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Industry's fear of MNCs is baseless: Chidambaram; and a response - The Times of India

Business Times Bureau ()
16 December 1996

Title : Industry's fear of MNCs is baseless: Chidambaram and a response
Author : Business Times Bureau
Publication : The Times of India
Date : December 16, 1996

Despite having gone through five years of consistent
economic reform, there remains a suspicion of foreign
investment and a fear that India will become a dumping
ground for outdated technology. This was stated by Union
finance minister P. Chidambaram at a seminar on foreign
investment in emerging economies, organised by the Union
Internationale Des Avocats (UIA) here on Sunday.

Dismissing these fears as baseless and unsubstantiated,
the finance minister said Indian industry needlessly
fears multinational corporations (MNCS) and is posing
difficulties and hurdles in the path of speedy economic
reform. "Sections of Indian industry fear that they will
be taken over," he said. "Ownerships is still an issue
in India, but to assume that foreign companies will come
and take over Indian companies is irrational."

"It is true that private capital flows outreach public
capital flows today," Mr Chidambaram stated. "Private
capital flows are controlled by multinationals, but 60
per cent of world trade comes from intra-MNC trade be-
cause they have a global presence. Did you ever imagine
that Daimler Benz will set up shop in India and export
India-made cars for export to Sri Lanka? We must attract
foreign capital flows and channel them to areas that need
them most."

Mr Chidambaram poked fun at the "we want computer chips,
not potato chips" argument from sections opposed to the
reform process. "This is an attractive argument, but
remember that potato chip factories too use computer
chips. As long as the investment brings jobs, creates
income and generates wealth, we should cease making
irrational comparisons," he remarked, claiming that 83
per cent of the foreign direct investment Into India has
been Into core areas such as the power, telecom, steel
and port sectors.

"Indian industry has been given a number of assurances
that it will be protected," the finance minister said.
"Our tariffs are still high and It is only by 2000 that
we will bring it down to Asian levels and by 2004 or so
that we would bring it down further to world levels."
Arguing that Indian corporates have achieved world-class
leadership in several areas, he said the country does
require anti-dumping laws but there is a need to shed the
fear that we will be a dumping ground.

Stating that the opposition to the privatisation of the
insurance sector from left-leaning parties arises out of
an outmoded attitude, Mr Chidambaram remarked: "These
people represent a system that has already collapsed the
world over. A system that has no home except in parts of

"I respect their views, but I also respect the desire of
Indian people to share a high quality of living and the
right to choose," Mr Chidambaram commented. "Huge tariff
walls have protected Indian industry giving the consumer
no choice. For years, the consumer had no choice.
Choice of a car was an Ambassador or an Ambassador.

Choice of an airline was Indian Airlines or Indian Air-
lines," he quipped, adding: "But there is now a hunger
and aspiration among Indians for quality goods and serv-

However, when asked to comment on the Issue of foreign
law firms being allowed to enter the Indian market, the
lawyer-politician minister said: "We should proceed with
caution. India is not the only country that bars entry
of foreign law firms." Although he observed that the
issue was sub-judice, he said there were a number of
visible and Invisible barriers to entry of legal services
all over the world.

The finance minister said foreign capital had an import-
ant, although marginal, role to play In India's economic
growth. "Foreign Investment brings with it technology.
Today, technology and capital are in the same hands and
foreign Investment brings In a transfer of efficiency."
Domestic savings alone are insufficient to sustain the
projected economic growth, he said.

"To achieve a six per cent growth rate, we need a savings
rate of 24 per cent along with foreign investment. To
match China's 12 per cent growth, we would require 48 per
cent savings," he observed. "Foreign investment will
change the way business is done in India. This year we
have attracted a total foreign investment of $6 billion
(direct and portfolio), which is a 50 per cent increase
over the previous year."

Mr Chidambaram said although India seized the opportunity
to change in 1991, the previous government seemed to have
lost its zeal in its last 18-24 months, while the new
government seems unsure of what to do. "Both perceptions
are partially correct," he said.

"In the last two years of the previous government, a
number of populist measures were announced and the focus
on fiscal management was lost," he said. However, the
finance minister said, his predecessor Manmohan Singh had
managed to bring down inflation to five per cent and cut
the fiscal deficit by two per cent as a ratio to the
gross domestic product.

Terming the United Front government's common minimum
programme a "turning point in India's destiny," Mr Chi-
dambaram said: "it was not easy to write that programme
and, you can take It from me, it is not easy to implement
the programme." The Deve Gowda government is taking a
series of "politically correct steps" but each step is
towards the path of further reform and restructuring.
"You must understand that in India, politicians cannot
call a spade a spade. It continues to remain a sharp-
edged blade with a metal handle."

On the subject of minimum alternative tax (MAT), Mr
Chidambaram said that with the Companies Act and, the
Income Tax Act being redrafted, it was possible that a
better alignment between the two legislations could lead
to MAT being dispensed with.

Responding to a question on the depressed state of the
capital market and the fall in the Bombay Stock Exchange
sensitive index (sensex), Mr Chidambaram said: "This is
no indicator of the current state of the Indian economy
as the sensex does not reflect (economic) fundamentals."



Vinod Pawar
131, Kaivalyadham,
Dr M B Raut Marg,
Mumbai 400 028.

December 16, 1996.


This has reference to the report (Dec 16) where Shri P
Chidambaran 'poked fun' at the potato chips/computer chips
argument, and is reported to have said that he also has to
'respect the desire of Indian people to share a high quality
of living and the right to choose'. He has also said that
in the past the choice in cars for the consumer was 'an
Ambassador or an Ambassador'. It is quite obvious that he
puts the entire blame on the industry for the state of affairs.

A lesson in history is desirable. Shri P Chidambaran is
unaware that there was something called Industrial (Development
and Regulation) Act which specified who is to produce, what is
to be produced, how much to be produced, where to be produced,
and how to be produce. Under this Act, which did everything
for regulation and nothing for development, the consumer was
given the choice between 'an Ambassador or an Ambassador' not
by the industry but by the government. In contrast, in Japan
and Korea, the consumers were given many choices of their own
indigenous brand names, while keeping the foreign companies out
of the picture. These indigenous companies created world
standard facilities, both in size and quality, because they
were permitted to do so, and also given active encouragement
by their respective governments. Shri Chidambaran is unaware
that the Indian government actually stifled indigenous
entrepnuership. And he was a participant in this programme.

At the same time, the way Shri Chidambaran wants to protect his
own real, and not adopted, profession, viz. the lawyers, is
amusing, to put it politely. When asked on allowing foreign
law firms to set up offices in India, he said, "We should
proceed with caution. India is not the only country that bars
entry of foreign law firms." Thus, while choice in manufactured
goods industry is to be actively encouraged, in case of the
legal profession such a choice is anti-consumer! Shri Chidambaran
needs to be informed that Korea does not allow imports of more
than 1900 cars a year, that France restricts imports of Japanese
electronic goods by asking the consignments to be carted all the
way to a remote village in France for customs clearance, that USA
restricts imports of Indian garments through a quota system, etc.
But, such restrictions by the developed countries are to be ignored.

What really takes the cake is Shri Chidambaran's statement that 'in
the last two years of the previous government, a number of populist
measures were announced and the focus of on fiscal management was
lost'. What the citizens of this country want to know is what did
Shri Chidambaran, as a minister in that government, do to prevent
the slide, and what is he doing today. Let us not have any more
intellectual dishonesty.

Yours sincerely,

(Vinod Pawar)

The Editor, The Times of India,
Times of India Bldg,
D N Road, Mumbai 400 001.

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