UNIT 5 Role of multinational companies in India MNCs are such companies or institutions that meet out the services

and the productions to many countries and there institutions. They serve the customers and the institution best and simultaneously the magnetic chemistry between the country and the foreign MNCs has shown some fruitful results too. Off late the scope of international's performance in India has widened and these influxes in the flourishing on the varied scope are due to the talent and the cost factor that brings the MNCs here. These are not the sole prior causes of the Nokia, Vodafone, Fiat, Ford Motors and as the list moves on- to flourish in India. As the basic economic data suggest that after the liberalization in 1991, it has brought in hosts of foreign companies in India and the share of U.S shows the highest. They account about 37% of the turnover from top 20 companies that function in India. Keeping the 'Big Boss' apart there are certain other companies hailing from Britain, France, Netherlands, Italy, Germany, Belgium and Finland that have made a strong footing in India too. They are well flourishing and earning there share of maximum profit too. There are a number of reasons why the multinational companies are coming down to India. India has got a huge market. It has also got one of the fastest growing economies in the world. Besides, the policy of the government towards FDI has also played a major role in attracting the multinational companies in India. For quite a long time, India had a restrictive policy in terms of foreign direct investment. As a result, there was lesser number of companies that showed interest in investing in Indian market. However, the scenario changed during the financial liberalization of the country, especially after 1991. Government, nowadays, makes continuous efforts to attract foreign investments by relaxing many of its policies. As a result, a number of multinational companies have shown interest in Indian market. Profit of MNC in India It is too specify that the companies come and settle in India to earn profit. A company enlarges its jurisdiction of work beyond its native place when they get a wide scope to earn a profit and such is the case of the MNCs that have flourished here. More over India has wide market for different and new goods and services due to the ever increasing population and the varying consumer taste. The government FDI policies have somehow benefited them and drawn their attention too. The restrictive policies that stopped the company's inflow are however withdrawn and the country has shown much interest to bring in foreign investment here. Besides the foreign directive policies the labour competitive market, market competition and the macro-economic stability are some of the key factors that magnetize the foreign MNCs here. Following are the reasons why multinational companies consider India as a preferred destination for business:

Huge market potential of the country FDI attractiveness Labour competitiveness Macro-economic stability Advantages of the growing MNCs to India There are certain advantages that the underdeveloped countries like and the developing countries like India derive from the foreign MNCs that establishes. They are as under: Initiating a higher level of investment. Reducing the technological gap. The natural resources are utilized in true sense. The foreign exchange gap is reduced Boosts up the basic economic structure.

Advantages of the Growing MNCs to India There are certain advantages that the underdeveloped countries like and the developing countries like India derive from the foreign MNCs that establishes. They are as under: (1) Marketing Opportunity: Multinational Company has big market available in different countries. They have the necessary skill and expertise to sell their products at international level. Any company can enter into a joint venture with a foreign company to sell its products in the international market. (2) Research and Development: The resources and experience of multinational companies in the field of research enable the host country to establish efficient research and development system. This helps host country to produce quality products at least possible cost. (3) Export Promotion: Multinational Company helps developing countries in earning foreign exchanges. These companies can supply necessary raw materials, technology, technicians and foreign exchange to promote exports and reduce imports. (4) Growth of Industry: Multinational Companies are specialized, fast growing and dynamic, so they offer growth opportunities for domestic industries. These companies assist local producers to enter the global markets through their well-established international network of production and marketing. (5) Give Latest Technology: Technology plays an important role in bringing down cost of production and produce quality goods on a large scale. Multinational company is technologically rich. They can be of great help to bridge the technological gap between developed and developing countries. (6) Optimum Utilization of Resources: These companies ensure optimum utilization of natural and other resources of the home country. The home country refers to the country in

which this multinational company has its head office. Thus, the growth of these companies is beneficial to home country. (7) Help to Local Industries: Multinational companies provide a readymade market to domestic suppliers of raw material or semi-finished products. In recent years many multinational company have opened their production units in India, and most of their requirement in respect of spare parts, raw materials, etc. are being met by local suppliers. (8) Management Opportunities: These companies open management opportunities to the management students of the host country. They can be appointed as professional managers by multinational company and can earn handsome salary and build reputation for the country. (9 National Development: Multinational Company assists developing countries to increase efficiency and productivity through transfer of technology and foreign investment. It helps developing countries by providing the required financial, technical and other resources in exchange for economic gains. (10) Control over Monopolies: When multinational company enters in to the domestic market they compete with existing competitors and breaks the monopoly of selected few domestic companies. Disadvantages of MNC Roses do not come without thrones. Disadvantages of having MNCs in a developing country like India are as underCompetition to SMSI Pollution and Environmental hazards Exploitation of natural resources Lack of employment opportunities Diffusion of profits and Forex Imbalance Working environment and conditions slows down decision making Economical distress FDI in India Starting from a baseline of less than $1 billion in 1990, a recent UNCTAD survey projected India as the second most important FDI destination (after China) for transnational corporations during 20102012. As per the data, the sectors that attracted higher inflows were services, telecommunication, construction activities and computer software and hardware. Mauritius, Singapore, US and UK were among the leading sources of FDI. According to Ernst & Young, FDI in India in 2010 was $44.8 billion and in 2011 experienced an increase of 13% to $50.8 billion. India has seen an eightfold increase in its FDI in March 2012. India disallowed overseas corporate bodies (OCB) to invest in India. The fast and steadily growing economy of India in majority of its sectors, has made India one of the most famous and popular destinations in the whole world, for Foreign Direct Investment. India's ever-expanding markets, liberalization of trade policies, development in technology and telecommunication, and loosening of diverse foreign investment restrictions, have further collectively made India, the

apple of investors' eye, for most productive, profitable, and secure foreign investment. According to a recent survey by the United Nations Conference on Trade and Development (UNCTAD), India has conspicuously emerged out as the second most popular and preferable destination in the entire world, after China, for highly profitable foreign direct investment. In recent years, bulk of the foreign direct investment in Indian business sectors of infrastructure, telecommunication, information technology, computer hardware and software, and hospitality services, have been made by investors of countries like US, UK, Mauritius, Singapore, and many others. Global Jurix, one of the leading full-fledged legal organizations of India with global repute, has been helping companies, business corporations, organizations, and other potential investors of countries all around the world, in making foreign direct investment in Indian business sectors, in various ways described in the section below.

An Indian company may receive Foreign Direct Investment under the two routes as given under:
i. Automatic Route FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time. ii. Government Route FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, and Ministry of Finance. Application can be made in Form FC-IL. Plain paper applications carrying all relevant details are also accepted. No fee is payable. The Indian company having received FDI either under the Automatic route or the Government route is required to comply with provisions of the FDI policy including reporting the FDI to the Reserve Bank. As stated in Q 4.

FII in India FII, on the other hand, is perceived to be inferior to FDI because it only widens and deepens the stock exchanges and provides a better price discovery process for the scrips. Besides, FII is a fair-weather friend and can desert the nation which is what is happening in India right now, thereby pulling down not only our share prices but also wreaking havoc with the Indian rupee because when FIIs sell in a big way and leave India they take back the dollars they had brought in. An investor or investment fund that is from or registered in a country outside of the one in which it is currently investing. Institutional investors include hedge funds, insurance companies, pension funds and mutual funds. The term is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with the Securities and Exchange Board of India to participate in the market. One of the major market regulations pertaining to FIIs involves placing limits on FII ownership in Indian companies.

UNIT 4 Social problems of India

Social problems in India require deep insight into the rich heritage and culture of the country. It is deep rooted in the Indian heritage and from that it has outgrown to a serious crime prevailing within the boundaries. India is certainly one of the fastest developing nations of the world. It has been more than half a century ago that the country gained independence and became a republic but sadly the freedom of thought and freedom of life is not enjoyed by all even today. However, issues rooted in our colonial past, cultural processes, socio-economic changes, and certain advancements have together led to experiencing a variety of problems. At present, poverty, gender discrimination, and unemployment are the most distressing social evils in India that has weaken the growth factor of the society. At one end we say economy is progressing at a soaring rate but the truth remains that in certain sections of the country, people are deprived of their basic requirements like food, water, and shelter. Poverty in India is a dehumanizing condition that snatches away the right to fulfil necessary resources of life. Gender discrimination is undoubtedly one of those social problems in India that is causing an uncertain imbalance in the society. Issues like girl infanticide, exploitation, illiteracy, maternal mortality, and dowry deaths are throbbing discrimination women of India are subjected to. In all fields and phases of life women are becoming the key targets of various kinds of atrocities. Unemployment is another issue that is pushing many people under the poverty line. With increasing price of necessary resources of life, unemployed people are unable to fetch themselves and their families. Increasing competition in the business and job sector is aggravating the conditions of unemployment in India. Further to that social evils in India like corruption, illiteracy, and urbanization is also making the condition worst for people living in the Indian society. All these social issues need a careful analysis and demand rational solution to help the society grow in all possible ways. There has to be an end to these social problems in India or else the growth and development of the country will be at stake.

Modernization on Indian Society There are two broad perspectives, implementation of which has changed and modified the lives of Indian people and particularly of the individuals. These are modernization and westernization.

Modernization symbolizes the Advancement. Advancement simply mean the betterment and to move forward in the positive sense. Hence, Modernization follows to move forward and to get better in terms of many aspects of life. There are many aspects of life where Modernization takes place such as, living standards, working styles, behavioural pattern, technology, education, inter and intra relationships, cultural patterns and so on. When the people of the society get better and advanced in the all aspects related to their lives, institutions, thinking, attitudes and relationships then that society is said to be modernized. In Modernization the society tries to innovate and utilize its present and old knowledge, patterns, techniques and resources. Modernization makes a society more confident, independent, versatile and moreover a self-sufficient. It makes the society realize its uniqueness that can be made better and advanced than before. Modernization inspires the society to come out of shell of backwardness and to construct healthy relationships with different societies and countries that may help the society to achieve a better condition and an advanced global position. Modernization in case of Indian society has played a vital role in bringing up its status in the globally recognized societies. Modernization has led to the betterment in the utilization of the manpower, resources and techniques pre-existing into the Indian society. Indian society is getting advanced and better in every aspects of life. People are using better way in technology, education, life styles and in establishing advanced networking. Life has become new, interesting, globalized, approachable and easy for the people. Majority in terms of attitudes and thinking people are trying out new definitions of value, cultural dimensions and new working principles that all together making lives and standard more high.

UNIT 3 Monetary Policy in India Monetary policy is the process by which monetary authority of a country, generally a central bank controls the supply of money in the economy by exercising its control over interest rates in order to maintain price stability and achieve high economic growth.[1] In India, the central monetary authority is the Reserve Bank of India (RBI).Its so designed as to maintain the price stability in the economy. Other objectives of the monetary policy of India, as stated by RBI, are: Price Stability Price Stability implies promoting economic development with considerable emphasis on price stability. The centre of focus is to facilitate the environment which is favourable to the architecture that enables the developmental projects to run swiftly while also maintaining reasonable price stability. Controlled Expansion of Bank Credit One of the important functions of RBI is the controlled expansion of bank credit and money supply with special attention to seasonal requirement for credit without affecting the output.

Promotion of Fixed Investment The aim here is to increase the productivity of investment by restraining non-essential fixed investment. Restriction of Inventories Overfilling of stocks and products becoming out-dated due to excess of stock often results is sickness of the unit. To avoid this problem the central monetary authority carries out this essential function of restricting the inventories. The main objective of this policy is to avoid over-stocking and idle money in the organization Promotion of Exports and Food Procurement Operations Monetary policy pays special attention in order to boost exports and facilitate the trade. It is an independent objective of monetary policy. Desired Distribution of Credit Monetary authority has control over the decisions regarding the allocation of credit to priority sector and small borrowers. This policy decides over the specified percentage of credit that is to be allocated to priority sector and small borrowers. Equitable Distribution of Credit The policy of Reserve Bank aims equitable distribution to all sectors of the economy and all social and economic class of people To Promote Efficiency It is another essential aspect where the central banks pay a lot of attention. It tries to increase the efficiency in the financial system and tries to incorporate structural changes such as deregulating interest rates, ease operational constraints in the credit delivery system, to introduce new money market instruments etc. Reducing the Rigidity RBI tries to bring about the flexibilities in the operations which provide a considerable autonomy. It encourages more competitive environment and diversification. It maintains its control over financial system whenever and wherever necessary to maintain the discipline. Fiscal Policy in India Fiscal policy has to decide on the size and pattern of flow of expenditure from the government to the economy and from the economy back to the government. So, in broad term fiscal policy refers to "that segment of national economic policy which is primarily concerned with the receipts and expenditure of central government." In other words, fiscal policy refers to the policy of the government with regard to taxation, public expenditure and public borrowings. The importance of fiscal policy is high in underdeveloped countries. The state has to play active and important role. In a democratic society direct methods are not approved. So, the government has to depend on indirect methods of regulations. In this way, fiscal policy is a powerful weapon in the hands of government by means of which it can achieve the objectives of development.

Main Objectives of Fiscal Policy in India The fiscal policy is designed to achieve certain objectives as follows:1. Development by effective Mobilisation of Resources The principal objective of fiscal policy is to ensure rapid economic growth and development. This objective of economic growth and development can be achieved by Mobilisation of Financial Resources. The central and the state governments in India have used fiscal policy to mobilise resources. The financial resources can be mobilised by:1. Taxation: Through effective fiscal policies, the government aims to mobilise resources by way of direct taxes as well as indirect taxes because most important source of resource mobilisation in India is taxation. 2. Public Savings: The resources can be mobilised through public savings by reducing government expenditure and increasing surpluses of public sector enterprises. 3. Private Savings: Through effective fiscal measures such as tax benefits, the government can raise resources from private sector and households. Resources can be mobilised through government borrowings by ways of treasury bills, issue of government bonds, etc., loans from domestic and foreign parties and by deficit financing. 2. Efficient allocation of Financial Resources The central and state governments have tried to make efficient allocation of financial resources. These resources are allocated for Development Activities which includes expenditure on railways, infrastructure, etc. While Non-development Activities includes expenditure on defence, interest payments, subsidies, etc. But generally the fiscal policy should ensure that the resources are allocated for generation of goods and services which are socially desirable. Therefore, India's fiscal policy is designed in such a manner so as to encourage production of desirable goods and discourage those goods which are socially undesirable. 3. Reduction in inequalities of Income and Wealth Fiscal policy aims at achieving equity or social justice by reducing income inequalities among different sections of the society. The direct taxes such as income tax are charged more on the rich people as compared to lower income groups. Indirect taxes are also more in the case of semi-luxury and luxury items, which are mostly consumed by the upper middle class and the upper class. The government invests a significant proportion of its tax revenue in the implementation of Poverty Alleviation Programmes to improve the conditions of poor people in society. 4. Price Stability and Control of Inflation

One of the main objectives of fiscal policy is to control inflation and stabilize price. Therefore, the government always aims to control the inflation by Reducing fiscal deficits, introducing tax savings schemes, Productive use of financial resources, etc. 5. Employment Generation The government is making every possible effort to increase employment in the country through effective fiscal measure. Investment in infrastructure has resulted in direct and indirect employment. Lower taxes and duties on small-scale industrial (SSI) units encourage more investment and consequently generate more employment. Various rural employment programmes have been undertaken by the Government of India to solve problems in rural areas. Similarly, self-employment scheme is taken to provide employment to technically qualified persons in the urban areas. 6. Balanced Regional Development Another main objective of the fiscal policy is to bring about a balanced regional development. There are various incentives from the government for setting up projects in backward areas such as Cash subsidy, Concession in taxes and duties in the form of tax holidays, Finance at concessional interest rates, etc. 7. Reducing the Deficit in the Balance of Payment Fiscal policy attempts to encourage more exports by way of fiscal measures like Exemption of income tax on export earnings, Exemption of central excise duties and customs, Exemption of sales tax and octroi etc. The foreign exchange is also conserved by providing fiscal benefits to import substitute industries, imposing customs duties on imports, etc. The foreign exchange earned by way of exports and saved by way of import substitutes helps to solve balance of payments problem. In this way adverse balance of payment can be corrected either by imposing duties on imports or by giving subsidies to export. 8. Capital Formation The objective of fiscal policy in India is also to increase the rate of capital formation so as to accelerate the rate of economic growth. An underdeveloped country is trapped in vicious (danger) circle of poverty mainly on account of capital deficiency. In order to increase the rate of capital formation, the fiscal policy must be efficiently designed to encourage savings and discourage and reduce spending. 9. Increasing National Income The fiscal policy aims to increase the national income of a country. This is because fiscal policy facilitates the capital formation. This results in economic growth, which in turn increases the GDP, per capita income and national income of the country. 10. Development of Infrastructure

Government has placed emphasis on the infrastructure development for the purpose of achieving economic growth. The fiscal policy measure such as taxation generates revenue to the government. A part of the government's revenue is invested in the infrastructure development. Due to this, all sectors of the economy get a boost. 11. Foreign Exchange Earnings Fiscal policy attempts to encourage more exports by way of Fiscal Measures like, exemption of income tax on export earnings, exemption of sales tax and octroi, etc. Foreign exchange provides fiscal benefits to import substitute industries. The foreign exchange earned by way of exports and saved by way of import substitutes helps to solve balance of payments problem. Conclusion on the Fiscal Policy The objectives of fiscal policy such as economic development, price stability, social justice, etc. can be achieved only if the tools of policy like Public Expenditure, Taxation, Borrowing and deficit financing are effectively used. Though there are gaps in India's fiscal policy, there is also an urgent need for making India's fiscal policy a rationalised and growth oriented one. The success of fiscal policy depends upon taking timely measures and their effective administration during implementation.

EXIM Government of India launched the institution with a mandate, not just to enhance exports from India, but to integrate the countrys foreign trade and investment with the overall economic growth. Since its inception, Exim Bank of India has been both a catalyst and a key player in the promotion of cross border trade and investment. Commencing operations as a purveyor of export credit, like other Export Credit Agencies in the world, Exim Bank of India has, over the period, evolved into an institution that plays a major role in partnering Indian industries, particularly the Small and Medium Enterprises, in their globalisation efforts, through a wide range of products and services offered at all stages of the business cycle, starting from import of technology and export product development to export production, export marketing, preshipment and post-shipment and overseas investment Exim Bank is managed by a Board of Directors, which has representatives from the Government, Reserve Bank of India, Export Credit Guarantee Corporation of India, a financial institution, public sector banks, and the business community. ECGC Export Credit Guarantee Corporation of India Limited was established in the year 1957 by the Government of India to strengthen the export promotion drive by covering the risk of exporting on credit. Being essentially an export promotion organization, it functions under the administrative control of the Ministry of Commerce & Industry, Department of Commerce, and

Government of India. It is managed by a Board of Directors comprising representatives of the Government, Reserve Bank of India, banking, and insurance and exporting community. ECGC is the fifth largest credit insurer of the world in terms of coverage of national exports. The present paid-up capital of the company is Rs.800 crores and authorized capital Rs.1000 crores. What does ECGC do? Provides a range of credit risk insurance covers to exporters against loss in export of goods and services Offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan How does ECGC help exporters? Offers insurance protection to exporters against payment risks Provides guidance in export-related activities Makes available information on different countries with its own credit ratings Makes it easy to obtain export finance from banks/financial institutions Assists exporters in recovering bad debts Provides information on credit-worthiness of overseas buyers FRBM Act The FRBM Act was enacted by Parliament in 2003 to bring in fiscal discipline. It received the Presidents assent in August the same year. The United Progressive Alliance (UPA) government had notified the FRBM Rules in July 2004. As Parliament is the supreme legislative body, these will bind the present finance minister P Chidambaram, and also future finance ministers and governments. How will it help in redeeming the fiscal situation? The FRBM Rules impose limits on fiscal and revenue deficit. Hence, it will be the duty of the Union government to stick to the deficit targets. As per the target, revenue deficit, which is revenue expenditure minus revenue receipts, have to be reduced to nil in five years beginning 2004-05. Each year, the government is required to reduce the revenue deficit by 0.5% of the GDP. The fiscal deficit is required to be reduced to 3% of the GDP by 2008-09.It would mean reduction of fiscal deficit by 0.3 % of GDP every year.

Fiscal Deficit

Every government raises resources for funding its expenditure. The major sources for funds are taxes and borrowings. Borrowings could be from the Reserve Bank of India (RBI), from the public by floating bonds, financial institutions, banks and even foreign institutions. These borrowings constitute public debt and fiscal deficit is a measure of borrowings by the government in a financial year. In budgetary arithmetic, it is total expenditure minus the sum of revenue receipts, recoveries of loans and other receipts such as proceeds from disinvestment. Problem of Fiscal Deficit Over the years, public debt has continued to mount and so have interest payments. According to budget figures (revised estimates for 2003-04) the government borrowed Rs.1,32,103 crore. The interest payment during the year was Rs.1,24,555 crore. What is alarming is that except for a comparatively small sum of about Rs.7,500 crore, more than 94% of borrowed funds are being used to pay interest for past loans. This is what is called the debt trap, where one is compelled to borrow to service past loans. The other way of looking at the fiscal problem is that more than 66% of government taxes, totalling Rs.1,87,539 crore in 2003-04 were used to pay interest on past borrowings. Servicing of loans also erodes the governments ability to spend money on critical areas such as health and education and on essential sovereign functions like policing, judiciary and defence.