy. They have used indigenous raw material instead of imports. Secondly, cadre of professional managers have been trained. Thirdly they have setup efficient trading infrastructure. In conclusion one can say that a multinational corporation is a mix of virtues and vices, boons and banes. Therefore, the Govt should adopt pragmatic approach because multinationals have come to stay in the present day world. We will have to learn to live with multinationals under new global concept of economic order.