Page 302 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Indian Economic Policy

Notes (iii) Other Location Advantages : Among these can be included trade and macro policies of the
country, the technological status, brand name and goodwill enjoyed by the local firms, openness
of the economy and intellectual property protection.
23.3 Multinational Corporations

MNCs are involved in foreign direct investment which means they own or control income generation
assets in more than one country. Thus, they produce goods or services outside its country of origin.
There are more than eleven thousand MNCs with more than eighty-two thousand subsidiaries in
operation in today’s world economy.
Characteristics of Multinational Corporations : The important characteristics of MNCs are given
below :
(i) Giant Size : Their assets and sales run into billions of dollars.
(ii) International Operations : The control resides in the hands of a single institution but its interests
and operations sprawl across countries.
(iii) Oligopolistic Structure : An MNC has awesome power and along with its giant size it becomes
oligopolistic.
(iv) Spontaneous Evolution : Generally, MNCs grow in a spontaneous and unconscious manner.
(v) Collective Transfer of Resources : They facilitate multi-lateral transfer of resources.
Importance and Significance of MNCs : In today’s world economy, MNCs have become a powerful
force.
The Case for MNCs : MNCs carry the potential benefits that a developing economy can hope to get
from MNC operations. Today, foreign investment is the only instrument that can reduce the inequalities
between nations of the world.
The Case against MNCs : At present, MNCs acknowledge their responsibility to the concerns and
interests of the host country. However, international capital has no loyalty towards any nationality.
Need for Regulation of MNCs : MNCs are needed to regularised due to the following reasons :
(i) After a specific period, restrictions may be imposed on foreign holdings of MNCs, or there may
be provision for gradual disinvestments.
(ii) There is threat of nationalisation which is an important tool of regulation.
(iii) In certain areas, the Government may allow or deny permission.
(iv) The Government may demand MNCs to carry out a minimum fixed share of their total research
and development activities within the host countries of MNCs.
(v) The MNCs may be taxed at a higher rate.
(vi) The host country may lay down certain export criteria for MNCs.
Foreign Capital in India

Foreign capital has been given an important role to play in the planned economy of India. In the first
stage, foreign capital was looked upon as a means to supplement domestic investment but gradually
the emphasis shifted to encouraging technological collaboration between Indian entrepreneurs and
foreign entrepreneurs. Of late, free flow of foreign capital is invited.
Government Policy towards Foreign Capital : ln India, foreign investment is subject to the same
industrial policy as all other business ventures. Moreover, there are some additional policies and
rules specially governing foreign collaboration. The Industrial Policy Resolution, 1948 (IPR, 1948) is
the first articulate expression of free India’s attitude towards foreign capital. It stressed the need for
carefully regulating as well as inviting private foreign capital. Special stress, inter-alia, was put on the

296 LOVELY PROFESSIONAL UNIVERSITY