Multinational Corporations

&
Their Contribution to NI

What is an MNC?
Multinational Corporations (MNCs) are businesses that have
operations in more than one country. The energy business, BP,
operatesin more than hundred countries. Corporations that
control assets in more than one country are also known as
Transnational Corporations (TNCs).
Some MNCs control more money than some governments.
Exxon Mobil, the parent of Esso, Mobil and Exxon Mobil
companies around the world is the biggest MNC. Its economy is
similar to that of Chile or Pakistan!!

Do MNCs help or harm??

MNCs can help to reduce poverty.
They can bring money to a country through employment and
investment. Three quarters of international investment in
developing countries is from MNCs and private sources.
They can create jobs and increase labor standards.
They can pass on expertise in their field.

BUT they can also harm…..

The MNC can be guilty of pollution or human rights abuse. (E.g.
by sourcing products from factories where child labor is used or
by forbidding its workers to join trade unions.)
The finance brought into a country by an MNC may be badly
managed by that country’s government.
“The obligation of the companies should include respect for the
dignity of the person and acknowledgement of their social, economic
and cultural rights. That means, at the very least, dignified
treatment, safe conditions, social security coverage and some
contractual stability.”
-CAFOD partner, Father Sergio Cobo, Mexico

Duties of MNCs
MNCs have an obligation towards employers, customers,
government, suppliers, and communities as well as towards
shareholders. This is known as Corporate Social Responsibility
(CSR).
Most agree that CSR includes a duty to behave honestly, legally
and with integrity, not to be corrupt but to deal fairly and obey
the host country’s laws. Some MNCs would say that no more
than this bare minimum can be expected. They would argue that
the cost of CSR could eat into their profits and push them out of
business.

“The UN once dealt with only governments. By now we know that

peace and prosperity cannot be achieved without partnerships
involving governments, international organizations, the business
community and civil society. In today’s world we depend on each
other.”
-Kofi Annan, former UN Secretary General

CAFOD Believes…..
Increasingly pressure from civil society is pushing businesses to
accept that they have responsibilities to the communities in
which they operate, as well as financial responsibilities to
shareholders.
CAFOD agrees with this and also believes that MNCs have a
responsibility to promote human rights wherever possible.

Why accept Corporate Social Responsibility??

Some MNCs recognize this as a moral duty. Others are
interested because companies who manage their social
responsibility effectively are usually more profitable. MNCs
focus on maintaining relationships with domestic companies,
trade unions and Non-Governmental Organizations (NGOs) like
CAFOD. Members of the ETI work to ensure that an ethical
code of practice called the “ETI Base Code” is followed
throughout their supply chains. The ETI Base Code is founded
on standards set by the UN’s International Labor Organization.

Are Ethical Codes a good thing??

One drawback of ethical codes is that they may focus the MNCs
attention on addressing only one issue, such as child labor in the
clothing industry. This could enhance an MNCs reputation with
a local government, while in reality the code is failing to change
conditions for the majority of its workers.

Can Governments help??

When MNCs protect their profits by avoiding corporate social
responsibility and environmental regulations, governments often
fail to take action…
 They may lack the capacity or the will to enforce laws on
MNCs.
 They may lack money or expertise.
 They may fear losing foreign investment, jobs and
opportunities for growth.

Global Governance
Global regulation of MNCs is necessary because some activities
of MNCs are outside the reach of national law. MNCs tend to
chase the lowest wages in an effort to maximize their profits.
This can encourage governments to keep down social and
environmental standards. So far the international community has
failed to take up the challenge to control the impact of MNCs’
activities. The UN Global Compact launched in July 2000 has
made only questionable achievements. Its members include
many MNCs and the Compact aims to encourage members “to
identify and disseminate good practices’’.
However, reporting on their practices by companies is optional
and reports that are submitted are not checked by any
independent body.The UN Norms on the Responsibilities of
TransnationalCorporations and Other Business Enterprises are
morepromising. These norms propose that companies be
heldaccountable to the international community for
humanrights’ breaches. The UN Human Rights Commission
iscurrently considering increasing the importance of theUN
Norms, but there is opposition. Many governments,including the
UK government, argue that human rights’law does not apply to
“non-state” actors such as MNCs.Yet obligations that apply to
non-state actors exist in other International LaborOrganization
statutes andUnited Nations’ resolutions, e.g. on slavery and
piracy.
The real problem is one of political will.

Fact File!!!
 Of the world’s top 200 economic players in 2001, 56 were
countries and 144 were corporations.
 Marks & Spencer sources its goods from more than 70
countries.
  In 2000 IBM produced around 60 per cent of its laptops in
Mexico.
 BP operates in more than 100 countries.
 Hewlett Packard recently slashed supply-chain costs by
US$3.5 billion and is now looking to save a further US$1
billion annually.
 General Motors, Wal-Mart, Exxon Mobil, and Daimler
Chrysler all have revenues greater than the combined
economic output (GDP) of the 48 least developed
countries.

Multinational Companies in
India
India has been the home to a number of multinational
companies. In fact, since the financial liberalization in the
country in 1991, the number of multinational companies in India
has increased noticeably. Though majority of the multinational
companies in India are from the U.S., however one can also find
companies from other countries as well.

Destination India
The multinational companies in India represent a diversified
portfolio of companies from different countries. Though the
American companies - the majority of the MNC in India,
account for about 37% of the turnover of the top 20 firms
operating in India, but the scenario has changed a lot off late.
More enterprises from European Union like Britain, France,
Netherlands, Italy, Germany, Belgium and Finland have come to
India or have outsourced their works to this country. Finnish
mobile giant Nokia has their second largest base in this country.
There are also MNCs like British Petroleum and Vodafone that
represent Britain. India has a huge market for automobiles and
hence a number of automobile giants have stepped in to this
country to reap the market. One can easily find the showrooms
of the multinational automobile companies like Fiat, Piaggio,
and Ford Motors in India. French Heavy Engineering major
Alstom and Pharma major Sanofi Aventis have also started their
operations in this country. The later one is in fact one of the
earliest entrants in the list of multinational companies in India,
which is currently growing at a very enviable rate. There are
also a number of oil companies and infrastructure builders from
Middle East. Electronics giants like Samsung and LG
Electronics from South Korea have already made a substantial
impact on the Indian electronics market. Hyundai Motors has
also done well in mid-segment car market in India.

Why are Multinational Companies in India?

There are a number of reasons why the multinational companies
are coming down to India. India has got a huge market. It has
also got one of the fastest growing economies in the world.
Besides, the policy of the government towards FDI has also
played a major role in attracting the multinational companies in
India.
For quite a long time, India had a restrictive policy in terms of
foreign direct investment. As a result, there was lesser number
of companies that showed interest in investing in Indian market.
However, the scenario changed during the financial
liberalization of the country, especially after 1991. Government,
nowadays, makes continuous efforts to attract foreign
investments by relaxing many of its policies. As a result, a
number of multinational companies have shown interest in
Indian market.

Following are the reasons why multinational companies

consider India as a preferred destination for business:
• Huge market potential of the country
• FDI attractiveness
• Labor competitiveness
• Macro-economic stability
Table-1
List of Multinational Companies in India-
The list of multinational companies in India is ever-growing as a
number of MNCs are coming down to this country now and
then. Following are some of the major multinational companies
operating their businesses in India:
• British Petroleum
• Vodafone
• Ford Motors
• LG
• Samsung
• Hyundai
• Accenture
• Reebok
• Skoda Motors
• ABN Amro Bank

Pillars of MNCs success

MNCs in Rural India
To expand the market by tapping the countryside, more and
more MNCs are foraying into India's rural markets. Among
those that have made some headway are Hindustan Lever, Coca-
Cola, LG Electronics, Britannia, HDFC Standard Life, Philips,
Colgate Palmolive and the telecom companies.

OPPORTUNITY IN RURAL MARKET

The Indian rural market with its vast size and demand base
offers a huge opportunity that MNCs cannot afford to ignore.
With 128 million households, the rural population is nearly three
times the urban.
As a result of the growing affluence, fuelled by good monsoons
and the increase in agricultural output to 200 million tons from
176 million tons in 1991, rural India has a large consuming class
with 41 per cent of India's middle-class and 58 per cent of the
total disposable income.
The importance of the rural market for some FMCG and durable
marketers is underlined by the fact that the rural market accounts
for close to 70 per cent of toilet-soap users and 38 per cent of all
two-wheeler purchased.
The rural market accounts for half the total market for TV sets,
fans, pressure cookers, bicycles, washing soap, blades, tea, salt
and toothpowder, What is more, the rural market for FMCG
products is growing much faster than the urban counterpart.
APPROACHES TO RURAL MARKETING
The rural market may be alluring but it is not without its
problems: Low per capita disposable incomes that is half the
urban disposable income; large number of daily wage earners,
acute dependence on the vagaries of the monsoon; seasonal
consumption linked to harvests and festivals and special
occasions; poor roads; power problems; and inaccessibility to
conventional advertising media. However, the rural consumer is
not unlike his urban counterpart in many ways. The more daring
MNCs are meeting the consequent challenges of availability,
affordability, acceptability and awareness of products.
AVAILABILITY OF PRODUCT
The first challenge is to ensure availability of the product or
service. India's 627,000 villages are spread over 3.2 million sq.
km; 700 million Indians may live in rural areas, finding them is
not easy. However, given the poor state of roads, it is an even
greater challenge to regularly reach products to the far-flung
villages. Any serious marketer must strive to reach at least
13,113 villages with a population of more than 5,000. Marketers
must trade off the distribution cost with incremental market
penetration. Over the years, India's largest MNC, Hindustan
Lever, a subsidiary of Unilever, has built a strong distribution
system which helps its brands reach the interiors of the rural
market. To service remote village, stockistsuse auto rickshaws,
bullock-carts and even boats in the backwaters of Kerala. Coca-
Cola, which considers rural India as a future growth driver, has
evolved a hub and spoke distribution model to reach the
villages. To ensure full loads, the company depot supplies, twice
a week, large distributors which who act as hubs. These
distributors appoint and supply, once a week, smaller
distributors in adjoining areas. LG Electronics defines all cities
and towns other than the seven metros cities as rural and semi-
urban market. To tap these unexplored country markets, LG has
set up 45 area offices and 59 rural/remote area offices.

AFFORDABILITY OF A PRODUCT
The second challenge is to ensure affordability of the product or
service. With low disposable incomes, products need to be
affordable to the rural consumer, most of who are on daily
wages. Some companies have addressed the affordability
problem by introducing small unit packs. Godrej recently
introduced three brands of Cinthol, Fair Glow and Godrej in 50-
gm packs, priced at Rs.4-5 meant specifically for Madhya
Pradesh, Bihar and Uttar Pradesh - the so-called `Bimaru' States.
Hindustan Lever, among the first MNCs to realize the potential
of India's rural market, has launched a variant of its largest
selling soap brand, Lifebuoy at Rs.2 for 50 gm. The move is
mainly targeted at the rural market. Coca-Cola has addressed the
affordability issue by introducing the returnable 200-ml glass
bottle priced at Rs.5. The initiative has paid off: Eighty per cent
of new drinkers now come from the rural markets. Coca-Cola
has also introduced Sunfill, a powdered soft-drink concentrate.
The instant and ready-to-mix Sunfill is available in a single-
serve sachet of 25 gm. priced at Rs.2 and multi-serve sachet of
200 gm. priced at Rs.15.

ACCEPTABILITY OF A PRODUCT
The third challenge is to gain acceptability for the product or
service. Therefore, there is a need to offer products that suit the
rural market. One company which has reaped rich dividends by
doing so is LG Electronics. In 1998, it developed a customized
TV for the rural market and christened it Sampoorna. It was a
runway hit selling 100,000 sets in the very first year. Because of
the lack of electricity and refrigerators in the rural areas, Coca-
Cola provides low-cost ice boxes — a tin box for new outlets
and thermocol box for seasonal outlets.
The insurance companies that have tailor-made products for the
rural market have performed well. HDFC Standard LIFE topped
private insurers by selling policies worth Rs.3.5 crore in total
premia. The company tied up with non-governmental
organizations and offered reasonably-priced policies in the
nature of group insurance covers. With large parts of rural India
inaccessible to conventional advertising media, only 41 per cent
rural households have access to TV.

AWARENESS OF A PRODUCT
This is another challenge. Fortunately, however, the rural
consumer has the same likes as the urban consumer — movies
and music — and for both the urban and rural consumer, the
family is the key unit of identity. However, the rural consumer
expressions differ from his urban counterpart. Outing for the
former is confined to local fairs and festivals and TV viewing is
confined to the state-owned Doordarshan. Consumption of
branded products is treated as a special treat or indulgence.
Hindustan Lever relies heavily on its own company-organized
media. These are promotional events organized by stockists.
Godrej Consumer Products, which is trying to push its soap
brands into the interior areas, uses radio to reach the local people
in their language.
Coca-Cola uses a combination of TV, cinema and radio to reach
53.6 per cent of rural households. It doubled its spend on
advertising on Doordarshan, which alone reached 41 per cent of
rural households. It has also used banners, posters and tapped all
the local forms of entertainment. Since price is a key issue in the
rural areas, Coca-Cola advertising stressed its `magical' price
point of Rs.5 per bottle in all media.LG Electronics uses vans
and road shows to reach rural customers. The company uses
local language advertising. Philips India uses wall writing and
radio advertising to drive its growth in rural areas.

The key dilemma for MNCs eager to tap the large and fast-
growing rural market is whether they can do so without hurting
the company's profit margins. The company's product portfolio
is essentially designed for urban consumers, and the companies
are cautioned from plunging headlong into the rural market as
capturing rural consumers can be expensive. Any generalization
"about rural India could be wrong and one should focus on high
GDP growth areas, be it urban, semi-urban or rural."
 MNCs in Rural India: At a
Turning Point
A "symbiotic relationship" is how SanjeevChadha, chairman and
CEO of PepsiCo India, describes the work that the food and
beverage multinational undertakes with thousands of farmers
across India. "We help them with progressive farming
techniques and they are of huge benefit to us in securing a
reliable supply chain," he says. Some observers would call what
Pepsi is doing corporate social responsibility (CSR); others more
cynically might say it's simply another example of multinational
corporations (MNCs) trying to figure out how to make inroads
in India's challenging, but potentially lucrative rural market.
Whatever the words used by executives like Chadha for such
initiatives, it is impossible to discuss multinational strategies in
rural India without mentioning CSR. In its various forms, it is a
critical part of their rural growth plans, often out of sheer
necessity. Filling the gaps left by government, MNCs have built
roads in rural India that help them deliver their goods, provided
education and health care for communities whose workforces
they rely upon, and implemented environmental programs to
protect precious natural resources needed to keep supply chains
running smoothly.
"In some cases, I am sure CSR activities are mostly rhetoric,"
says Harbir Singh, Wharton management professor and co-
author of a new book titled, The India Way: How India's Top
Business Leaders Are Revolutionizing Management. "But CSR
is more legitimate in India than in the U.S., where infrastructure
has been built and government is seen as addressing societal
development agendas."
Yet now there's a shift in how MNCs look at their entire rural
India investments beyond CSR. With growth drying up in
developed markets and their center of gravity shifting to
emerging markets, MNC businesses in India are under pressure
to prove that their rural strategies aren't just about doing well
from a CSR perspective. They also need to show head office that
these strategies are doing well from a business perspective. In
short, the strategies must start delivering top- and bottom-line
results.
After years of false starts, missed opportunities and flawed
strategies, a number of MNCs' India businesses are getting
close. Others already are there and are ramping up their rural
investments. None can take that fine balance between doing
good and doing business for granted, as Nokia, Coca-Cola and
Max New York Life -- among the companies profiled in this
special report -- show. And it's for that reason that at PepsiCo
India, "our rural agenda has been driven by purpose and now is
moving into performance," says Chadha.

Spending Power
For many MNCs, there's a lot more riding on their rural India
performance than there once was as India's growth story spreads
to the heartland. Two-thirds of the country's one billion
consumers live in rural India, where almost half of the national
income is generated. A report by Technopak Consultants and the
Confederation of Indian Industries, a trade body, estimates that
the country's rural consumer market generated US$425 billion
of revenue, up from US$266 billion the previous year.
The big reason for the growth is that India's rural consumers are
steadily gaining more spending power. The number of rural
households earning less than US$760 a year is down from 65%
to 24% since 1993, while those with an income of US$1,525
have more than doubled from 22% to 46%. Combine these
factors with improved roads and other infrastructure in rural
India to help products reach their markets, and it's easy to see
rural India's attraction.
"We are finally beginning to see that rural India has cash and is
able to spend at the same time," says Vijay Govindarajan,
professor of international business at Tuck School of Business at
Dartmouth College in New Hampshire, who is also the chief
innovation consultant for General Electric. "This is a remarkable
combination for companies."
But any company coming to India for the first time that thinks it
will be easy to take advantage of that combination is mistaken.
Rural India is hugely complex, not least because of its diverse
pace of development. As a recent study from IMRB
International, a research company in Mumbai, notes, some
markets are big but not as affluent as other markets (Uttar, Bihar
Pradesh) while some are affluent but not very large (Himachal
Pradesh, Goa). Experts also say that strategies need to take into
account the vast number of languages and cultural differences
across India's hinterland, while keeping strategies highly flexible
and adaptable.
It can mean developing products and services tailored
specifically to the rural market. When LG entered India in the
mid-1990s, numerous brands were vying for shelf space with
hardly anything to distinguish them from competitors. The
South Korean company developed two color television sets for
the rural market, Sampoorna (which means "complete" in Hindi)
and Cine Plus. At US$65 and US$107 respectively, the sets
were priced slightly higher than the black-and-white televisions
that other manufacturers were selling in rural markets and that
had become obsolete in urban homes. LG was also the first to
offer gaming with its cut-price TVs and menus in English and
Hindi. Now LG has refrigerators, washing machines and
microwave ovens targeted at price-sensitive consumers sold
from hundreds of retail and distributor outlets across the
hinterland, with rural markets contributing 40% of its revenue.
Much also depends on the sector and products sold. In fast-
moving consumer goods, for example, MNC products are
capturing a sizable portion of rural consumer spending in a
number of areas, with year-on-year increases in rural spending
in 2009 on MNC shampoos (70%), washing powder (60%) and
toothpaste (112%), say researchers at IMRB. What's more, they
say, the average spending on these products is growing faster in
rural than in urban markets.

Soap Operas
In the course of ramping up the performance of their rural
strategies, MNCs are applying the lessons already learned. One
of those lessons is that the benefits of a first-mover advantage
are tough to hang on to as rural Indian consumers' tastes change
rapidly, with questionable brand loyalty.
That applies even to a groundbreaker like Hindustan Unilever
Ltd. (HUL), the country's largest consumer-products company
owned by Anglo-Dutch Unilever. It made waves in the
hinterland in 2001 when its Shakti Project enlisted self-help
groups to develop a network of women -- largely from very low-
income households -- into entrepreneurs, selling baskets of HUL
products door to door. Today, 42,000 women earn a living by
selling HUL products in more than 100,000 villages in 15 states.
"India's rural narrative has been defined by HUL," notes
PradeepLokhande, founder of Rural Relations, a Pune-based
consumer-relationship management organization.
In the meantime, HUL has embraced other novel distribution
strategies, such as selling products like its Sunsilk and Clinic
shampoos in small, inexpensive packets for low-income Indians
in the hinterland with little spare cash. Thanks to those efforts,
the company has one of the most extensive distribution networks
in the country, with 6.3 million retail outlets, including one
million that it services directly. Rural India currently accounts
for nearly half of HUL's revenue.
But HUL's lead regularly comes under threat. In December, for
example, rival MNC Procter & Gamble launched Tide Naturals,
which is a 30% cheaper version of its Tide detergent targeted at
rural consumers -- a global first for the Cincinnati-based MNC.
The launch was part of the parent company's "purpose-inspired
growth strategy" to "touch and improve more consumers' lives
in more parts of the world." Within weeks of its launch, Tide
Naturals shook up India's US$8 billion detergent market by
clinching a 0.6% share of the market, according to AC Nielsen.
HUL's response has been to turn to a local court to contest
P&G's use of the word "naturals" to promote its new product.
With neither side backing down, the case continues.
While other MNCs aren't necessarily going to be airing their
competitive grievances in court, they can expect fast, nimble
competitors to take them by surprise and grab market share if
they don't stay close to their customers -- which is no small feat
in a country like India, which has 642,000 villages, some with
populations as low as 500.
'Uncharted Water'
Nowhere is that more evident than in mobile telephony. Mobile
phone penetration in India jumped from 1.4 units per 100 people
in 1995 to 51 units currently. In the 12 months to September
2009, the number of mobile subscribers increased 55% to 142
million, according to the Telecommunications Regulatory
Authority of India.
Taking a lead in that growth has been Nokia, the US$55 billion
Finnish mobile handset maker, which is one of the companies
profiled in this special report. As part of a global emerging
market focus since 2006, rural India now accounts for 40% of
Nokia India's US$5 billion annual revenue. But it's a crowded
business to be in. Along with Samsung, LG, Sony Ericsson and
Motorola, there are a number of handset makers not only from
China selling cut-price handsets, but also from India's home-
grown companies that are chipping away at Nokia's market
share lead with handsets that are cheaper, more practical or both.
Now Nokia, like other handset makers, is branching out and
forging alliances with various partners to offer mobile banking
and other services along with its handsets. "Its uncharted water"
-- as Gerald Faulhaber, a business and public policy professor at
Wharton, puts it -- one in which "customers are pushing the
companies and taking them out of the comfort zone."
Doing so successfully requires one thing: "listen to people,"
states KarishmaKiri, a Seattle-based strategy and product
management consultant at The K2 Group, who was a director of
Microsoft's Unlimited Potential initiative which provides
computers, software and IT training in emerging markets. "A lot
of companies tend not to listen to [what] rural consumers say
they need."
That's not as clear-cut as MNCs might think. The jury is still out
on the mobile services launched by news agency Reuters last
year and other service providers to deliver agriculture
information to farmers' mobile phone. According to Rural
Relations' Lokhande, the demand hasn't been strong. "There's a
perception mismatch between the farmers and the service
provider," he notes. While the companies assert that the service
is useful, affordable and personalized, many farmers figure they
can get daily rates from their state agriculture marketing boards
for two cents, or half the price.
In rural areas, finding the magic price points that don't eat into
margins yet boost volume is an ongoing battle, with a lot
hinging on distribution. "We have to build, and are building
much deeper 'go-to-market' systems in rural India. They have to
be extremely cost-efficient, much more so than they are in the
urban areas," says PepsiCo's Chadha.
The US$43.2 billion MNC has been in India for more than 20
years and now claims to have overtaken Nestle as the top food
and Beverage Company in the country. Overall, India has indeed
been treating the company well, even during the downturn. India
revenue at its drinks business grew 40% last year, while volume
jumped 32%, well outpacing most other countries in PepsiCo's
portfolio.
But it's not resting easy. Last year, it invested US$200 million --
the most ever in any single year -- as part of a US$500 million
plan to expand its distribution infrastructure, while increasing
R&D and adding four new plants to the 45 it already has in the
country.
To make those investments pay off, rural India -- which
currently accounts for 20% of PepsiCo India's business -- is
taking center stage. "Over the next 10 years, I see rural India
forming 40% to 50% of our national business, and in the future,
growth will be powered by the rural areas," says Chadha.
Is that a long time to wait? "If any company wants [quick]
financial results from the rural initiative, it is seriously
mistaken," says Tuck's Govindarajan. "You have to look at the
next decade and not the next quarter."
K2 Group's Kiri agrees. "The rural incubation work of
multinationals is part of their business," she says. "But they need
to be less focused on [year-on-year] success and spend more
energy on building innovative solutions and business models for
this segment. It's a long haul."

Source: Wall Street Journal

 India Market
A market is described as a platform where buyers and sellers are
allowed to trade, exchange goods, services, and information.
These involvements of the goods and the parties to trade
simplify the demand and supply concepts and are thus the
fundamentals of an economy. Any type of trade can take place
in a market. The two major dependent factors by which a market
can operate are buyers and sellers. It is in an India market place
that the physical meeting of the buyers and sellers take place
such that they can trade. Nobody can deny the importance of
physical India market places, but still there are virtual
marketplaces mainly supported by IT networks such as the
internet.

Some India markets are really very competitive - with a large

number of players (vendors) selling the same kind of products or
services. On the other hand, few of the markets have very low or
no competition at all (with a single player in the market). It
depends on the number of buyers and sellers in the market that
how much will be the price of the good or service that is sold in
the market. This determines the law of demand and supply in the
market.

In an India market place, where there is more number of sellers

than the buyers, the supply is bound to bring down the prices.
On the other hand, if there are more buyers than sellers in a
market place, the reciprocative action would take place -
demand pushing up prices.

Types of India Market -

Free Markets - Usually free markets are operational under the
'laissez-faire' conditions - where there is no government
intervention. A free market may get distorted if there exists a
monopolistic situation (seller controlling major portion of the
supply) or a monopsonistic situation (a buyer having power on
majority of the demand). In case of these distortions, the
government or business bodies make an entry to ensure that the
free markets operate smoothly.

Currency Markets - Currency markets are among the largest

traded markets in the globe, on a continual basis. Money flows
are continuous around the globe - governments, banks, investors
and consumers - all of them are involved in buying and selling
currency round the clock. That is the velocity of money is huge
with so many constantly changing hands.
Stock Markets - Stock markets seem to be the backbone of
any economy - and of late they have become the most complex
structure allowing investors the scope of buying and selling
shares in multitude companies. Majority of the Indian stock
markets are operating on an electronic network, with a physical
location being maintained for buyers separately. This is the
place where the parties involved can interact with each other
directly.

Types of Consumer India Markets -

Previously, India Markets originated from the center of villages
and towns, where there was a sale or barter of farm produce,
clothing and tools and various other products. Later on these
street markets went on to become consumer-oriented markets
like the specialist markets, shopping centers, supermarkets.

1.Commodity Markets - In India, with high oil and food

prices, the commodity markets have again gathered all the
attention. The prices of the essential commodities steer the
economy to a desired level. Commodity markets deal in energy
(oil, gas, coal, and biodiesel), soft commodities and grains
(wheat, oat, corn, rice, soya beans, coffee, cocoa, sugar, cotton,
frozen orange juice, etc.), meat, and financial commodities like
bonds.

2.Capital Goods & Industrial Markets - India capital

goods market help businesses to buy durable goods that can be
used in industrial and manufacturing methods. There are usually
wholesale trades that take place with bulk goods being
transacted at very cheap prices.

Importance of Indian market -

Markets in India after the liberalization era have been leveraged
to the extent that they are well protected by legal procedures and
boasts of efficient administrators. The government has always
been proactive in its strategies to make the future of India
market lucrative and attractive. India market has witnessed
outstanding growth over past few years. The liberal and
transparent financial policies have steered the economy towards
free flow of FII and that is why India Market has achieved a
sound place in the international arena.
The returns on investments in the India market have been
substantially moderate from all the listed stocks. Public Private
Partnership (PPP) is the new trend in the Indian marketplace,
with red tape and bribes being shed off to quite an extent. The
few public enterprises like IOC, ONGC, BHEL, NTPC, SAIL,
MTNL, BPCL, HPCL and GAIL, SBI, LIC etc. are giving the
private players a run for their money. Whereas, at the same time,
private players like Reliance Industries Limited, Infosys, Tata,
Birla Corporation, Jet Airways, Ranbaxy, Biocon, Bajaj Auto
and ICICI have been performing exponentially in all the
financial years.

Case studies on
MNCs in India: the competitive
strategies…….
 Table-2
Emerging and Re-emerging Economies

Table-3(a)
Table-3(b)
Indian Market and MNCs
 Product strategy of MNCs in Indian Market

Foreign Direct Investment

Theories Explaining FDI
 Hymer (1960,1976)-
[Ownership Advantage]
The primary advantage that a firm brings to foreign markets is
its possession of superior knowledge.
 Caves (1971)-
The bond between FDI and the transfer of firm-specific
knowledge was first made explicit in Caves’ article.
 Johnson(1970), McManus(1972), Magee(1977)-
・Knowledge as public good (it can be transferred at zero
marginal cost)
・market for the sale of this knowledge isimperfect.
 Buckley andCasson(1976)-
[Theory of Internalization]
Becauseof the public character of knowledge, which results in
the two critical properties of beingeasily transferred and hard to
protect, firms operate a network of plants on a worldwide basis.

 Rugman(1980)-
MNCs arise due to the internalization of the failure of the
market for information.
 Teece(1977), (1983)-
Technology is not a public good!
He analyzed 27 projects to find that thecost of transfer to range
from 2 to 59% of total costs.
(Transfer experience and recipient capability matter)
 Hennart(1988)-
Expands the notionof Tacit knowledge to explain internalization.
 Kogut and Zander (1993)-
・The MNC arises not out of the failure of markets for
buyingand selling of knowledge, but out of its superior
efficiency as an organizational vehicle by which to transfer this
knowledge across borders.
・They empirically shows that the less modifiable and the
harder to teach is the technology, the more likely transfer will be
wholly owned operations.(not licensing or JV).

Table-4
Table-5
To sum up
 1. As one of the biggest market in the world, India
attracts many MNCs, and their competition is
getting intense.
2. Concerning Korean and Japanese electronics companies,
LG and Samsung show superior market performance even
though they are late comers.
3. Focusing on their product strategy, it gets obvious that
Korean makers take product adaptation strategy while
Japanese counterparts pursue global product strategy.

India GDP
The India GDP is a combination of all the differential factors,
contributing to the welfare of the India economy. India GDP
gives us a combined report of the performance of the Indian
economy. 'Cost factor' or 'Actual price' method - these are the
two methods to calculate Indian Gross Domestic Product. The
main factor that contributed to the growth of India GDP post
1990s was the opening-up of the Indian economy.

The balance-of-payments crisis of 80s of the Indian economy

led to the paradigm shift of the Indian Economy. The markets
were opened up; the Government leveraged the entry of private
investments. As a result of this, more investments flowed into
the markets. More so by the foreigndirect investments (FDIs)
and foreign institutional investors (FIIs), the India GDP growth
saw a phenomenal increase. Bulk of the Government
undertakings were divested into lots of private business houses.

Gauging the health of the India economy - India GDP is the best
tool! Going by figures, India GDP has already crossed the
trillion-dollar mark, other peers in this sphere being US, Japan,
Germany, China, UK, France, Italy, Spain, Canada, Brazil and
Russia.

After the liberalization era of the India economy, the growth

story of the India GDP was driven by the following sectors of
Indian industry -
• Information Technology
• Information Technology Enabled Services
• Telecommunications
• Electronics and hardware
• Automobiles
• Pharmaceuticals and biotechnology
• Consumer durables
• Retail
• Textiles
• Infrastructure
• Construction
• Airlines
• Hospitality
• Power
• Oil and natural gas
• Fertilizers and chemical

The GDP of India, even after the opening up of the economy

and other relaxed norms couldn't survive the aftermath of the
global financial crisis. The GDP of India over the past two
fiscals (2008-09 and 2009-10) experienced considerable
slowdown.

This moderate growth of the India economy has given rise to

moderate expectations with respect of India GDP. Though
various rating agencies, economists, business houses predict a
healthy growth in India GDP in the next two years, yet
skepticism is still the order of the day. Achieving a 9% GDP
growth by 2012 is immensely impractical, looking at the rate at
which things are improving.

Reasons for fall in India's GDP growth -

Interest rates are at its peak (experiencing a 6-year high), thus
consumer spending has gone down considerably and in a way
investments have also reduced. Else than exploring better export
prospects, Indian economy doesn't have any other elements
which can steer its growth path. Year-on-year GDP growth rate
stood at around 8.8% for first three months of 2009 but then
again experienced a fall.

Is the Indian economy severely affected?

Countering the inflationary pressures had been the main agenda
of the Government for a long time during the initial months of
the financial year. But, the Government must aim at achieving a
high GDP growth rate, rather than aiming at countering other
external pressures. A dramatic improvement might not be
expected, but a slow and steady growth path is surely desirable.
 RBI’s Surveys
Macroeconomic and Monetary Developments
Second Quarter Review 2009-10
Surveys conducted by the Reserve Bank as well as other
agencies to collect lead information on the expectations about
the overall business outlook point to significant turnaround and
rising optimism, which is also corroborated by the recovery in
the industrial production up to August 2009. The expected
decline in agricultural output under the influence of the deficient
monsoon, however, has impacted the overall growth outlook,
which is evident from the findings of the Reserve Bank’s survey
of professional forecasters suggesting a downward revision to
the growth outlook for 2009-10 from 6.5 per cent to 6.0 per cent.
The inflation outlook, notwithstanding the low year-on-year
WPI inflation so far, is conditioned by the pressures of emerging
high inflation in essential commodities as well as elevated and
expanding consumer price inflation.
Projections of various domestic and international agencies as
well as the different forward looking surveys point to an
improvement in India’s growth outlook. However, the impact of
the deficient monsoon on agricultural output and rural demand
could inhibit a faster recovery. Business confidence surveys in
general exhibit significant optimism, a marked turnaround from
the bearish sentiments of the previous quarters. The industrial
outlook survey of the Reserve Bank indicates the return of the
economy to an expansion path. The professional forecasters’
survey conducted by the Reserve Bank in September 2009,
however, suggests a downward revision to the growth outlook,
reflecting the expected negative impact of the deficient monsoon
on agricultural output.

Business Expectations Surveys

Surveys conducted by different agencies to collect lead
information on the forward looking assessment of the companies
about the prospects of the economy show a general pattern of
optimism, with the relevant business confidence indices
exhibiting significant increases over the levels in the preceding
quarter.
Table-6

Table 7.1: Business Expectations Surveys

Period Index NCAER FICCI Dun&
Q3: 2009 Q1:2009 Bradstreet Q3:
 Business -10 2009 Business
Confide Overall Optimism Index
nce Business
Index Confide
nce
Index
1 2 3 4
Current level of the 118.6 67.2 132.1
Index
Index as per previous 81.6 64.1 93.8
survey
Index Levels on Year 125.4 52.5 136.5
back
% change (Q-on-Q) 45.4 4.8 40.8
sequential
% change (Y-on-Y) -5.7 28.0 -3.2

The Business Confidence Index (BCI) of the NCAER (National

Council of Applied Economic Research) that was released in
July 2009 showed a 45 percent increase over the level in the
previous quarter, which represents a reversal of the declining
trend that was noticed in the previous five quarters. The survey
exhibited improvement in all four components of BCI, i.e.
“investment climate”, “overall economic conditions”, “financial
position of firms” and “capacity utilization”. The improvement
was also broad based across all five sectors, i.e. consumer
durables, consumer non-durables, capital goods, intermediates
and services. The October 2009 NCAER-MasterCard
Worldwide Index of Business Confidence shows further
improvement in the BCI by 21 per cent, over and above the 45
per cent increase in July over April 2009. The findings of the
survey suggest business sentiments returning closer to the pre-
crisis levels.
The Business Confidence Survey of the FICCI for Q1:2009-10
that was released in September 2009 suggests that 70 per cent of
the companies felt the overall economic conditions to be
“moderately to substantially better” compared to previous six
months. The overall business confidence index rose by 4.8 per
cent over the previous quarter level, as 50 per cent of the survey
respondents expected sales volume to increase, 30 per cent
expected investment to increase, and 22 per cent viewed that
they would add to the workforce in the next two quarters. While
80 per cent of the respondents recognized the beneficial effects
of the fiscal stimulus on economic activity, rising cost of raw
materials and manpower, delayed monsoon and high interest
rates were expressed as areas of concern.
The Dun and Bradstreet Business Optimism Index for Q3:2009
which was conducted in June 2009 rose sharply by 40.8 per cent
over the lowest level of the index in the previous quarter. Five of
the six optimism indices, namely volume of sales, net profits,
new orders, selling prices, and employee levels recorded
improvement over the previous quarter. Inventory levels,
however, declined by 2 percentage points.
The HSBC Market Purchasing Managers’ Index (PMI) – which
is an indicative measure of the health of the manufacturing
sector – moved up in September 2009 after the decline in
August 2009, but remained above the threshold (of 50) for the
sixth month in a row suggesting expansion in activities. The
turnaround into the expansion phase since April 2009 is largely
driven by home market. PMI for the services remained in the
expansion zone (i.e., above 50), though with some moderation in
September 2009. The composite PMI in September 2009 was
almost unchanged in the expansion zone, as improvement in
manufacturing was offset by moderation in services.

Reserve Bank’s Industrial Outlook Survey

The 47th round of Industrial Outlook Survey of the Reserve
Bank conducted in July-August 2009 showed further
improvement in the sentiments of the manufacturing sector after
the turnaround that was seen in the survey findings of the
previous quarter. The survey covered opinions on “assessment
for July-September 2009” and “expectations for October-
December 2009”, and both indices remained in the growth
terrain (i.e. above 100, which is the threshold that separates
contraction from expansion) for the last two quarters of 2009.
This suggests that as per expectations of the survey respondents,
the industrial recovery already seen up to August 2009 in terms
of trends in IIP growth could gain further momentum during
2009-10 (Chart VII.1). The indices for assessment (July-
September) and expectations (October-December) reached 107.2
and 116.4, respectively.
The survey findings also indicate improving demand conditions,
as reflected in better expectations about order books, capacity
utilization and production. The working capital finance
requirement is expected to grow in the October- December
quarter of 2009, which suggests that demand for credit from the
private sector may exhibit a turnaround from the persistent
deceleration experienced so far. The overall survey response
indicates that availability of finance has further improved and
eased, which corroborates the impact of the accommodative
monetary policy stance in improving the availability of finance
in general. The survey findings also point to continuation of
pressures on profit margins, though of a much lower magnitude
in relation to what was experienced in past few quarters. The
input prices are expected to firm up for the second successive
quarter; with improving demand condition, however, gradual
return of pricing power could also give rise to higher selling
prices. According to the survey findings, the outlook for
employment is also improving and firms are expected to
increase their workforce on the back of expected increase in
demand.

Table-7
Table 7.2: Reserve Bank’s Survey – Net Response on ‘A Quarter
Ahead’ Expectations About the Industrial Performance

Parameter Respon Jul- Oct- Jan- Apr- Jul- Oct-Dec

se Sep Dec Mar Jun Sep 2009
2008 2008 2009 2009 2009

1 2 4 5 6 7 8 9

1 Overall business Better 41.8 33.7 21.1 11.2 24.2 39.8

situation

      (42. (44. (43. (47. (46. (45.4)

6) 1) 9) 6) 7)

2 Financial situation Better 32.7 27.7 16.4 8.4 20.0 33.5

      (53. (52. (53. (52. (54. (52.5)

0) 5) 2) 7) 4)

3 Working capital Increas 33.6 33.8 32.9 23.2 26.3 30.4

finance requirement e

      (57. (57. (57. (61. (61. (61.0)

3) 7) 1) 0) 7)

4 Availability of fina Improv 30.2 23.3 13.7 9.3 16.6 26.1

nce e

      (57. (59. (56. (61. (62. (62.7)

9) 0) 3) 7) 6)

5 Production Increas 43.5 39.8 26.0 9.9 22.4 35.0

e
      (36. (42. (42. (44. (45. (43.0)
6) 1) 3) 9) 5)

6 Order books Increas 38.5 35.7 20.6 6.4 16.8 32.3

e

      (43. (46. (46. (44. (45. (45.3)

5) 1) 1) 4) 8)

7 Pending orders, if Below 2.2 4.6 11.5 23.2 19.1 11.0

applicable

    normal (80. (82. (77. (59. (73. (80.6)

9) 0) 8) 4) 4)

8 Cost of raw Decreas - - - - - -38.4

material e 54.7 61.1 35.7 16.2 27.1

  Inventory of raw   (39. (32. (39. (33. (55. (51.6)

material 1) 3) 7) 7) 5)

    Below -3.8 -7.6 -3.3 1.1 -0.5 -1.2

    average (81. (77. (81. (80. (82. (85.0)

8) 6) 3) 2) 7)

9 Inventory of finishe Below -1.5 -4.3 -4.4 -4.4 -1.8 -3.7

d goods average

      (84. (82. (80. (78. (80. (85.3)

5) 6) 9) 4) 6)

10 Capacity utilization Increas 22.2 26.4 12.3 -0.7 10.7 22.0

(Main product) e
      (58. (56. (59. (55. (57. (56.2)
8) 0) 1) 0) 5)

11 Level of capacity Above 3.6 -0.5 -7.4 - - -3.8

utilization normal 20.8 12.1

  (Compared to the   (74. (78. (73. (66. (70. (76.0)

average in the 9) 7) 7) 4) 8)
preceding four
quarters)

12 Assessment of the More 4.6 5.7 11.8 8.9 5.5 6.5

production capacity than

  (With adequat (81. (81. (81. (70. (76. (79.7)

regard to expected e 3) 7) 0) 7) 9)
demand in the next
six months)

13 Employment in the Increas 15.8 16.6 7.7 -5.1 1.5 8.8

company e

      (71. (70. (75. (74. (78. (77.2)

5) 4) 7) 0) 6)

14 Exports, if Increas 27.7 27.3 16.0 -3.8 0.1 12.5

applicable e

      (54. (54. (54. (57. (59. (58.5)

9) 3) 8) 3) 0)

15 Imports, if any Increas 21.3 21.4 9.1 -1.4 4.6 11.5

e

      (66. (67. (69. (68. (70. (68.9)

 5) 9) 7) 8) 6)

16 Selling prices are Increas 21.0 26.2 4.1 -9.1 0.0 6.0
expected to e

      (61. (57. (61. (61. (65. (67.6)

5) 6) 7) 9) 6)

17 If increase expected Increas 3.0 0.6 0.9 25.9 - 19.4

in selling prices e at 100.
0

    lower (61. (54. (54. (53. (0.0) (63.2)

rate 3) 7) 0) 5)

18 Profit margin Increas 3.8 -3.6 - - - -2.8

e 12.9 18.6 13.4

      (59. (54. (53. (50. (54. (56.8)

8) 7) 3) 6) 5)

Note: 1. ‘Net response’ is measured as the percentage share differential

between the companies reporting ‘optimistic’ (positive) and ‘pessimistic’
(negative) responses; responses indicating status quo (no change) are not
reckoned. Higher ‘net response’ indicates higher level of confidence
and vice versa. 
2. Figures in parentheses are the percentages of respondents with ‘no
change over the preceding quarter’ as responses.

The significant upturn in business expectations could be seen as

broad based across industry groups, though industries such as
transportation, food products, pharmaceuticals and fertilizers
look more optimistic than the others. The input price inflation is
also felt across the board, but it is higher for paper, rubber,
textiles and food industries. All industries, excluding textiles,
are expected to increase their employment levels. The
improvement is also seen across all size groups, but the bigger
companies with annual production of Rs.1000 crore or more
look most optimistic.

Survey of Professional Forecasters1

The general prevailing perception about the impact of the
delayed monsoon gets reflected in the assessment of the growth
outlook of the professional forecasters. The results of the ninth
round of survey of professional forecasters' conducted by the
Reserve Bank in September 2009 shows overall (median)
growth rate for 2009-10 at 6.0 per cent, as against 6.5 per cent
reported in the earlier survey (Table 7.3). The sectorial growth
rate forecast for the agriculture sector was revised downwards
from 2.5 per cent to (-) 1.4 per cent, whereas for industry the
assessment was revised upwards from 4.8 per cent to 6.3 per
cent. For services, the forecasts suggest modest downward
revision from 8.3 per cent in the earlier survey to 8.1 per cent in
the current survey.
Table-8

Table 7.3: Median Forecasts of Select

Macroeconomic Indicators by 
Professional Forecasters 2009-10
  Ac Annual Quarterly forecasts
tu forecasts
al
200 201 2009-10 2010-11
20
9-10 0-11
08- Q2 Q3 Q4 Q1 Q2
09
E L E L E L E L E L E L EL
1 2 3 4 5 6 7 8 9 1 1 1 1 1 11
0 1 2 3 4 56
1 Real GD 6.7 6. 6. 7. 7. 6. 6.2 6. 5. 7. 6. 7. 7. - 7.
. Pgrowth 5 0 5 7 2 9 7 1 7 5 3 6
rate at
factor
cost (in
per cent)
  a. 1.6 2. - 3. 3. 2. - 3. - 3. - 3. 2. - 2.
Agricult 5 1. 0 7 4 1.0 5 3. 0 1. 0 0 7
ure & 4 7 0
Allied
Activitie
s
  b. 2.6 4. 6. 7. 7. 3. 6. 5. 6. 7. 6. 7. 6. - 6.
Industry 8 3 4 3 5 6 9 9 2 9 0 7 7
  c. 9.4 8. 8. 9. 9. 8. 7.8 8. 8. 8. 8. 8. 8. - 9.
Services 3 1 0 1 0 5 4 5 6 8 9 1
2 Gross - 3 3 3 3 - - - - - - - - --
. Domesti 5. 3. 6. 6.
c Saving 0 6 0 6
(per
cent of 
GDP at
current
market
price)
3 Gross - 3 3 3 3 3 34. 3 3 3 3 3 3 - -
. Domesti 6. 7. 7. 7. 6. 8 8. 6. 7. 6. 6. 6.
c 6 3 9 7 4 0 5 0 0 2 2
Capital
Formati
on (per
cent of 
GDP at
current
market
price)
4 Corporat - 7. 1 1 1 3. 4.5 8. 9. 9. 1 1 1 - 1
. e profit 5 0. 5. 4. 0 0 0 0 2. 5. 5. 7.
after tax 0 0 5 0 0 0 5
 (growth
rate in
per
cent)*
5 Inflation 8.4 1. 3. 5. 5. - - 2. 4. 5. 6. 5. 7. - 6.
. WPI 6 0 5 8 1. 0.2 5 0 4 8 9 2 5
4 4#
6 Exchang 51. 4 4 4 4 4 48 4 4 4 4 4 4   4
. e Rate 0 6. 6. 4. 4. 7. # 7. 7. 6. 6. 5. 5. 5.
(US$/IN 5 0 5 5 5 0 0 0 0 4 9 3
R end
period)
7 T-Bill 7.1 4. 4. 5. 4. - - - - - - - - --
. 91 days 6 1 0 9
Yield
(per
cent-end
period)
8 10-year 7.6 7. 7. 7. 7. - - - - - - - - --
. Govt. 0 3 0 5
Securitie
s Yield
(per
cent-end
 period)
9 Export 5.4 - - 1 1 - - - - - - - - --
. (growth 0. 5. 2. 4.
rate in 5 0 0 2
per
cent)!
1 . Import 14. - - 1 1 - - - - - - - - --
0 (growth 3 3. 1 4. 2.
. rate in 5 5. 0 0
per 7
cent)!
1 . Trade - – – – – - - - - - - - - – -
1 Balance 11 2 23. 3 2 1 2 2 2 2
. (US $ 9.4 5. 5 1. 8. 9. 2. 9. 0. 8.
billion) 8 0 1 9 1 3 7 9
E : Earlier Projection. L :   Latest Projection.
–   : Not Available.     # :   Actuals.          * : BSE
listed companies.        !:US$ on BoP basis.
Note  : The latest round refers to ninth round for
the quarter ended September 2009, while earlier
round refers to eighth round for the quarter ended
June 2009. 
Source : Survey of Professional Forecasters,
Second Quarter 2009-10.
The outlook for India’s growth in 2009-10 as projected by
different organizations since June 2009 has been either revised
upwards or maintained unchanged (Table 7.4). The Asian
Development Bank (ADB) revised the growth outlook for India
upwards in September 2009 from 5 per cent to 6 per cent,
highlighting the role of both emerging signs of recovery in
business confidence and continuation of fiscal stimulus. NCAER
outlook released in July 2009 also showed a higher projected
growth figure of 7.2 per cent for 2009-10, notwithstanding the
significant downward revision in growth outlook for the
agriculture sector to 1 per cent from the previous projection of
2.5 per cent. The IMF had already scaled up the projected
growth for India in its July 2009 outlook from 4.5 per cent to 5.4
per cent. The October 2009 outlook of the IMF retains the
projected growth at the same level for 2009, while highlighting
the role of policy stimulus in boosting domestic demand and
relatively lower dependence of India on exports in relation to
other Asian countries. The Economic Advisory Council to the
Prime Minister projected recently the Indian economy to grow
by 6.5 per cent in 2009-10, with an assessment suggesting
growth unlikely to be lower than 6.25 per cent but with the
possibility of reaching 6.75 per cent.
Table-9

Table 7.4: Projections of Real GDP for India by

Various Agencies – 2009-10
(Per cent)
Agency Latest Projection Month of Earlier
Projection Projecti
on
Ove Agric Ind Ser Ove Mo
rall ultur ustr vice rall nth
Gro e y s Gro
wth wth
(Pe
r
cen
t)
1 2 3 4 5 6 7 8
Econom 6.5 -2.0 8.2 8.2 Oct-09 7.0- Jan
ic 7.5 -09
Advisor
y
Council 
to PM
IMF 5.4 - - - Oct-09 5.4 Jul
(Calend y-
ar year) 09
ICRIER 5.8       Oct-09 6.0 Jun
* -6.1 e-
09
ADB 6.0 - - - Sep-09 5.0 Ma
r-
09
NCAE 7.2 1.0 6.7 9.4 July-09 6.5- Apr
R 6.9 il-
09
OECD 5.9 - - - June-09 4.3 Ma
r-
09
World 5.1 - - - June-09 4.0 Ma
Bank r-
09
Range 5.1-         4.0-  
7.2 7.5
* ICRIER Macro Team.
Factors Influencing the Current Growth and
Inflation Outlook
Emerging upside prospects as well as possible downside risks
condition the current assessment of India’s growth outlook for
2009-10. Factors that support the prospects of a faster and
sustained recovery in growth include: (a) the impact of the
policy stimulus, (b) visible signs of industrial recovery, as
evidenced by 5.8 per cent growth in IIP during April-August
2009, with double digit growth recorded in August, (c) stronger
performance of the core infrastructure sector, showing higher
growth of 4.8 per cent in April-August 2009 as against 3.3 per
cent in the corresponding period of the previous year, besides
the significant acceleration in growth in August 2009 at 7.1 per
cent, (d) improvement in lead indicators of services in July-
September 2009, such as railways freight, cement
production/delivery, sales of steel and automobiles including
commercial vehicles, (e) significant upturn in the business
confidence as per different business expectations surveys,
including the Reserve Bank’s Industrial Outlook Survey, (f)
revival in capital flows in the first half of 2009-10, after two
consecutive quarters of net outflows in the second half of 2008-
09, (g) significant recovery in the stock market (over end March
2009 level), and higher resource mobilization through public
issues and private placements in the first five months of 2009-10
over the corresponding period of last year, and (h) the improving
overall global economic and financial conditions.
A number of strong downside risks weigh down the growth
prospects: (a) the deceleration in growth of private consumption
and investment demand,(b) deficient monsoon and drought like
conditions in several parts of the country and the flood in a few
states affecting bothkharif production as well as rural demand,
(c) decline in sales of corporates in the first quarter of 2009-10,
(d) persistence of deceleration in non-food credit growth, with
growth in credit card and consumer durables related credit
turning negative, suggesting possible continuation of the
deceleration in private consumption demand even in the second
quarter of 2009-
10, (e) persistence of decline in exports for the 12th consecutive
month, (f) external demand dependent services activities
remaining sluggish, such as tourism and cargo handled at ports,
and (g) negative growth in non-oil imports and weak growth in
capital goods production (notwithstanding the pick-up in August
2009) corroborating the sluggish demand conditions.
The combination of weak recovery and elevated CPI inflation
has already magnified the complexity of policy challenges,
notwithstanding the subdued nature of headline WPI inflation so
far. Among the alternative plausible sources of inflation that
could determine the near-term inflation outlook, factors which
support possible firming up of headline inflation clearly
overshadow the factors which may help in containing the
inflationary pressures. The sources of comfort for the inflation
outlook could be: (a) persistence of negative output-gap and
weak aggregate demand, (b) stabilization of international oil
prices over the last few months, notwithstanding the recent
increase in October 2009 so far, (c) modest recent deceleration
in broad money growth, despite the accommodative monetary
policy stance of the Reserve Bank, (d) no further increase in
minimum support prices for agricultural commodities, since that
could worsen the inflation with much greater certainty than
helping in generating positive supply response, (e) effective use
of the high stock of food grains with special focus on improved
distribution to contain the high food prices, (f) better harvest
during rabi season that could help in bringing down the prices of
certain commodities which have led the spiral in inflation in
essential commodities so far, and (g) selective import of certain
commodities where the current price differentials with
international markets could still be significant.
Factors that could firm up inflationary pressures further in the
near-term, particularly in terms of headline WPI inflation
include: (a) fading base effect of the last year, which in itself
alone will manifest in the form of positive WPI inflation in the
second half of 2009-10, (b)the rigidity of the CPI inflation at the
double digit level for last few months, (c) strong upward
momentum already seen in WPI inflation as the index has risen
by 5.9 per cent over its end-March 2009 level, even though the
year-on-year inflation continues to be low at 1.2 per cent,(d)
high inflation in food and essential commodities, which requires
augmentation of supply, but could be difficult to ensure over the
short-run, and limited import options for specific commodities,
(e) persistent high CPI inflation, which could lead to wage/ cost
push inflation, as wages and prices would come under increasing
pressure of revision with gradual return of pricing power and
wage bargaining, (f) the risk of further increase in minimum
support prices under the cost-plus pricing approach, (g) possible
firming up of international commodity prices with economic
recovery and sudden spurt in demand from EMEs, and more
importantly (h) given the dominance of supply side factors in the
emerging inflationary pressures, the policy challenges in
anchoring inflation expectations. The overall economic outlook,
thus, is conditioned by both upside prospects of recovery with
downside risks and emerging inflationary pressures.

Impact of MNCs on Indian

Economic Growth
This part gives brief information on impact of multinational
corporations in India. Information of FDI of India, who are the
shining multinational corporation of India? How MNCs has
affected our Indian economy. This project gives us detail on the
imprint of multinationals on Indian industrial sector such as
automobile, IT sector, food and beverages, telecommunication,
finance, retail and many more sector.After going through project
you can say that India continues to be less risky than China as a
business destination. India has been ranked 10th among 29
emerging markets in the latest country risk analysis by
Economic Intelligence Unit (EIU), an information service arm
of the Economist group.With a score of 39 out of 100 in the risk
scale, India has got 'B' risk rating and has outranked China (41),
Saudi Arabia (41), South Africa (45), Mexico (45), Brazil (48)
and Egypt (49), who have got 'C' rating. 
However, Singapore (11, A rating), Hong Kong (21) continue to
be the safest place for foreign investment, followed by Taiwan
(25), Israel, Hungary and Poland (37), who have qualified for 'B'
rating. Not surprisingly, Iraq is the most dangerous country to do
business, with a score of 91 out of 100, followed by Argentina
(76). 

Till 1991, India was more or less a closed Economy. The rate of
growth of the economy was limited. The contribution of the
local industries to the country’s GDP was limited that were the
main cause of shortage of funds for various development
projects initiated by the government.In an effort to revive the
industries and to bring the country back on the right track, the
government began to open various sectors such as Infrastructure,
Automobile, Tourism, Information Technology, Food and
Beverages, etc. to the Multinational Corporations. The MNCs
slowly but reluctantly began to pour capital investment,
technology and other valuable resources in the country causing a
surge in GDP and upliftment of the economy as a whole. This
was the post 1991 era where the government began to invite and
welcome giant MNCs into the country. 
Opportunities for Developing Economies
The opportunities for developing economies are significant as
well. Through the application of capital, technology, and a range
of skills, multinational companies' overseas investments have
created positive economic value in host countries, across
different industries and within different policy regimes.The
single biggest effect evidenced was the improvement in the
standards of living of the country's population, as consumers
have directly benefited from lower prices, higher quality goods,
and broader selection. Improved productivity and output in the
sector and its suppliers indirectly contributed to increasing
national income. And despite often-cited worries, the impact on
employment was either neutral or positive in two-thirds of the
cases.

Impact on Developing Economies & Policy

Implications
Investments by multinational companies (MNC) allow
developing economies to share in the considerable benefits of
the global economy. Official incentives, trade barriers, and other
regulatory policies, though, can result in inefficiency and
waste.Case studies reveal that in virtually all cases, MNC
investment had a positive to very positive impact on the host
country. Rather than leading to the exploitation of lower-wage
workers, as some critics have charged, the investments fostered
innovation, productivity, and an improved living standard.
Therefore, government seeking those advantages would be
advised to favor policies of openness, rather than regulation,
when it comes to foreign direct investment.
Indian Exports 
In 2007, exports stood at US$145 billion and imports were
around US$217 billion. Textiles, jewelry, engineering goods and
software are major export commodities while crude oil,
machineries, fertilizers, and chemicals are major imports. India's
most important trading partners are the United States, the
European Union, and China.
Gross Domestic Product (GDP)
India is the world's most-populous democracy and has one of the
fastest economic growth rates in the world (8.9 percent GDP
increase in 2007, the second-fastest major economy in the world
after China).
Many Indian firms have slowly and surely embarked on the
global path and lead to the emergence of the Indian
multinational companies. With each passing day, Indian
businesses are acquiring companies’ abroad, becoming world-
popular suppliers and are recruiting staff cutting across
nationalities. While an Asian Paints is painting the world red,
Tata is rolling out Indicas from Birmingham and Sundram
Fasteners nails home the fact that the Indian company is an
entity to be reckoned with.
Some instances
About 80 percent of revenues for Tata Consultancy Services
come from outside India. This month, it raised Rs.54.2 billion
($1.17 billion) in Asia's second-biggest tech IPO this year and
India's largest IPO ever.]
 Infosys has 25,634 employees including 600 from 33
nationalities other than Indian. It has 30 marketing offices across
the world and 26 global software development centers in the US,
Canada, Australia, the UK and Japan.]
Impact on Indian Industrial Sectors
We have the actual analysis of the effect of MNCs on various
Indian Industrial Sectors. Certain important sectors are
considered and the actual effects of MNCs i.e. the practical way
in which they are affected are studied viz.
1. Automobiles
2.Aviation
3.Insurance 
4.Food and Beverages Industry
5. Telecommunications

Multinational giants are vying with one other to launch their

models. Big names of the vehicle industry like the Korean giant,
Hyundai, General Motors, and Mitsubishi etc. have already
opened their account. In other vehicle segments too, Volvo,
Mercedes Benz, Audi etc. have carved out their niche. 
On the other hand, manufacturing in India has also come of age.
The post liberation economic scenario has resulted in all the big
names such as General Motors, Ford, Toyota, Honda, Suzuki,
Mitsubishi, Mercedes-Benz, Fiat to come up with plants in
India. The Indian automotive giants like Telco, Mahindra,
Ashok Leyland, and Bajaj are revamping their production
strategies and launching new models designed and developed
indigenously. This has opened up numerous opportunities or
employment in this sector for trained and skilled professionals
who are well versed in the latest manufacturing process. The
report speaks of the growth of car sales by 22.42% in the month
of September. The month saw the sales climb as high as to
94,734 units as opposed to 77,384 units in the same month last
year. The growth spree seems to have spilled onto the sale of
commercial vehicles as well; the segment experienced a growth
rate of 33.54% in the month of September.
One of the fastest growing sectors in the country,
telecommunications has been growing at a feverish pace in the
past few years. The speed of growth can be judged by the fact
that in 2004, ten years after private telephony was introduced in
India, the mobile subscriber base had crossed the number of
fixed line connections. 
Indian companies going global
India offers an unprecedented opportunity for telecom service
operators, infrastructure vendors, manufacturers and associated
services companies. As the sector has been performing well, the
bulging bottom lines of Indian telecom companies are making
them invest in assets. 
India is one of the fastest growing aviation markets in the world.
With the liberalization of the Indian aviation sector, the industry
had witnessed a transformation with the entry of the privately
owned full service airlines and low cost carriers. As of May
2006, private carriers accounted for around 75% share of the
domestic aviation market. The sector has also seen a significant
increase in number of domestic air travel passengers. 
India's booming tourism sector and its rapidly growing Western-
style fast food joints offer unlimited opportunities for foreign
food and beverage exporters, as Indian food imports are likely to
grow 6-7 per cent over the next few years, says a study. 
An upswing in the Indian hotel industry since 2003 following
turnaround of the global tourism industry, positive impact of
'Incredible India' tourism promotion campaign and the world's
increasing interest in India's rapidly growing economy are some
of the main reasons cited for growth.The Indian middle-class,
which is about 250 million-strong and growing at 30-40 million
a year, is the main driver of the economy.  
A rapidly growing Indian economy (6 per cent annually over the
last decade) has increased incomes of the consuming class. By
2007, approximately 22 per cent of households (44 million) are
expected to have an average annual income of $3,150 (USD
17,300 on purchasing power parity basis) compared to less than
seven per cent in 1995. 
Insurance is a federal subject in India and has a history dating
back to 1818. Life and general insurance in India is still a
nascent sector with huge potential for various global players
with the life insurance premiums accounting to 2.5% of the
country's GDP while general insurance premiums to 0.65% of
India's GDP. Currently, the largest life insurance company in
India is still owned by the government. 
Insurance is a US$41-billion industry in India, and grew by 36%
in 2006-07.

Conclusion
Multinational companies are like double-edged sword. The
sword can harm if not handled properly. Similarly the
Multinational companies have their own pros and cons.The
extent of technology and management of know-how transfer by
the MNCs depend to a large extent on their corporate strategy;
for example, firms desiring to have a longer-term relationship
with the suppliers (rather than those simply using the host
country as a marketing/export base) will be more inclined to
effect transfer technology. 
As pointed out in the World Investment Report, 2000, MNCs
may restrict the access of particular affiliates to technology in
order to minimize inter-affiliate competition. It is noted that
MNCs are more likely to license older technologies from which
they have already derived significant rents than newer
technologies on which there are still relying for market
leadership. Further, they may hold back the upgrading of the
affiliate technology or invest insufficiently in host-country
training and R&D in accordance with their global corporate
strategies. Therefore, arguing that FDI inflows and economic
liberalization automatically facilitates technology transfer is
being extremely native.