What has been the Contribution of Foreign Collaboration in India's Economic Development Comment
Today petroleum refining, chemicals and
pharmaceuticals, steel, light and heavy engineering, man-made fiber and several
other industries have been established and are working on a profitable basis.
But for the technical know-how and skill obtained from abroad i.e., foreign
collaboration, these industries, would not have come into existence or would
have taken many years to expand.
Principles of Foreign Collaboration:
The basic policy of Government of India about foreign private investment is based fon the cardinal principles
mentioned in the statement made by the late prime minister Jawahar Lal Nehru in
Parliament in April 1949
Its uppermost consideration was
non-discrimination between are Indian and a foreign enterprise in the larger
interests of country.
The following principles were incorporated in the Industrial policy Resolution of 1956:
- Foreign capitals once admitted will be treated at par with the indigenous capital.
- Facilities for remittance of profits abroad will continue.
- As a rule, the major interest in ownership and effective control of an undertaking should be in Indian hands.
- If and when foreign enterprises are acquired, compensation will be paid on a fair and equitable basis.
- The government would not object to foreign capital of a concern for a limited period if it is found to be in the national interest and each individual case will be dealt on its merits.
Thus, the government assured a
non-discriminatory treatment to foreign capital and promised unrestricted
facilities for the repatriation of both capital and profits. It laid emphasis
on the employment and training of Indians in higher position.
Foreign Collaborations and Transfer of
Technology:
A) Study by P. Mohanan Pillai:
In his paper P. Mohanan Pillai, analyzed the
impact of multi-national economy and unraveled following points in
"Foreign collaboration in public sector":
- Transfer of technology under the aegis of foreign collaborations is an act of "unequal exchange than comparative advantage." Relative bargaining power settles the terms of technology transfer. The bargain will be struck to the disadvantage of the buyers to whom suppliers transfer technology at onerous cost.
- It is not correct to assume that effective control is necessarily commensurate 'with formal capital ownership. The interest of foreign collaboration is fully protected even though it has a minority participation in equity, since technical operation and investments other than equity are controlled primarily by the foreign collaboration.
- Technology transfer to Indian public sector is marked by the predominance of package formula (i.e. patents, trade mark, know-how) it implies greater control by technology suppliers. The restrictive features of foreign collaboration in the public sector are in no way different from those in the private sector but rather much worse. Principles of Foreign Collaboration: The basic policy of Government principles mentioned in the statement made by the late prime minister Jawahar Lal Nehru in Parliament in April 1949 Its uppermost consideration was non-discrimination between are Indian and a foreign enterprise in the larger interests of country.
The following principles were incorporated in the Industrial policy Resolution of 1956:
- Foreign capitals once admitted will be treated at par with the indigenous capital.
- Facilities for remittance of profits abroad will continue.
- As a rule, the major interest in ownership and effective control of an undertaking should be in Indian hands.
- If and when foreign enterprises are acquired, compensation will be paid on a fair and equitable basis.
- The government would not object to foreign capital of a concern for a limited period if it is found to be in the national interest and each individual case will be dealt on its merits.
Thus, the government assured a
non-discriminatory treatment to foreign capital and promised unrestricted
facilities for the repatriation of both capital and profits. It laid emphasis
on the employment and training of Indians in higher position.
Foreign Collaborations and Transfer of Technology:
A) Study by P. Mohanan Pillai:
In his paper P. Mohanan Pillai, analyzed the
impact of multi-national economy and unraveled following points in
"Foreign collaboration in public sector":
- Transfer of technology under the aegis of foreign collaborations is an act of "unequal exchange than comparative advantage." Relative bargaining power settles the terms of technology transfer. The bargain will be struck to the disadvantage of the buyers to whom suppliers transfer technology at onerous cost.
- It is not correct to assume that effective control is necessarily commensurate 'with formal capital ownership. The interest of foreign collaboration is fully protected even though it has a minority participation in equity, since technical operation and investments other than equity are controlled primarily by the foreign collaboration.
- Technology transfer to Indian public sector is marked by the predominance of package formula (i.e. patents, trade mark, know-how) it implies greater control by technology suppliers. The restrictive features of foreign collaboration in the public sector are in no way different from those in the private sector but rather much worse.
- By the various contracts for the supply of equipment, plant construction and also supply of credit, the foreign collaborators derive excessive benefits using technology transfer as cover. Evidence from recent study of engineering industry reveals that even the public sector is notable to resist the pressure-cum-conspiracy tactics of foreign collaborators.
- The dependence on foreign technicians in the public sector was higher in the private sector. The ratio of foreign technicians per collaboration was 37 for the public sector whereas it was only 22 for subsidiaries, 5 for minority participation and 1 for pure technical collaboration companies during 1964-70.
B) Study by Skoumal:
In his study, "The impact of foreign
subsidiaries on India's balance of payments" for the year 1975-76 covering
133 companies out of a total of 171 foreign subsidiaries operating in India in
1975-76, Dr. Skoumal of the Indian Institute of Public Administration arrived
at the following conclusions
- An overwhelming number of foreign subsidiaries operating in India originate from the U.K. and the U.S.A. Out of 171 subsidiaries, 116 had their parent company in the U.K. and 25 in the U.S.A.
- Large foreign companies in India are fast acquiring the character of multi-product and multi-industry enterprises. For instance, Imperial (now Indian) Tobacco Company (ITC) recently diversified its activities to hotel industry and is already having a chain of luxury hotels in India. The Union Carbide of India has entered into agricultural and marine products. To demonstrate its respect for the national priorities, the Imperial Chemical Industries have taken up rural uplift programmed in a village of Uttar Pradesh. On the one hand, diversification helps the foreign subsidiaries to expand in new and more profitable areas, but on the other, they escape any likelihood of attracting anti-monopoly legislation and public resentment.
- Most of the foreign subsidiaries have raised financial resources from within India and the transfer of capital, by way of contribution to share capital or loans from the parent company, has been marginal
- Nearly all the branches and subsidiaries of foreign companies have accepted the Indianization scheme and a large number of them have already taken measures to reduce the degree of foreign shareholding Many of the foreign subsidiaries in India, which have accepted the policy of equity dilution, have, however, succeeded in obtaining the government approval to enter into perpetual legal agreements with their parent companies, under which the management control, even when the parent company held only a minority in the total shares, would continue to rest in foreign hands.
- The assets of foreign subsidiaries increased from Rs. 1,129 crores in 1969 to Rs 1,626 crores in 1976 an increase of 44 per cent. during the period 1969-70 The share of processing and manufacturing category increased from 77 per cent in 1969 to 90 per cent in 1976.
- The assumption that the entry of Transnational Corporations (TNCs) would ensure transfer of sophisticated technology to developing countries has not been found valid in practice. In India, there is sufficient evidence to suggest that the transfer of technology is only from one industrial project in a developed country to another 'project site' but it makes no contribution to the low technology-oriented system of production to the poor country.
For instance, a clause included in the
collaboration agreement between Phillips India and its parent company reads:
"The company undertakes both during continuance of this agreement and
hereafter not to copy the machinery, tools and instruments or any parts there
of applied by Phillips or any subsidiaries of Phillips to the company or to
cause or permit the same to be copied and not to prepare drawings of such
machinery, tools and instruments or parts thereof nor to cause or permit the
same to be prepared." In such cases, transfer of technology is a myth and
TNCs in practice do not permit such transfer but keep process and technologies
a well-guarded secret. During 1975-76, total value of foreign exchange earned
by 133 foreign subsidiaries was Rs. 120 crores. An overwhelming part of it was
earned through export of traditional items from India like tea, tobacco,
leather products, processed food etc.
Against this, the subsidiaries placed a direct
burden on India's foreign exchange resources to the extent of Rs. 220 crores.
Since the State Trading Corporation, for accounting practices, treats imported
raw material supplied to foreign subsidiaries as indigenous raw material, the
assessed foreign exchange burden is an under-estimate. Thus, there was a
continued international drain on account of the operations of foreign
controlled companies.
A study of foreign collaborations reveals
certain interesting results; Thus, a large number of agreements were concluded
for the manufacture of products which were non-essential or which could be
produced with the help of local technology These items included vacuum flasks,
lipstick, toothpaste, cosmetics, brassieres, ice-cream, gin, beer, biscuits and
garments. Not only were collaborations granted for these products they were
often in multiple numbers and were renewed on expiry, such collaborations were
often directed to serve the needs of high-income groups and to take advantage
of a foreign brand name.
Drawbacks of Foreign Collaboration:
1) Multiplicity:
He practice of multiple collaborations led to the introduction of standards of various countries (in raw materials, spare parts, design, specifications, and even terms of measurement into the Indian industry for very similar products or within the same firm This multiplicity led to large inventory accumulation and uneconomic locking up of working capital. It also hindered standardization and variety reduction which are s essential for raising industrial productivity.
2) Repetitive Import:
The government permitted collaborations, Le
repetitive import of the same or similar technology resulting in repetitive
payments without adding to the stock of technical knowledge in the country.
3) Agreements Against Indian Interests:
The terms of agreements were mostly weighed
against Indian interests, on account of the lack of bargaining power in the
Indian side and the government's eagerness to acquire foreign participation in
the foreign exchange shortage.
4) Squeeze Maximum Payments:
The terms of payment were so drawn as to
squeeze out the maximum payments under one head or other. Generally, 5 per cent
of the annual turnover for 10 years as royalty plus 5 per cent of the imported
plant cost as technical fees in the case of royalty-cum-technical fees, or 10
per cent of the issued capital as lumpsum payment, for technical fees alone,
were the limits of official policy
5) Over Import of Equipment:
Since the responsibility of specification and
supply of equipment was entrusted to the foreign collaborators, there was close
tie-up between the designers and suppliers resulting not only in price mark-up
but also in over import of equipment.
Sometimes equipment was imported even when
they were available locally, sometimes they remained idle for want of spares,
and often the processes were more highly mechanized and sophisticated than was
desirable or necessary. At times, obsolete technology was imported.
6) Growth of Monopolies and Concentration:
Foreign collaborations joined hands with the
big business houses and the latter were only too eager to enter into
understanding with them since the presence of foreign links often conferred
certain strategic advantages (patent, resources, foreign exchange, etc.)
enabling the big business houses to diversify and expand.
7) Presence of Various Restrictive Clauses in the Agreements:
Some restrictions imposed were:
- The technology cannot be passed on to 'anyone else, in some cases even after the expiry of the agreement,
- manufacturing is to be carried out according to the specifications laid down by the collaborator and no local adaptations can be made;
- control over overseas purchase was exercised through the provision that it had to be made directly or indirectly through the collaborator,
- production was tightly controlled.