Multinationals in India’s Exports

It may not be out of place to mention at the outset that all foreign investors come to India with the basic objective of taking advantage of her vast home market and exports have always been and will continue to be of marginal importance to them except in the export oriented industries like tea and jute manufactures. Most of the companies with foreign collaboration had an export restriction clause in their agreements but these restrictions have been removed in most cases at the time of renewal of agreements. Even when there is no formal restriction, there may be an informal understanding to avoid competition with the parent company or other subsidiaries.

The IIFT’s study on Role of Transnational Corporations in India’s Exports showed that leading firms in various sectors did not contribute significantly to total export of manufacturers from India specially those of technology intensive items. Neither did MNC subsidiaries adopt any special strategy to promote products of export interest to India. Moreover, when completed to export due to Government compulsion, they usually act as trading house buying the output of small industries and selling them abroad through their extensive marketing network.

However, foreign companies play an important role in software and related exports which have been among India’s fastest growing export averaging 40 per cent growth per annum in 1988-2002 and expanding from $70 million in 1988 to a projected $7.6 billion in 2001-02. Foreign affiliates alone accounted for 19 per cent of India’s software exports in 1998-99 to their parent companies. To that one would have to add exports undertaken on the basis of non-equity links.

Foreign Exchange outgo of MNCs:

According to a study of the Reserve Bank of India, the foreign exchange expenditure of the foreign controlled rupee companies exceeded tier foreign exchange earnings by Rs 222 crores in 1987-88. But a study made by the Economic and Scientific Research Foundation pointed out that a similar trend is obvious in the Indian companies in the public and the private sectors. The ratio of of foreign exchange earnings to outgo was consistently higher for the 61 foreign companies than for the total sample of 365 companies. For the period 1975-76 to 1987-88 the ratio averaged 40 per cent for all companies but 49 per cent for multinationals.

Yet in recent years, many multinationals have gone on for exports for the following reasons:

1. The existence of export incentives, specially exemption of export profits from income tax
2. Export obligations imposed by the Government
3. Till recently, easier access to the East European markets through India’s Rupee Payment Agreements with the East European countries. BY virtue of India’s special trade relations with the socialist bloc countries, there were particular export avenues open only to Indian subsidiaries of MNCs and they took advantage of these opportunities. This facility has now gone.
4. Additional leverage gained through exports in regard to relaxation of the industries (Development & Regulation) Act, especially in respect of expansion of capacity and extension of product line.
5. Appropriateness of Indian products and technology for use in certain specific cases. For example, Indian components are suitable for a limited number of old cars still operating in Europe. Indian commercial vehicles are more suited to other developing countries than those produced in Europe and North America because of their ability to withstand weather, overloading and bad roads.

Ponds diversifying into thermometer, leather uppers and mushrooms and BPL-Sanyo producing cassette reorders and allied electronic equipment entirely for export. There is no doubt that in many cases, the corporate image of multinational subsidiaries has helped in increasing India’s export as it assures the overseas buyer about quality and delivery schedules. Again, the general image of the parent company as a leading producer of certain products has made Indian products acceptable in overseas markets.

MNCs have, however, complained that high cost of local inputs at times due to sub optimal operation because of MRTP regulations and infrastructural difficulties like excessive bureaucracy power shortage, poor transport facilities and labor troubles in supplying firms, have been major factors hampering exports from India. However, there has been a substantial change in this respect since July 1991.