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Bharat Jhunjhunwala

REMEMBER the acquisition of Tomco by Hindustan Lever? It was feared at that time that India Inc would be taken over by the MNCs. Nothing of the sort has happened. On the contrary, Indian business houses are reported to have already announced about 35 global acquisitions, totalling $450 million, this calendar year.

This is likely to go up to $600 million if Tata's bid to acquire Daewoo Commercial Vehicle Company in South Korea is successful. Critics say that this newfound confidence among Indian businessmen shows how out of sync the swadeshi economists have been. But the reality may be otherwise. The successful opposition by the swadeshi economists has led the government to slow the opening of the Indian economy to MNCs and has enabled India Inc to reach this happy situation.

The argument of the swadeshi economists was that the long-term burden of repatriation of profits of foreign investment would be more than the short-term gains. The government continued to invite FDI, not to expose domestic businesses to international competition but to get easy money for its borrowings in the domestic market.

Such indiscriminate opening of the economy to MNCs would not get us new technologies, argued the economists, who said there should be an `optimal' opening of the economy to MNCs. The objective, they felt, should be to encourage Indian businessmen to face up to global competition, not to attract foreign capital for government consumption.

This resistance by the swadeshi economists slowed the opening of the economy. Foreign investment in the insurance sector, for example, was restricted to 25 per cent equity because of such resistance. It is difficult to say whether swadeshi resistance is responsible for the slower growth of the economy or if it helped accelerate it.

It is possible that Indian businesses could have coped with a faster opening-up. It could also be that fast-forwarding the process may have led to a collapse of Indian business against MNC predators. Such counterfactual questions are difficult to answer.

Be that as it may, it appears that Indian businessmen have successfully withstood the MNCs. And that the happy results of the cautious liberalisation moves are evident in a visible increase in outward foreign investment by Indian companies. The level of inward FDI flows appears to have reached a plateau, both in China and India, around 1996 (see Table). The outward FDI flows, however, show an altogether different trend.

China's outward FDI has remained stagnant, at around $3 billion per year, since 1991. India's, on the other hand, shows a steep increase in the last three years — from $80 million to $500 million a year. This trend appears to be gaining ground.

This indicates that Indian businessmen have been able to meet the MNC challenge in India. They are now emerging out of their shell and taking on the MNCs on their home turf.

It is time the swadeshi economists took note of this changed situation. It will not do to continue with the anti-MNC tirade. The battle has been won.

The new challenge is that India should not follow the MNCs' footsteps in debilitating the domestic economies of host countries. Western MNCs had made huge investments in Africa in the 1960s, Latin America in the 1970s and 1980s, and in South-East Asia in the 1990s.

All these countries' economies are in bad shape today. Africa has become largely a basket case. Latin America is going through its second `lost decade'. East Asia is mired in low growth rates.

The challenge before India is to espouse an altogether different type of MNC culture. The objective of Western MNCs has been to extract money from the developing countries through profit repatriations, royalty payments and transfer pricing. Their objective is not to continually reinvest their earnings and help the host countries grow. The challenge before Indian companies is to invest in other countries to help them grow. The objective should be to plough back all the earnings into the host country itself — perpetually.

The purpose of Indian MNCs' foray abroad should be to help the host countries develop their entrepreneurship and multiply their wealth and retain it within their borders.

Indian businessmen of the present should contribute to the enrichment of the poor countries of the world rather than their impoverishment, as the Western MNCs have done. Only that would be in keeping with the vedic vision of "welfare for all", or Vasudaiva kutumbakam.

(The author is a New Delhi-based freelance writer.)

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