MCom I Semester Business Environment Collaboration Light Recent Changes Study Material Notes
Table of Contents
MCom I Semester Business Environment Collaboration Light Recent Changes Study Material Notes : Foreign Collaborations in India Forms of Foreign aid Long Answer Questions Short Answer Questions Objectives Questions ( Most Important Notes for Mcom Students )
CTET Paper Level 2 Previous Year Science Model paper II in Hindi
Collaborations in the Light of Recent Changes)
The government policy of liberalization and for globalization has encouraged joint participation of foreign and domestic capital which is as follows:
1 Joint participation between private investors.
2. Collaborations between foreign firms and Indian government.
3. Collaboration between foreign government and Indian government.
Foreign capital also may be in the form of foreign direct investment and portfolio investment. The need for foreign capital for a developing country like India can arise as domestic capital, is inadequate for purpose of economic growth. It is necessary to invite foreign capital.
Most of the countries have been making use of foreign capital and technology to accelerate the pace of their economic growth. If backward and underdeveloped countries have to speed up their economic development, they will have to import machinery, technical know-how, spare parts and even raw material. There is hardly any advanced country, the development of which is not assisted by foreign capital or technology. India has obtained foreign assistance during five years plans.
Collaboration Light Recent Changes
FOREIGN COLLABORATIONS IN INDIA
Foreign assistance plays an important role in the economic development of a country. Foreign collaboration provides technical know-how, machines, raw materials and brand name and creates environment for rapid economic development. India has obtained foreign collaborations from various sources, ie international institutions, foreign governments, multinational corporations etc. Amongst all these, participation of multinational corporations is the most important.
The Indian government recognised foreign capital as an important supplement to domestic saving for the development of the country and for securing scientific, technical and industrial know-how. But in the overall sense, our policy towards foreign collaborations remained restrictive and selective and consequently during 1948-1988 a total of 6,165 foreign collaborations were sanctioned. After the announcement of New Industrial Policy (1991), there has been an acceleration in the flow of foreign capital in India. For example August 1991-November 2000, the Government of India approved 6,816 technical collaboration proposals and 11,874 foreign direct investment proposals. The total FDI proposals since 1991 till 2000 amounted to 2,42,601 crores but actual inflow was 85,381 crores. However, a distinct change occured in the year 2006-07 recording a substantial increase in FDI of $ 19,351 million in 2006-07 According to RBI, the reasons for the sharp increase in 2006-07 were, expansion in domestic activity, positive investment climate, progressive liberalisation of the FDI policy regime and simplification of procedures. As the liberalisation of the economy took off, the number of collaboration proposals have increased tremendously. This is the result of the liberal import policy and the wide scope given to the multinationals to expand their business in India. At the time of independence, India inherited an industrial structure restricted to a few industries like textiles and sugar. Today, the industrial structure has been widely deversified covering broadly the entire range of consumer, intermediate and capital goods. In most of the manufactured products the country has achieved a large measure of self-sufficiency through foreign collaborations.
Despite the favourable impact, there has been criticism of the policy of the Government in the field of foreign colloborations. In many cases, collaborations have been permitted for the manufacture of non-consumer luxury goods e.g., soaps, cosmetics, ice-creams, readymade garments etc. It is possible to manufacture many of these products with the use of local technology. In this sense, the MNCs by entering into production of goods like potato chips, wafers, bakery products, food products etc. are rapidly displacing labour working in the small scale sector since such units are faced with the stark prospects of closure being unable to compete with MNCs. In most of the cases, the terms of agreements were weighed in the favour of the foreign collaborators and were against Indian interests. The main reason behind it was weak bargaining position on the Indian side. Many collaboration agreements have been permitted to be renewed even when such renewal was not really required. These agreements mainly relate to items purchased by high income customers only. The critics opined that foreign collaboration agreements have the following shortcomings:
(i) Transfer of technology can be effected with more investment being made by technologically advanced MNCs. These gains are not disputed by the critics, but the fact of the matter is that there are certain aspects of FDI which seriously impinge on people’s welfare and national sovereignty.
(ii) The Government has allowed multiple collaborations, i.e., repetitive import of identical technology. This has resulted in an unnecessary out flow of foreign exchange without any special benefit to the country as a whole.
(iii) 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.
(iv) The terms of payment were also biased in the favour of foreign collaborators. The agreements were drawn up to squeeze out the maximum payments under one head or the other.
(v) Foreign collaborations have helped the growth of monopolies and in concentration of economic power only in the few hands.
Collaboration Light Recent Changes
IMPORTANCE OF FOREIGN COLLABORATIONS
With the advent of freedom, the pressure for economic development in India necessitated a realistic approach towards foreign capital. Importance of foreign collaboration is expressed from the following points :
1 Government policy towards foreign capital : The Industrial Policy Resolution of 1948 and 1956 constituted the basis of government’s policy till 1991 when the New Industrial Policy was announced. The Industrial Policy, 1991, accepted the fact that foreign investment is essential for modernisation, technology upgradation and industrial development of India. The policy over bends to cajole foreign capital to come to India.
2. Increase in foreign capital investment: The government of India liberalised its policy towards foreign investment to permit automatic approval for foreign investment up to 51 percent equity in 34 industries. NRIs and overseas bodies are permitted to invest upto 100 percent of equity in high priority industries. Central Government, provided the permission to invest in Indian companies upto 40%. Investment limit by foreign industrial investors (FII) extended from 40% to 49%.
3. Higher priority Area : Approval would be given for direct foreign investment upto 51 percent foreign equity in high priority industries. There shall be no bottlenecks of any kind in this process, while the import of components, raw material and intermediate goods and payment of know-how fees and royalties would be governed by the general policy applicable to other domestic units.
4. Foreign technology agreements: With a view to injecting the desired level of technological dynanism in Indian industry, government would provide automatic approval for technology agreements related to high priority industries within specified parameters. Automatic permission will be given for foreign technology agreements in high priority industries upto a lumpsum payment of 31 crore, 5% royalty for domestic sales and 8% for exports, subject to total payment of 8% of sale over a 10 years period from the date of agreement or 7 years from the commencement of production.
5. Increase in share partnership of foreign investors: Under Foreign Exchange Regulation Act (FERA) percentage of equity ownership allowed to foreigners was restricted to 40 percent and this acted as a deterrent to the foreign firms in acquiring a dominant position. After the announcement of Industrial Policy 1991, majority share of foreign companies was permitted to go upto 51 percent for automatic approvals.
6. Other affairs : To provide access to international markets, majority foreign equity holding upto 51 percent will be allowed for trading companies primarily engaged in export activities.
Foreign Direct Investment (FDI) upto 100% is allowed in E-commerce, energy sector, oil refinery, SEZs, and telecom industry. In June 25, 2002, the government allowed 26% FDI in print media sector. In January 2004, the government allowed FDI upto 100% in printing, scientific and technical magazines, periodicals and Journals.
FORMS OF FOREIGN AID
Foreign assistance comes in three forms: loans, grants and P.L. 480/665 assistance. There is no doubt that some time lag between utilization of aid authorised and aid utilised is inevitable but in case sufficient advana is done and procedures simplified, it is quite possible to improve the extent of utilisation.
TYPES OF FOREIGN COLLABORATIONS
Foreign collaborations are of two types :
1 Technical collaborations : For promoting the inflow of modern technology, the new foreign policy granted various concessions to technical collaboration agreements. It is technical approvals involving payments for technology.
2. Financial collaborations: This relates to the supply of capital or foreign exchange. Such agreements are useful in the inflow of foreign capital. It is a kind of financial approval involving increase equity capital of an existing or new undertaikng.
Upto 600 crores, the Industry Ministry accords approvals on the advice of Foreign Investment Promotion Board (FIPB), but larger projects over this limit are approved by Cabinet Committee on Foreign Investment (CCFI).
EXERCISE QUESTIONS
Long Answer Questions
1 Write an essay on foreign collaboration in the light of recent changes.
2. Write an essay on need of financial assistance.
3. “Excessive dependence on foreign assistance becomes a barrier to development in underdeveloped countries.” Discuss the statement in the context of India’s economic development.
Short Answer Questions
1 Write the types of foreign collaborations.
2. What do you know about foreign collaborations ?
3. Write a short note on foreign collaborations.
Collaboration Light Recent Changes
Objective Questions
(I) Select the Correct Alternatives :
1 Investment of capital by private institutions or public institutions in other countries is known as:
(a) foreign direct investment
(b) capital investment
(c) growth rate in investment
(d) none of these
2. Currently, the institutions which provide foreign exchange in the form of loan to the developing countries :
(a) Foreign collaboration
(b) international institution
(c) Cooperation
(d) all of above
3. The role of foreign colloborations in economic development is :
(a) important
(b) good
(c) necessary
(d) none of these
4. Types of foreign collaborations are:
(a) four
(b) five
(c) two
(d) seven
[Ans. : 1. (a), 2. (b), 3. (a), 4. (c)]
(II) Write True or False :
1 Foreign collaborations do not play an important role in the economic development of a country.
2. Policies of globalisation and liberalisation have induced joint participation of domestic and foreign capital in India.
3. The Industrial Policy has liberalised the import of foreign technologies.
4. Upto 600 crore, the Industry Ministry accords approval.
[Ans. : 1. False, 2. True, .3. True, 4. True]
(III) Fill in the Blanks :
1 In financial collaboration approval will be given for direct investment of ………… existing units or in new ventures.
2. Industry ministry accords approval on the advice of ……………
3. Indian industrialists have made agreement with ………….. prior to the establishment of industries in India.
4. The developing countries of the world which embarked on the road to economic development had to depend on …………. to some extent.
[Ans. : 1. Equity Capital, 2. Foreign Investment Promotion Board, 3. Foreigner industrialists, 4. foreign capital]
