Multinationals in India, their role in the Indian economy, transfer of technology, and Indian multinationals

1. Policy towards multinationals in India

1. 1947–1968: cautious welcome. The Industrial Policy Resolutions of 1948 and 1956 accepted foreign capital in selected industries, usually in collaboration with Indian firms; majority Indian ownership was preferred.
2. 1968–1990: restriction. The Foreign Exchange Regulation Act, 1973 (FERA) required most foreign companies to cut their holding to 40 per cent. Coca-Cola and IBM left in 1977 rather than dilute. The MRTP Act, 1969 controlled large houses, foreign and Indian.
3. 1991 onwards: liberalisation. The New Industrial Policy of July 1991 gave automatic approval for foreign equity up to 51 per cent in priority industries; caps were raised step by step. FERA was replaced by the Foreign Exchange Management Act, 1999 (FEMA), which treats exchange violations as civil matters. Most sectors are now open to 100 per cent FDI under the automatic route, subject to the consolidated FDI policy and the government route in sensitive sectors. The legal detail is in the notes on FEMA and foreign investment law and FDI policy since 1991.
4. Since 2014: Make in India, Production Linked Incentive (PLI) schemes from 2020, and a stricter rule (Press Note 3 of 2020) requiring government approval for investment from countries sharing a land border with India.

2. Role of MNCs in the development of the Indian economy

1. Capital: FDI supplements domestic savings; India receives large FDI inflows each year, led by services, computer software and hardware, trading, and automobiles.
2. Technology and modernisation: Suzuki brought Japanese car-making methods to Maruti Udyog (1982), which transformed the Indian car and components industry.
3. Employment and skills: direct jobs, and many more in suppliers, dealers and service providers; training of managers and workers.
4. Exports: Hyundai and Maruti Suzuki export cars from India; Samsung and Apple’s contract manufacturers (Foxconn, Tata Electronics) export smartphones under the PLI scheme.
5. Global capability centres: Google, Microsoft, Goldman Sachs, Walmart and others run large research, technology and back-office centres in Bengaluru, Hyderabad, Pune and Chennai.
6. Consumer benefit: wider choice and better quality in FMCG (Hindustan Unilever, Nestlé, P&G), electronics and cars.
7. Competition: Indian firms raised standards to compete (Indian two-wheeler and pharma firms).
8. Infrastructure and e-commerce: telecom, power, ports, retail and digital payments (Amazon, Walmart-Flipkart, Google Pay).
9. Tax revenue and development of ancillary small industries.

Concerns: royalty and dividend outflows; transfer pricing and tax disputes (the Vodafone retrospective-tax dispute, ended when the retrospective provision was withdrawn by the Taxation Laws (Amendment) Act, 2021); dominance of e-commerce platforms over small traders; import of components rather than local manufacture; and the Bhopal disaster (1984) as the warning on safety.

3. Transfer of technology

Transfer of technology is the movement of technical knowledge — patents, designs, processes, know-how, management systems — from one firm or country to another.

Channels: FDI by MNCs; joint ventures; licensing and technical collaboration agreements; turnkey projects; purchase of machinery; hiring of experts and training; and reverse engineering where the law permits.

Benefits: faster industrialisation, higher productivity, better quality, export competitiveness. Problems: high royalties, restrictive clauses (tie-in purchases, export bans, grant-back of improvements), outdated technology, and dependence. India once controlled royalty rates; since 2009 payments for technology collaboration are under the automatic route without caps. TRIPS made patent protection stronger, which helps licensors but raises cost for licensees. The legal side is in the note on foreign collaboration and technology transfer agreements.

4. Indian multinationals

Indian firms began investing abroad in small ways from the 1960s (Birla textile mills in Ethiopia and South-East Asia). The real growth came after 1991, and especially after outward investment was eased under FEMA (now governed by the Foreign Exchange Management (Overseas Investment) Rules and Regulations, 2022).

Major overseas acquisitions:

Others: Infosys, TCS, Wipro and HCL with operations in dozens of countries; Sun Pharma, Dr. Reddy’s and Cipla in generics; Mahindra (tractors worldwide); ONGC Videsh in oil fields abroad; Adani in ports overseas.

Reasons for Indian firms going multinational: access to markets, brands and technology; acquiring scale quickly; securing raw materials (coal, oil); getting around trade barriers; and liberal outward-investment rules.

Strengths: frugal engineering and cost control, English-speaking managers, IT skills. Problems: debt taken on for large acquisitions (Tata Steel’s European operations struggled for years), cultural integration, and smaller financial size than Western rivals.

How this is examined

The role-of-MNCs essay: a paragraph on policy history (FERA to FEMA), then the role in nine points with a named firm in each, a short paragraph of concerns, and a conclusion that India’s policy is to welcome MNCs while protecting the national interest. If Indian multinationals are asked, the acquisitions table and the reasons list carry the answer.