The following is a policy paper I wrote for my International Relations course on the suggested future role of multinational corporations in India’s economy. Fair warning, it’s a long and dry read, with lots of economic jargon.
Four centuries after the British East India Company arrived on Indian shores, Tata Group, an Indian multinational conglomerate, purchased Jaguar, a British-origin automobile brand (Jonsson 5). World order was effectively turned on its head. While India remains a developing country, it is also a rising power on the international stage (Snow 217). India is not only a destination for foreign direct investment; its own companies are expanding to new foreign markets as well, and many speculators predict a bright future for India. While the 2009 global recession slowed much of its remarkable growth, India’s shift toward free trade over the last few decades has brought undeniable development with the potential to pull hundreds of millions of Indians out of poverty (Jain and Vachani 59). India has opened its doors wide to international trade, especially with the West but, for several reasons to be explored, increased regional trade with South Asia, Southeast Asia, and China should be the focus of future economic policy.
Post-colonial India was marked by protectionist measures, as the exploitative practices of the East India Company had left a major legacy. At its height, the East India Company surpassed “Enron for corruption and Wal-Mart for market power” and its mercantilist goals made it “one of the great enemies of the open market” (Robins xii-xiii). Its reign starkly contrasts the free market economy that is supported by today’s corporate lobbyists and those of the “Washington consensus” of deregulation, privatization, and free trade (Snow 229-230). The British Raj, or economic dominance of India, set a precedent of exploitation, which lingers, even in present day.
Three major economic policies have been implemented in India since its independence in 1947. The first era’s policies from the Nehru-Gandhi dynasty clearly encompassed the principles of socialism and protectionism (Snow 217). It also could be seen as an adaptation of the British policy of mercantilism because it sought to insulate the economy against foreign competition. Leaders at the time put measures in place to shelter its small storeowners and cottage industries. A second policy began in 1991; after decades of a mixed economy, India underwent a period of major economic liberalization led by Manmohan Singh. This period was marked by a “fair trade” policy, taking a middle ground between protectionism and free trade (Snow 170).
Today, the trend of economic liberalism has continued and a new, third era is bourgeoning: that of free trade. Foreign direct investment (or FDI) is encouraged more than ever, especially by forerunning prime minister candidate Narendra Modi (Bagri). India joined the World Trade Organization when it was founded in 1995 (WTO Members and Observers). Greater than 90 percent of Indians polled in 2009 indicate their support for free trade (Goldstein 314). In 2012, foreign multi-brand retailers, such as Walmart, were finally allowed entrance into Indian markets (Timmons, Kumar, and Raina).
India should promote its own internal development; this may mean retaining some protectionist measures. An excellent case study of a multinational corporation (or MNC) is U.S.-based retailer Walmart, which has the highest sales revenues of any corporation in the world, surpassing the nominal gross domestic product of the entire state of Colombia (“The Global 2000”). While its business model has clearly seen success in many other parts of the world, Walmart’s India expansion plans are currently halted due to two main problems. The first is the lack of cultural compatibility with Walmart’s model. For example, Indians tend to shop daily and in small quantities (Loeb). The second is corruption charges, investigated not by the Indian government but by the U.S. under its Foreign Corrupt Practices Act (Bailay and Chakravarty). The fears that small business owners have about Walmart have yet to fully materialize; Walmart may soon, however, find a formula (perhaps through ecommerce) that can finally crack the Indian market (Bailay and Chakravarty).
If India and MNCs are to both benefit from open Indian markets, there must be a two-sided dialogue, and the privilege of access to Indian markets must not be exploited by allowing unsustainable and corrupt practices. The fact that it was the U.S., rather than India, that looked into Walmart’s alleged bribe-paying indicates India is not doing enough to protect fair competition in its market. India is allowing itself to be exploited by MNCs once again.
According to David Mitrany’s theory of neofunctionalism, or regional integration, India should sacrifice a small amount of sovereignty and seek increased regional ties (Mitrany 15-6). It would be particularly beneficial to ally closer with the South Asian Association for Regional Cooperation (SAARC) and the Association of Southeast Asian Nations (ASEAN). The primary reason to invest in the former trade association, SAARC, is that India’s greatest security threats come from another SAARC state, Pakistan. Peace and stability due to complex interdependence in the region might bring more FDI. Then government funds could be diverted from military operations in Kashmir and from nuclear research; funds could be spent instead on development.
As for the latter trade group, ASEAN, there is evidence that “India’s economic structure is largely complementary (service-based) to ASEAN economies (light manufacturing) with significant areas of mutual gain” (Sen, Asher, and Rajan 3297). The other ASEAN economies are more integrated with the rest of the world than India and have higher per capita incomes (3298-9). Since the ASEAN-India Free Trade Area went into effect in 2009, bilateral trade has increased significantly, but more benefit can still be derived from ASEAN-India trade (3298).
Signing trade pacts and creating free trade areas is not enough – more must be done to integrate these economies if Asian industries are to maximize growth. Taiwan’s President Ma Ying-jeou says that “regional economic integration” is “an unstoppable global trend” (Ramzy). However, the governments of places such as India and Taiwan, which have complicated relations with China, the principal Asian power, must ensure that they do more to not be left behind as other Asian economies forge ahead. Nonetheless, India must simultaneously work to end its environmental degradation and labor malpractices like slavery and child labor (Goldstein 313).
The private sector in India has proven to be quite resilient when facing new policies. In anticipation of stricter intellectual property laws, Indian companies successfully ramped up their in-house research and development programs’ capabilities (Jonsson 9). Indian industry has continued to thrive despite poor infrastructure, high levels of corruption, the instable rupee, and inflated real estate prices (Bradsher 1). In implementing future free trade policies, India should be strategic, focusing on states in the region with similar potential. India should consult with businesses large and small, domestic and foreign, as well as citizen-consumers.
India wants arms from the U.S., oil from the Middle East and Africa, and an ever-growing selection of cheap manufactured goods from nearby Asian nations (Sauvant and Pradhan 19-20). Its culture and scientific research is being exported all over the world, yet the majority of its vast population does not yet reap the benefits of free trade. As a developing country, India is undergoing constant transformation. Today we can observe not just multi-national corporations operating in India, but also many Indian corporations operating overseas. With the careful expansion of free trade pacts with Asia in particular, India’s “home” and “host” MNCs alike will see new opportunities, and India can embark on a path to peace and prosperity.
Works Cited
Bagri, Neha Thirani. “Modi Urges Small Businesses in India to Embrace Competition.” India Ink. The New York Times, 27 Feb. 2014. Web. 27 Mar. 2014.
Bailay, Rasul, and Chaitali Chakravarty. “Walmart to Expand in E-retailing in India, Planning Marketplace Model Akin to Amazon, EBay.” The Economic Times News. The Economic Times, 5 Mar. 2014. Web. 30 Mar. 2014.
Bradsher, Keith. “Falling Economic Tide in India Is Exposing Its Chronic Troubles.” The New York Times. The New York Times, 04 Sept. 2013. Web. 29 Mar. 2014.
Bureau of Economic Analysis. “Summary Estimates for Multinational Companies: Employment, Sales, and Capital Expenditures for 2011.” Bureau of Economic Analysis. U.S. Department of Commerce, 18 Apr. 2013. Web. 27 Mar. 2014.
Dayal-Gulati, Anuradha, and Mark W. Finn. “Corporate Social Responsibility: A Case Study of Multinational Corporations Investing in India.” Global Corporate Citizenship. Evanston, IL: Northwestern UP, 2007. 97-116. Print.
“The Global 2000.” Forbes. Forbes Magazine, 2 Apr. 2008. Web. 29 Mar. 2014.
Goldstein, Joshua S., and Jon C. Pevehouse. International Relations. 2012-2013 ed. Boston, MA: Pearson, 2013. 282-314. Print.
Jain, Subhash C., and Sushil Vachani. Multinational Corporations and Global Poverty Reduction. Cheltenham: Edward Elgar, 2006. Print.
Jonsson, Stefan. “Indian Multinational Corporations – Low-cost, High-tech or Both?” (2008): 1-30. ITPS, Swedish Institute for Growth Policy Studies. Web. 29 Mar. 2014.
Loeb, Walter. “Walmart’s International Challenge: Trying To Understand Local Shoppers.” Forbes. Forbes Magazine, 26 Mar. 2014. Web. 27 Mar. 2014.
Mitrany, David. A Working Peace System. Chicago: Quadrangle, 1966. Print.
Ramzy, Austin. “Anger Grows in Taiwan Against Deal With China.” The New York Times. The New York Times, 23 Mar. 2014. Web. 27 Mar. 2014.
Robins, Nick. The Corporation That Changed the World: How the East India Company Shaped the Modern Multinational. London: Pluto, 2012. Print.
Sauvant, Karl P., and Jaya Prakash Pradhan. “The Rise of Indian Multinationals.” (2010): 1-23. Web. 29 Mar. 2014.
Sen, Rahul, Mukul G. Asher, and Ramkishen S. Rajan. “ASEAN – Indian Economic Relations: Current Status and Future Prospects.” Economic and Political Weekly39.29 (2004): 3297-308. JSTOR. Web. 28 Mar. 2014.
Singh, R. R., and Neetika Kaushal Nagpal. “India’s Investment Climate: Addressing Concerns about Tax Policy.” BMRA Advisors. Indian Council for Research on International Economic Relations, Feb. 2014. Web. 27 Mar. 2014.
Snow, Donald M. “Part III: International Political Economy.” Cases in International Relations. 5th ed. Boston: Pearson Longman, 2012. 167-242. Print.
“Tata Buys Jaguar in £1.15bn Deal.” BBC News. BBC, 26 Mar. 2008. Web. 29 Mar. 2014.
Timmons, Heather, Hari Kumar, and Pamposh Raina. “India Opens Door to Foreign Investment.” India Ink. The New York Times, 14 Sept. 2012. Web. 27 Mar. 2014.
“WTO Members and Observers.” World Trade Organization. 2 Mar. 2014. Web. 26 Mar. 2014.
Kayla O'Neill 