An Assessment Of Policies Towards Foreign Collaboration

The main arguments put forth by the protagonists of liberalization to permit larger doses of foreign collaboration are: The days of East India Company are over. The inflow of foreign collaborations through Multinational Corporations (MNCs) or their subsidiaries does not imply subjugation. The share of India in direct foreign investment when compared with China, Brazil, Mexico etc. is very low.  Secondly, transfer of technology can also be affected 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 aspects of foreign direct investment which seriously impinge on people‘s welfare and national sovereignty. It is these aspects which need serious consideration.  Thirdly, 45 per cent of the Foreign Investment is in the nature of portfolio investment (financial investment) which only strengthens speculative trading in shares. The wisdom of permitting foreign companies to trade in the share market is punctuated by a question mark. Fourthly, the multinationals by entering into production of goods like potato chips, wafers, bakery products, food processing etc. are rapidly displacing labour working in the small scale sector since such units are faced with the MNCs.  Fifthly, portfolio investment made in India is in the nature of hot money which may take to flight if the market signals indicate any adverse trends.  Sixthly, a larger inflow of foreign direct investment, more so in the financial sector, will lead to building of reserves which in turn will expand domestic money supply. Consequently, inflationary tend of prices gets strengthened in the process. Seventhly, MNCs after their entry are rapidly increasing their shareholding in Indian companies and are thus swallowing Indian concerns.  It is therefore, of urgent necessity that the Government should take remedial steps through SEBI and RBI to plug this abuse. To sum up, while capital inflows by multinationals may be permitted, but this should not be allowed at the cost of Indian national interests. The Government should, therefore, not have an open door policy but should be more selective in its approach.