Dislodging Multinationals: India's Strategy in Comparative Perspective 9781501734229

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Dislodging Multinationals

A volume in the series

Cornell Studies in Political Economy Edited by Peter J. Katzenstein

A full list of titles in the series appears at the end of the book

Dislodging Multinationals India’s Strategy in Comparative Perspective

Dennis J. Encarnation

Cornell University Press Ithaca and London

Copyright © 1989 by Cornell University All rights reserved. Except for brief quotations in a review, this book, or parts thereof, must not be reproduced in any form without permission in writing from the publisher. For information, address Cornell University Press, 124 Roberts Place, Ithaca, New York 14850. First published 1989 by Cornell University Press. International Standard Book Number 0-8014-2315-5 Library of Congress Catalog Card Number 89-730 Printed in the United States of America Librarians: Library of Congress cataloging information appears on the last page of the book. The paper in this book is acid-free and meets the guidelines for permanence and durability of the Committee on Production Guidelines for Book Longevity of the Council on Library Resources.

To my parents and to Jeanie

Contents

IX

Figures and Tables Acknowledgments 1. Multinationals and Development 2. 3. 4. 5.

xi 1

Finance Technology Markets India in Comparative Perspective Index

32 82

121 176 227

vn

Figures and Tables

Figures 1-1. Multinational market shares in India and Brazil, 1971, 1981

6

1- 2. The bargaining process

21

2- 1. Assets owned by state and private enterprises, 1962, 1972, 1982

35

2-2. Investments in state and private enterprises, 1951-1980

38

2-3. Investments in Indian industries by state enterprises, 1963, i973> !983 2-4. Sources of debt and equity in private enterprise, 1950-1975

39 43

2-5. Government financing of private enterprise, 1956—1966

48

2-6. Owners of equity in private enterprises, 1965, 1978

51

2-7. Returns on government equity in private enterprise, 1978

53

2-8. Government ownership of private enterprise across Indian industries, 1978 2- 9. Foreign financial and technological agreements, 1948-1984 2-10. Foreign financing of private enterprise, 1973

54 60 62

2-11. Foreign financing and technology licensing in the chemical industry, 1973, 1980

63

2-12. Foreign financing of majority subsidiaries and minority affiliates, 1961-1981

b6

2-13. Multinational ownership before and after FERA, 1973, 1981

69

2-14. Multinational responses to FERA, 1973—1981

7°

2-15. Foreign and local equity in private enterprise, 1978

72

2-16. Profitability of multinationals and Indian enterprises, 1960-

74

1981 3- 1. Government licenses and foreign collaboration, 1956—1965

87

3-2. Private recipients of government licenses to import technology, 1956—1966

89

ix

Figures and Tables 3-3. Government licensing and foreign collaboration, 1961-1984

92

3-4. Foreign technology and finance in Indian industries, 1973, 1980

94

3- 5. Foreign technology in state and private enterprises, 1973, 1980

103

4- 1. Market shares of imports in Indian industries, i960, 1980

125

4-2. State-owned enterprises: Horizontal diversification and vertical integration, 1947—1980

128—29

4-3. Markets shares of SOEs in Indian industries, 1961-1980

130

4-4. Private recipients of government licenses to expand in India, 4-5. Government licensing of expansion by business houses, 1971 — 1977

142

4-6. Government licensing of investments by business houses in Indian industries, 1971-1977 4-7. Capacity utilization in private enterprise, 1979

144 146

4-8. Distribution of foreign equity in Indian industries, 1961, 1971, 1981

154

4- 9. Market shares of multinationals and Indian enterprises, 1966, 1982

158

4-10. Government licensing of expansion by multinationals, 1971-

1977 4-11. Capacity utilization by multinationals, 1979

161 162

4-12. Government exemptions from foreign equity dilution below 40 percent, 1973—1981

164

5- 1. Ownership of the hundred largest enterprises: India and Brazil, 1973

195

5-2. Government regulation of foreign ownership: India, Brazil, and Korea, 1977, 1982

199

5-3. Market shares of multinationals and local enterprises in India and Brazil, 1971, 1981 5-4. Industrialization in India, Brazil, and Korea, i960, 1970, 1980

200 203

5-5. The concentration of “economic power” in India and Korea, 1964- 1979

208

Tables 1-1. Foreign trade and investment in India, Brazil, and South Korea,

1965- !985

11

3-1. Foreign technology in Indian enterprises and multinationals, 1960—1981

9^

3- 2. Local R&D by multinationals and Indian enterprises across industries, 1978—1981 4- 1. U.S. multinationals entering India, 1981-1985

111 167

Acknowledgments

Why, over time, have some newly industrializing countries been successful at dislodging multinationals from domestic industries while others have not? This question remains central to our understanding of modern political economy. In my search for an answer, I have followed two parallel tracks: one is theoretical, the other largely em¬ pirical. Along the way, I incurred many obligations, especially to those observers who had already analyzed relations among multinationals, the state, and local enterprises in industrializing countries. Their work contains much of value; even so, I have come to differ with both the logic and the evidence employed in their interpretations. My own dissent, and its complementary formulation of an alternative perspec¬ tive, began at Duke University, where Ronald Rogowski introduced me to the theory of rational choice—which then belonged in the arsenal of economists but not of political scientists. To me, Ron con¬ vincingly demonstrated that, in its pursuit of analytical rigor, rational¬ ist theory need not serve any single ideology. His lasting influence as a mentor shows itself everywhere in this book. With theory in hand and hypotheses to test, I embarked during 1977 for a year’s research in India. Since then, I have returned an¬ nually for shorter stays, and each visit has yielded valuable new inter¬ views with managers in both business and government—informants too numerous to name here. In fact, for many Indian and other foreign managers, a guarantee of anonymity represented the neces¬ sary consideration to exchange for their time. Always ready to help in arranging these appointments, and in making my visits both enjoy¬ able and productive, was Vijayan Puliampet—resident director ot the Berkeley Professional Studies Program in India. The Berkeley Proxi

Acknowledgments

gram itself was an early benefactor of my research, as were the Shell Foundation, the Fulbright Program, and the World Bank. In all, this financial help provided me the necessary time to establish working relationships with several Indian social scientists, among whom S. K. Goyal merits special recognition. My thanks go to him for unselfishly sharing with me the best available data on corporate strategy and government policy in India, and for consistently trying to protect me from errors of interpretation. If these pages compose (as I believe they do) a valuable sourcebook on the first forty years of independent India’s political economy, “S. K.” deserves credit. Although my early research on India began at Duke (and con¬ tinued during a postdoctoral fellowship at Stanford University), near¬ ly all of the work represented in this book must be dated after I joined the faculty of the Harvard Business School, where several colleagues have helped to create a supportive environment. Indeed, Louis T. Wells, Jr., should be credited (or blamed) for actively encouraging me to pursue this line of inquiry. Lou has consistently served as both my sternest critic and my most enthusiastic supporter. Additional help came from my colleagues in the Negotiation Roundtable, especially David A. Lax, whose work has provided fresh analytical insights to complement my interest in rational choice. My analysis has become more comparative since I began working closely with an inter¬ disciplinary group of scholars—led by Thomas K. McCraw—interest¬ ed in how corporate strategies and government policies vary across industries, change over time, and differ among countries. My own cross-national perspective has been further clarified by the constructive criticisms of numerous scholars elsewhere within the Harvard community. Here, Stephan Haggard merits special note for his eagerness to share work in progress. Outside Harvard, others have also supplied me with material assistance. In particular, Peter Evans provided extensive advice on how to sharpen both the theoreti¬ cal argument and the Brazilian comparison; Leroy P. Jones gener¬ ously granted me unlimited access to his extensive files on Korea. Earlier, the editors of International Organization—most notably, Peter J. Katzenstein, aided by Roger M. Haydon—had nudged this project along, partly by introducing me to their helpful readers. Now, they have encouraged publication in the series Cornell Studies in Political Economy. Back in Cambridge, Myron Weiner and the MIT—Harvard Faculty Seminar on South and Southeast Asia have also provided key introductions to scholars of India, who always prove willing to give generously of their time and energy. After receiving all of this assisxii

Acknowledgments

tance, I alone should be held responsible for any remaining errors in this book. At Harvard, the Business School’s Division of Research has sup¬ plied ample funds to support my forays into India, Brazil, and Korea, as well as my visits to the head offices of American, European, and Japanese multinationals. The School also employed a small army of research assistants, of whom four deserve separate recognition: Willis Emmons, Sanjeev Mehra, Srinivasa Rangan, and Sushil Vachani. The Division of Research has indulged my ambition to make mountains of data more accessible to readers, through the construction of elaborate graphic illustrations. Weaving these graphics into the narrative proved to be a formidable task, one finally completed with the edi¬ torial assistance of Earl Harbert (whose ubiquitous green pen has, in the end, failed to expunge this sentence). At the beginning of this project, on my first trip to India, I met a barefoot doctor, Jean Clare Smith, who later became my wife. Over the intervening decade, she has not—praise God—researched, typed, or edited this book. Instead, she has kept for us a joint life indepen¬ dent of both our careers. For that, and for much else, I owe her more than I can say. Dennis J. Encarnation

Tokyo, Japan

Xlll

Dislodging Multinationals

Chapter One

Multinationals and Development

In the international political economy, the year 1973 marked a watershed. Buffeted by a fourfold increase in oil prices and by an unexpected volatility in post—Bretton Woods foreign exchange rates, those nations still in communion with the capitalist world order reached a crucial turning point in their relations with multinational corporations. In country after country, national governments and local enterprises, following a long history of engagement in extractive and service industries, threatened finally to dislodge multina¬ tional manufacturers as the favored purveyors of access to finance, technology, and markets. From Canada to India, from Mexico to South Korea, 1973 brought new government legislation that codified changes in public policies and in corporate strategies.1 So pervasive were these results, especially in the newly industrializing countries of Asia and Latin America, that multinationals servicing domestic—as distinct from export—markets often found it difficult to return to their privileged pre-1973 positions. They had been dislodged. In fact, by successfully dislodging multinationals from growing lo¬ cal markets, government policymakers and corporate managers in newly industrializing countries unwittingly precipitated a global intel¬ lectual crisis. Simply put, few observers anticipated such success: most so-called modernization theorists simply had not imagined economic 1. United Nations, Centre on Transnational Corporations, Foreign Investment Policies and Screening and Monitoring Procedures in Selected Developing Countries (New York, n.d.); U.S. Department of Commerce, International Trade Administration, Investment Climate Statements: Major Trading and Investing Partners (Washington, D.C., April 1981), and Domestic and International Business Administration, Incentives and Performance Require¬ ments for Foreign Direct Investments in Selected Countries (Washington, D.C., January 1978). I

Dislodging Multinationals

growth in the absence of multinationals and other Western influ¬ ences;2 whereas a competing school, the early dependency theorists, did not envision poverty-stricken host countries throwing off the shackles of international capitalism in the absence of violent revolu¬ tions.3 As the received paradigms failed to keep pace with changing realities, a new wave of dependency theorists joined with an emergent faction of bargaining theorists to fill the intellectual vacuum.4 Their consensus (albeit limited) insisted on at least three sets of conditions— local institutional innovations, competition among multinationals, ex¬ pansion of host markets—all required to explain the behaviors of those national governments and local enterprises that had acted to dislodge multinational corporations from domestic industries.5 Yet these necessary conditions still remained insufficient to ensure that multinationals would, in fact, be dislodged. To the contrary; as the new generation of dependency theorists repeatedly reminded us, several additional factors—technological barriers to entry, domestic political alliances, global economic integration—could severely con¬ strain both local enterprises and the state, thus ensuring multination¬ als a continuing dominion over host markets.6 Numerous industry studies supported such claims, and Brazil served as the critical test

2. For the early work of economists concerned with the linkage between domestic and international economies, and with the positive implications of that linkage for develop¬ ment, see Charles P. Kindleberger, Economic Development (New York: McGraw-Hill, 1958), esp. pp. 19-20, 295-380; Gerald Meyer and Robert E. Baldwin, Economic Devel¬ opment: Theory, History, Policy (New York: Wiley, 1957), esp. pp. 204-69, 398-436. 3- Fernando Henrique Cardoso and Enzo Faletto initiated the formal study of depen¬ dency with the publication, in Portuguese and Spanish, of Dependency and Development in Latin America in 1969- An expanded and amended English-language translation (Berkeley: University of California Press) appeared in 1979. 4. Peter Evans pioneered this new approach to dependency with his Dependent Devel¬ opment. The Alliance of Multinationals, State, and Local Capital in Brazil (Princeton: Prince¬ ton University Press, 1979). Earlier, Raymond Vernon had ignited interest in bargain¬ ing with his Sovereignty at Bay: The Multinational Spread of U.S. Enterprises (New York: Basic Books, 1971). 5. For a comparison of these two perspectives on economic performance, see Joseph M. Grieco, “Foreign Investment and Development: Theories and Evidence,” in Theo¬ dore H. Moran, ed., Investing in Development: New Roles for Private Capital? (Washington, D C.: Overseas Development Council, 1986), pp. 44-52. Also see Richard E. Caves! Multinational Enterprise and Economic Analysis (Cambridge: Cambridge University Press, 19^2)> esp. pp. 261—76; Thomas J. Biersteker, Distortion or Development? Contending Perspectives on the Multinational Corporation (Cambridge: MIT Press, 1978). 6. In addition to Evans, Dependent Development, see (in the order of their appearance) Richard Newfarmer, Transnational Conglomerates and the Economics of Dependent Develop¬ ment (Greenwich, Conn.: JAI Press, 1980); Gary Gereffi, The Pharmaceutical Industry and Dependence in the Third World (Princeton: Princeton University Press, 1983); Douglas C. Bennett and Kenneth E. Sharpe, Transnational Corporations versus the State: The Political Economy of the Mexican Automobile Industry (Princeton: Princeton University Press, 1985). 2

Multinationals and Development

case.7 Faced with this research, bargaining theorists contended that local institutions had already overcome these constraints in such in¬ dustries as natural resources and—at least for India (a critical case for them)—technology-intensive manufacturing.8 Despite their obvious differences in theoretical constructs and empirical tests, however, both schools of thought did have something in common. Neither answered a critical theoretical question: Why, over time, have some host countries been successful at dislodging multinationals from local industries while others have not? This question remains central to myinvestigation. To provide my answer, I too turn first to the complex Indian case, which requires some analysis of the changing relations among multi¬ nationals, the state, and local enterprises over forty years of Indian political independence. These relations are later compared with events in Brazil and elsewhere. As a way of explaining the variations observed over time, across industries, and among countries, I present in Chapter i a causal model that determines the sequence of subse¬ quent chapters: by gaining financial independence and managerial autonomy from foreign enterprises (Chapter 2), Indian enterprises also began to secure technology free of foreign capital (Chapter 3); as a result, they acquired control of markets previously dominated by multinationals and other foreigners (Chapter 4). By dislodging these foreigners from domestic industries, local enterprises and the state in India achieved a level of success unknown to their counterparts in Brazil (Chapter 5). But as we shall see, for this success the Indians paid a relatively high price measured in terms of economic per¬ formance. The findings reported in this book, aside from breaking new em¬ pirical ground, have far-reaching implications at the level of theory. Briefly, in contrast to that recent generation of dependency theorists who rely primarily on Brazil and other Latin American countries to verify claims,9 I find in India that local institutions—public and private—managed to increase dramatically both the available range 7. See Gary Gereffi and Donald Wyman, eds., Manufactured Miracles: Patterns of Industrialization in Latin America and East Asia (Princeton: Princeton University Press, forthcoming). 8. For natural resources, see Theodore H. Moran, Multinational Corporations and the Politics of Dependence: Copper in Chile (Princeton: Princeton University Press, 1974); for the extension from natural resources to manufacturing, see Joseph M. Grieco, between Dependency and Autonomy: India’s Experience with the International Computer Industry (Berkeley: University of Galifornia Press, 1984). 9. The new generation of dependency analysis is not limited to Latin America, ot course. For applications to Africa, see Thomas Biersteker, Multinationals, the State and

3

Dislodging Multinationals

of plausible outcomes and the probability of securing their preferred outcome. In India, that is, local enterprises and the state greatly im¬ proved their bargaining power relative to multinationals, and also secured access to finance, technology, and markets often controlled by foreigners. Although my refinements do support the claims of bargaining theorists, these scholars should not feel too sanguine. For contrary to their theory—and in partial agreement with that of their dependency critics—multinationals still have proved able to secure mutually advantageous agreements in their bargaining with these lo¬ cal institutions, both at the point of market entry and during later operations. Moreover, contrary to the claims of both the bargaining and the dependency schools, the increased bargaining power of local enterprises and the state does not necessarily improve a nation’s eco¬ nomic performance, as my later comparison between India and Brazil makes clear. A similar conclusion summarizes my findings in a second useful comparison, this time between India and South Korea. Here, my choice of nations has been dictated by the increasing body of scholar¬ ship amassed to explain multinational investment among newly in¬ dustrializing countries, in terms of their development phases and their national policies.10 That literature advances a central proposi¬ tion: import-substituting industrialization has created a higher level of dependence on foreign direct investment than have exportoriented development strategies. To support this proposition, schol¬ ars have mustered comparisons between Brazil and South Korea, but my alternative comparisons between India and Korea do not agree. Instead, as we shall see, local enterprises and the state in India suc¬ ceeded in both dislodging multinationals from their existing market positions and simultaneously limiting the market access of new entrants all at the height of a national drive for import substitution. Yet Korea s relative economic success demands further explanation, because, as I show, it derives in part from Korea’s ability to enlist a comparatively greater number of multinationals to that country’s ex¬ port drive.

Control of the Nigerian Economy (Princeton: Princeton University Press, 1987). For appli¬ cations to Asia, see Folker Froebel et al., The New International Division of Labour: Struc¬ tural Unemployment in Industrialised Countries and Industrialisation in Developing Countries

(Cambridge: Cambridge University Press, 1981); Martin Landsberg, “Export-Led In¬ dustrialization in the Third World: Manufacturing Imperialism,” Review of Radical Po¬ litical Economics 11 (November i979):50-63. 10. Stephan Haggard, “Foreign Direct Investment and the Question of Dependen¬ cy, chap. 8 in “Pathways from the Periphery” unpublished manuscript, Center for International Affairs, Harvard University, 1988, and “The Newly Industrializing Countries in the International System,” World Politics 38 (i986):343-7o.

4

Multinationals and Development

Within India itself, South Korea’s success has also prompted an ongoing debate over national economic performance. Here again, I offer fresh insights, since much of that debate has dismissed multina¬ tionals as “unimportant” to India’s economic performance—even while conceding (in the words of one of the principal protagonists) that “the fastest growing business groups,” making the greatest con¬ tribution to India’s industrial growth, “have also been the quickest in taking advantage of the recent easing of restrictions on foreign col¬ laborations and in forging links with transnational corporations.”11 ' Indeed, my research and its results speak to that same concession. So cavalier a dismissal of multinationals demands explanation of the con¬ dition it describes: by the 1980s India had dislodged multinationals from domestic industries they had previously dominated, as the na¬ tion achieved an uncommon level of bargaining success.

India and Brazil Compared To measure India’s success, let us examine the market shares of multinationals—a key dependent variable—as those shares differ among countries, vary across industries, and change over time. To begin, let us compare the relative industry positions of the three hun¬ dred largest companies in Brazil and India at two points in time. Here, at least since the early 1970s (and continuing into the 1980s), we see that multinationals consistently held a smaller share of the local market in India than they did in Brazil. Consider the early 1970s. By then, multinationals controlled over one-half of the Brazilian market for chemicals, machinery, and trans¬ port equipment. Not so in India, where local enterprises in both the public and private sectors controlled more than one-half of the large producers in these industries. Only in rubber did multinationals oc¬ cupy a slightly larger position in India than in Brazil. Rather, the market shares of multinationals in a wide range of Brazilian industries—paper, cement, textiles, nonelectrical machinery, trans¬ port equipment—were at least twice as large as the market shares ol multinationals operating in India. Thus, by the early 1970s Indian enterprises had challenged foreign companies in just those industries dominated in Brazil by multinationals, as we see in Figure 1-1. Over the next decade Indian enterprises continued to dislodge multinationals from domestic industries, and so did local enterprises 11. Pranab Bardhan, 1984), pp. 42-43.

The Political Economy of Development in India

(Oxford: Blackwell,

5

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Finance

severely restricted alternative sources of debt and equity. Thus, the state remained the preeminent financier of its own enterprises. While the state preferred to finance SOEs internally, foreigners nevertheless owned equity in 18 of the 202 industrial (nondepartmental) SOEs operating in 1983. And private Indian institutions owned equity in 30.18 The state’s acquisition of a controlling share of private equity in existing corporations explained much of this financial col¬ laboration, especially collaboration with private Indian enterprises. In . addition, minority foreign-owned joint ventures guaranteed imports of raw materials (as in the case of Madras Refineries), facilitated im¬ ports of foreign technology (as in Maruti Udyog’s production of auto¬ mobiles), or improved access to foreign markets (as in Pardip Phos¬ phates).19 With these few notable exceptions, however, the state has remained throughout the history of independent India the sole finan¬ cier of its own entrepreneurship.

Nationalizing Financial Markets

Eventually, the state also emerged as a major shareholder in, as well as the principal lender to, private enterprise—through the control it exercised over the country’s several financial institutions.20 Initially, however, the state shared that control with commercial banks, insur¬ ance companies, and other private intermediaries. Indeed, in 1948, soon after independence, government investment in the banking net¬ work began modestly with a single institution that remained wholly state owned (the Industrial Finance Corporation of India). Only after nearly ten years, in 1955, did the government establish a second de¬ velopment bank (the Industrial Credit and Investment Corporation of India), which combined funds from the World Bank and private Indian sources. Also during the 1950s, the several States added their own financial corporations and development banks to the government-run financial network. Still, public control over India’s financial markets remained limited throughout the first decade of independence. 18. India (Republic), Ministry of Industries, Bureau of Public Enterprises, Annual Report of the Working of Commercial Undertakmgs of the Central Government (New Delhi: Manager of Publications, 1984), pp. 19—20. 19. Aurobindo Ghose, “Joint Sector and ‘Control’ of Indian Monopoly,” Economic and Political Weekly (Bombay), June 8, 1974, p. 906. 20. Goldsmith, Financial Development of India, pp. 163-68, 171-78, 186-90, 200—9; also see, L. C. Gupta, The Changing Structure of Industrial Finance in India (London: Oxford University Press, 1969), esp. pp. 103-6.

41

Dislodging Multinationals

At the outset of the Second Plan (1956-61), Nehru’s government announced its intention to play an even greater role in the allocation of capital for private enterprise: “The state will continue to foster institutions to provide financial aid to the private sector,” according to the Industrial Policy Resolution of 1956: “Such assistance, especially when the amount involved is substantial, will preferably be in formal participation in equity capital.”21 With this mandate, the government embarked on its first wave of financial takeovers, a move that greatly expanded the state’s role in India’s private capital markets. As debate over the resolution continued, the country’s largest commercial bank, the British-owned Imperial Bank of India, was nationalized (1955) and merged with banks owned by the former princely States, to create the State Bank of India. And once the resolution was finally adopted in 1956, all life insurance companies were nationalized and merged into the Life Insurance Corporation of India (LIC). With these ac¬ quisitions, the government revealed its intention to control not only the allocation of financial resources (through debt and equity) to pri¬ vate enterprise, but also the actual mobilization of those domestic savings (in the forms of insurance premiums and bank deposits) pre¬ viously controlled by private financial institutions. Through nationalizations and its own institution building, the gov¬ ernment became a major investor in the country’s private equity mar¬ kets. In 1955, prior to the takeover of LIC and the establishment of a series of development banks, government financial institutions owned just two-tenths of 1 percent of the total equity in nongovernment companies. Yet, as we can see from Figure 2-4, this proportion of shareholdings had risen to nearly 20 percent ten years later, after the government had completed its first wave of nationalizations and es¬ tablished its last development bank (the Industrial Development Bank of India). Government shareholdings continued to increase with the establishment (1964) of a small mutual fund (the Unit Trust of India) and with the hostile takeover (1971) of all property insurance com¬ panies (reorganized as the General Insurance Corporation of India), since trust funds and insurance premiums had been invested in jointstock companies. Thus, through nationalizations and new invest¬ ments, the central government established itself as an important shareholder in ostensibly private enterprise. By 1970 the central government also had established itself as a

21. India (Republic), “Industrial Policy Resolution” (April 30, 1956), para. 10, as reprinted in India (Republic), Planning Commission, Programmes of Industrial Develop¬ ment: 1956—61 (Delhi: Manager of Publications, 1956), p. 43^-

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Figure 2-7. Returns on government equity in private enterprise, 197^ Source: Same as for Figure 2-6.

Managers of state financial institutions could not, however, invest with impunity in large companies owned by business houses, no mat¬ ter how profitable. Indeed, these investments often invoked the wrath of official inquiries concerned with “the concentration of economic power in private hands.’42 To stifle that criticism, state financiers had to demonstrate that their investments also served a larger public in¬ terest, such as the development of industries accorded high pi iorit\ by government. Investments in TELCO and TISCO, for example, satisfied this second objective, since heavy engineering and steel were two of the priority industries in which state-owned industrial enter¬ prises similarly concentrated their investments. So, according to data gathered by India’s central bank and reported in figure 2-8, state financiers invested much more of their equity in private enterprises that operated in nonelectrical machinery and foundaries than they did in the economy as a whole. In addition to heavy engineering and steel, the Industrial Policy Resolution of 1956 identified industrial chemicals and shipping as priority industries. Again, private enterprises operating in these sec42. For example, see Licensing Policy Inquiry, Main Report, pp. 141—80.

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1964 (and nearly one-half in 1961). Foreign financing of technology imports did not again emerge as central to the entry and expansion decisions of Indian industry until the 1980s, and even then bundled licenses approved annually by government regulators did not, as a proportion of all licenses, approach the levels of the early 1960s. In fact, changes in government policy forced this decline of tech¬ nology bundled with capital. Beginning in the late 1960s, in the throes of another foreign exchange crisis, government regulators reversed course and began to limit overseas financing of technology imports in an effort to reduce foreign remittances. (It was widely assumed then in India and elsewhere that technology bundled with capital included more hidden charges than did technology licensing alone.) By 1973 92

Technology

new foreign financial collaborations in Indian industry reached their lowest point in more than a decade (see Figure 3-3). In that year the Foreign Exchange Regulation Act (FERA) codified the government’s preference for foreign technology supplied independently from for¬ eign capital, or at least with less foreign equity attached. Not all enter¬ prises, however, could immediately exert their independence, since— as noted in the previous chapter (Figure 2-10)—unaffiliated enter¬ prises in 1973 depended more heavily than did business houses on foreign financing of technology imports. Among the many Indian business houses, individual reliance on foreign financing of technology imports varied widely. Again, it is instructive to compare the divergent strategies adopted by Tata and Birla, India’s two largest conglomerates and most active collaborators with multinationals: Tata (joined by Mafatlal and Thapar among the ten largest houses) relied heavily on foreign technology bundled with foreign finance (see Figure 2-10). By contrast, Birla (and most other Indian conglomerates) demonstrated a clear preference for foreign technology untied from foreign capital. Indeed, among the top ten houses, Shri Ram became conspicuous for its independence from for¬ eign financing of any type, despite its active pursuit of foreign tech¬ nology.10 To pay for new infusions of such technology, Shri Ram and other Indian business houses secured the lion’s share of governmentdisbursed foreign currency loans, as noted in the previous chaptei (see Figure 2-5). Here, government financing became an important substitute for debt and equity otherwise supplied by multinationals. Also, it facilitated the unbundling of foreign technology from foreign capital in dealings with those multinationals seeking access to the Indian market.

Diversifying Suppliers In addition to Indian government financing, international competi¬ tion among foreign technology suppliers also operated to unbundle foreign technology from foreign financing. In industries with abun¬ dant infusions of new foreign tie-ups, the dependence of Indian en¬ terprise on foreign financing declined very rapidly. Electronics, for example, experienced the greatest infusion of new toreign collabora¬ tions (23 percent annually) between 1973 an l_

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Dislodging Multinationals

collieries, until planned ceilings in targeted capacity were achieved. Not until the mid-1970s did the government move to assert its market position (see Figure 4-3). And in the mining of other raw materials (iron ore, for example), as well as the manufacture of processed in¬ puts (such as steel), private enterprise persisted into the 1980s. As for Schedule B industries in which the 1956 resolution called for the public and private sectors to coexist, and for the government to take a lead role—there, private enterprise enjoyed even greater access, as it continued to account for the bulk of national production. Thus, the segmentation of the Indian market into public, private, and mixed sectors restricted—but did not eliminate—market access by private enterprise. Nevertheless, during the 1970s the state did threaten to upset this balance by reversing its earlier reluctance to engage in hostile take¬ overs of existing producers. As we saw in Figure 4-2, nationalizations expanded from the mining of new raw materials (copper, coal), to processed inputs (iron and steel), to industrial intermediates (steel products, machinery), to a variety of consumer goods (leather, tex¬ tiles, bicycles). Upstream, for example, the nationalization of private collieries increased the public sector’s share of coal production from 17 percent in 1969 to 97 percent in 1974 (see Figure 4-3); and the state’s share of copper production grew from nothing to a complete monopoly in 1974.11 Downstream, as well, the government Finally consolidated its already dominant market position (in steel, for exam¬ ple), further integrated vertically its production (in machinery), and diversified horizontally into entirely new markets for state enterprises (in leather goods). Through such nationalizations, complemented by new investments, the state directly challenged the existing market shares of private enterprise. And the state further established itself as a viable alternative to both multinationals and those local industrial conglomerates seeking to operate in the protected and segmented Indian market.

Indian Business Houses

Before the expansion of SOEs, business houses held reign over the Indian market by first integrating and then managing an everexpanding number of diversified enterprises. Among India’s seventy11. Centre for Monitoring the Indian Economy, Economic Intelligence Service, Pub¬ lic Sector in the Indian Economy (Bombay, July 1978), p. 32, Table 3.5.

132

Markets

five or so business houses at independence, Birla diversified the most, operating more than a hundred companies in all sectors of the econo¬ my: from plantations (for coffee, jute, and tea) to processed foods, from mining to smelting, from machine tools to textile machinery, from textiles to garments, from electrical and engineering goods to automobile assembly, from chemicals to paper mills to newspapers. By contrast, Tata controlled fewer, less diversified companies, but that house also integrated its affiliated enterprises. Tata Engineering (TELCO), the second-largest corporation in the private sector, for example, bought most of its steel from another Tata affiliate (TISCO), at independence India’s largest corporation. In a similar but more narrowly defined pattern of integration, ACC amalgamated eleven formerly independent cement companies and related machin¬ ery manufacturers. To control the Indian market, business houses coordinated buyers, suppliers, and potential competitors in a single conglomerate. Even after SOEs began to flex their muscles in the Indian market, a few business houses, aided now by state financial institutions, man¬ aged to retain their market position. According to an official govern¬ ment commission, three private producers controlled, during 1963, more than 75 percent of the market in nearly all (1,133) of the (1,170) products surveyed.12 In over one-third of these products, a single private producer controlled the entire market. Birla, for instance, controlled nearly two-fifths of the Indian market for automobiles, aluminum, refrigerators, and most paper lines in 1963.13 A single Tata affiliate (TELCO) produced nearly two-fifths of all transport vehicles sold in India. And ACC’s affiliated companies supplied onethird of the market for cement products and related machinery. By controlling giant shares of the Indian market, these business houses helped to reduce India’s imports of processed inputs, machinery, and consumer goods (see Figure 4-1). To operate in many different markets simultaneously, we saw in Chapter 3, business houses had to secure technology from several sources. As a beginning, the acquisition of former colonial agencies brought with it mature technologies in textiles and other industries in which Indian enterprises had long exercised peculiar advantages. Then, soon after independence, business houses supplemented these 12. India (Republic), Ministry of Finance, Report of the Monopolies Inquiry Commission, vol. 1 (New Delhi: Manager of Publications, 1965), Appendix C, Statement 1, pp. 225—

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Dislodging Multinationals

modest resources with product and process innovations licensed from multinationals, based principally in Britain and then the United States. Once licensed, these innovations underwent extensive modi¬ fications, in response to local conditions; in fact, such modifications often supplanted the original technology, as did growing investments in local R&D. Of course, each of these sources of technology helped to enhance the market position of Indian business houses and to chal¬ lenge the comparative standing of both existing multinationals and emergent state enterprises. In addition, the continued dominance of Indian business houses— along with their several financial, technological, marketing, and man¬ agerial resources—exerted special influence in all subsequent bar¬ gaining over access to the Indian market. In particular, government regulators felt compelled to grant licenses to enterprises controlled by private industrial conglomerates as a means of satisfying many of their own objectives. Yet, in their dealings with business houses, these government regulators were never powerless. Quite the contrary: as the state tightened its antitrust legislation by enacting the Monopolies and Restrictive Trade Practices (or MRTP) Act of 1969, regulators encouraged business houses either to expand in those industries al¬ ready accorded high priority by government or to move overseas and earn additional (scarce) foreign exchange, which the state also re¬ quired. As a result, state regulators and Indian business houses grew highly interdependent, a symbiosis that benefited greatly from the political skills of India’s industrialists.

Securing Licenses: The 1950s and 1960s To secure government licenses and—equally important—to block competitors from obtaining such licenses both required some exercise of political skills, so the larger business houses maintained specialized ‘‘industrial embassies” in New Delhi, often run by former civil ser¬ vants or military officers.14 Smaller business houses and large inde¬ pendent companies used their sales or public relations offices in New Delhi to perform similar, albeit more limited, functions. By contrast, those enterprises with fewer financial and managerial resources, and located far from the capital, found it more difficult to conduct lengthy and repeated negotiations, requiring reams of data and cor¬ respondence, with the dozen or more regulatory agencies (in the 14. Stanley A. Kochanek, Business and Politics in India (Berkeley: University of Califor¬ nia Press, 1974), esp. pp. 289-91, 295-96.

Markets

central government alone) which typically exercised some control over licensing.15 Overall, in dealings with regulatory agencies, Indian business houses proved politically effective: Between 1956 and 1966, for example, the twenty largest business houses secured nearly onefifth of all government-approved licenses, according to data gathered by official parliamentary inquiries and summarized in Figure 4-4. The two largest houses, Tata and Birla, together secured nearly onetenth of all government approvals to initiate or expand productive capacity. No other business house secured so much as 1 percent of these government-approved licenses. Here we can see that Tata and Birla employed fundamentally dif¬ ferent strategies in pursuit of government licenses. On the one hand, Tata submitted far fewer applications for licenses and secured a much higher percentage of approvals—testimony to the skills of its indus¬ trial embassy.” By contrast, Birla inundated government regulators with applications for licenses, many of which government rejected. This low rate of approval reflected, in part, Birla’s early submission of multiple applications for the same opportunity to expand in the do¬ mestic market. The decision rules adopted by government regulators often encouraged this practice, by granting licenses in sequence with the date of application (first-come, first served) until regulators achieved planned ceilings in targeted capacity in an industry.16 By deftly responding to government regulators, Birla received more than twice as many licenses to enter the Indian market as did Tata, and nearly one-fifth of all licenses secured by India’s seventy-three large business houses (see Figure 4-4). Indeed, Birla’s organizational capacity to respond to government at every level, from the lowest administrator to the prime minister, ex¬ ceeded that of any other business house. In addition to its ‘industrial embassy” in New Delhi, Birla also dominated several industry associa¬ tions (e.g., textiles) actively involved in government advisory bodies. Birla’s control over these associations also gave it a powerful position in regional chambers of commerce (e.g., the Calcutta Chamber, rep¬ resenting much of eastern India) which, in turn, exercised much in¬ fluence over the Federation of Indian Chambers of Commerce and Industry (FICCI). As India’s preeminent (but not its only) national business chamber, FICCI enjoyed formal access to nearly all levels of

15. Dennis J. Encarnation, “The Indian Central Bureaucracy: Responsive to Whom?” Asian Survey 19 (November 1980): 1126—45. 16. For the operation of these decision rules, see Bhagwati and Desai, India: Planning for Industrialization, pp. 258—59, 269-72.

Dislodging Multinationals 100

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government policymaking. And its secretariat, the largest of any busi¬ ness association in India, actively engaged in examining and debating bureaucratic regulations and parliamentary legislation. Birla and the Calcutta Chamber were instrumental in the founding of FICCI, and they long influenced its secretariat. (Tata, by contrast, dominated the Bombay Chamber representing much of western India but never participated actively in FICCI.) Naturally, through FICCI plus a host of regional chambers, industry associations, and its own “industrial embassy,” Birla enjoyed multiple points of access to government policymaking.17 Political contributions, channeled directly to prospective ministers or indirectly through party bosses, provided Birla and other business houses with additional access to policymaking. Long before indepen¬ dence G. D. Birla began to bankroll much of the independence move¬ ment, and he enjoyed a special relationship with Mahatma Gandhi and other nationalist leaders.18 After independence, however, new

17. Kochanek, Business and Politics, esp. pp. 97-106, 131-41, 170—85, 274-78; also see S. R. Maheshwari, Government Through Consultation: Advisory Committees in Indian Government (New Delhi: Indian Institute of Public Administration, 1972). 18. G. D. Birla, In the Shadow of the Mahatma (Bombay: Orient Longman’s, 1955), esp. p. 48.

136

Markets

restrictions limited (legal) company contributions to expenditures re¬ corded in annual reports. Through 1969, these expenditures ac¬ counted for nearly 90 percent of all campaign financing reported to India’s election commission.19 During the critical elections of 196768 (when the Congress Party, for the first time in its history, lost a substantial number of seats in Parliament and several State assem¬ blies), these contributions became critical to success. According to data gathered by Parliament, nearly four-fifths of all recorded com¬ pany contributions during that election went to the ruling Congress Party.20 And, again, Birla stood forth as the Congress Party’s largest contributor.21 In sharp contrast to Birla, according to these data, Tata remained conspicuous for its large contributions to the Swatantra (Freedom) Party, India’s first political organization devoted almost exclusively to the curtailment, if not elimination, of the “license, permit, quota Raj.”22 Tata and a few other Bombay business houses became instru¬ mental in the establishment of the Swatantra Party during 1959 and even earlier, during 1956, in the founding of its predecessor, the quasi-educational Forum for Free Enterprise.23 Subsequently, most major Swatantra supporters—like Tata—relied extensively on for¬ eign financial and (especially) technological collaboration to grow.24 Yet these resources proved insufficient to cast Swatantra as a serious challenger to the Congress Party in national politics. Nevertheless, Swatantra did periodically assume control over State governments,

19. Kochanek, Business and Politics, p. 232; A. H. Somjee and G. Somjee, India, Journal of Politics 25 (March 1963): 251—66. 20. India (Republic), Parliament, House of the People, Debates, 4th Lok Sabha (April 22, 1969), pp. 52-54. 21. Ibid. During the 1967 elections, of the Rs 9.6 million contributed by India’s seventy-three large business houses (and formally reported in their annual reports), Birla contributed Rs 1.7 million—nearly all of which (98.8 percent) went to the Con¬ gress Party. 22. In fact, the term “license-permit-quota Raj” was first termed by the Swatantra Party’s founder, C. Ragagopalachari; see his Licensing Power in India (New Delhi: S. Chand, 1980), esp. pp. 3, 27. 23. Howard L. Erdman, The Swatantra Party and Indian Conservatism (Cambridge: Cambridge University Press, 1967), pp. 46-71. 24. During 1956-66 Tata sought foreign collaboration in 52 percent (93 of 198) of all government-approved licenses to establish and expand industrial capacity. As for other Swatantra supporters, the comparable ratio lor Bajaj was 37 percent (20 ot 54); tor Khatau, 38 percent (8 of 21); for Scindia, 57 percent (4 ot 7); for Walchand, 64 percent (34 of 53). In fact, during 1956—66, Tata, Walchand, and Bajaj were ranked second, fourth, and eighth, respectively, among active collaborators with multinationals. See Subhendu Dasgupta, “Trend and Pattern of foreign Collaboration in Indian Business Houses: A Quantitative Analysis” (unpublished manuscript, Department of Economics, University of Calcutta, March 1978), "fable 5, pp. 13—15 (based on unpublished data gathered by the Industrial Licensing Policy Inquiry Committee, cited in n. 7 above).

Dislodging Multinationals

and following the 1967 elections it led the Congress opposition in Parliament.25 By continuing its support of Swatantra, Tata recorded its long-standing opposition to government policies. But Tata never carried that opposition to an extreme;26 the Congress Party still re¬ mained the largest recipient of Tata’s campaign contributions.27 By channeling most campaign contributions to the Congress Party, Tata and other business houses hoped to improve their chances of securing government licenses and other largess. Occasionally, business houses joined together to finance the cam¬ paigns of politicians sympathetic to their position. ACC and Khatau, for example, owned the two largest amalgamations of cement pro¬ ducers, and they dominated the Cement Manufacturers Association. When the government sought to increase cement production during the late 1960s, ACC and Khatau, through their industry association, successfully advocated the decontrol of cement prices, as well as pri¬ vate control over the quasi-governmental body subsequently estab¬ lished to monitor sales and distribution. This new body received a small commission from the government for its management services, which it then used illegally to finance the campaigns of politicians who supported the continued decontrol of cement prices.28 In the process, industry oligopolists behaved like political oligarchs, transforming business associations into political organizations.29

25. And in 1977 Swatantra was awarded the finance portfolio in India’s first coalition government. See Dennis J. Encarnation, “A Rationalist Theory of Collective Action and the Policy Process: Capital-State Relations in India” (Ph.D. diss., Duke University, 1980), Table 6-2, p. 216; reprinted in Joseph M. Grieco, Between Dependency and Autono¬ my (Berkeley: University of California Press, 1984), Table 20, pp. 144-45. 26. Except for periodic flirtations, Tata and other Bombay houses actually preferred to stay aloof from Congress politics both before and after independence. See Stanley Wolpert, A New History of India (New York: Oxford University Press, 1977), pp. 276, 301; also see Claude Markovits, Indian Business and Nationalist Politics, 1931—1939: The Indigenous Capitalist Class and the Rise of the Congress Party (Cambridge: Cambridge University Press, 1985), esp. pp. 37, 76, 111, 178. 27. During the 1967 elections, of the Rs 0.8 million contributed by Tata (and formally reported in its companies’ annual reports), two-thirds went to the Congress Party, while another one-third went to the Swatantra Party; see Parliament, House of the People, Debates, pp. 52-54. 28. The Cement Allocation and Coordinating Organization contributed Rs 3.4 mil¬ lion to the 1967—68 parliamentary elections, of which the largest proportion (43 per¬ cent) went to Swatantra Party politicians who advocated the total elimination of price controls. For further details, see S. N. Shrinivasan, Party and Democracy in India (New Delhi: Tata McGraw-Hill, 1977), p. 309; Kochanek, Business and Politics, p. 236, 25355; and India (Republic), Parliament, House of the People, Debates, 4th Lok Sabha (November 23, 1967), pp. 237-38. 29. For another example, this time among business houses in Gujarat, see Howard L. Erdman, Political Attitudes of Indian Industry: A Case Study of the Baroda Business Elite (London: Athlone Press for the University of London Institute for Commonwealth Studies, 1971), esp. pp. 39-41.

138

Markets

Outside of national politics, business houses with a strong regional base also turned to the several State governments for political sup¬ port. Most State banks and development corporations, for example, actively sought government licenses to establish joint ventures (other¬ wise known as joint-sector projects) with private entrepreneurs, espe¬ cially in textiles, sugar, and other industries vitally important to local employment (see Figure 2-8). In their selection of partners, State financial institutions strongly preferred Indian business houses, with which the States shared equity ownership but not managerial control. Most State financial institutions preferred to leave day-to-day management to the project’s private partner and then to use Stateappointed directors for securing government licenses, governmentsupplied services (notably, electricity and rail transport), and addi¬ tional government financing (especially foreign currency loans).30 The demonstrable success of business houses in gaining access to government and in securing government licenses prompted several parliamentary investigations into the functioning of the industrial licensing system.31 All of these inquiries concluded that the system was permeated with a number of biases that favored large business houses such as Birla. During 1969, following these inquiries and a high tide of populist sentiment, the government abolished managing agencies, nationalized nine large commercial banks, outlawed com¬ pany contributions to political campaigns, and enacted wide-ranging monopolies legislation (the MRTP Act). While all of these actions complicated subsequent efforts by business houses to secure govern¬ ment licenses, the monopolies legislation, in particular, seriously threatened all future expansion of business houses in the Indian market.

Securing Licenses: The 1970s and 1980s In the views of most Indian industrialists, the MR I P Act of 1969 represented the most serious threat since independence to their con¬ tinued market access. The act required that companies register with the newly created Monopolies Commission if: (1) their assets exceed-

30. Samuel Paul et al., “Joint Sector: Guidelines for Policy,” Economic and Political Weekly (Bombay), December 9, 1972, pp. 2416-17. 31. The most important of these included the Mahalanobis Committee (1960—64), the Monopolies Inquiry Commission (1964-65), the Planning Commission study of industrial licensing done by R. K. Hazari (1966-67), the Parliament’s study of indus¬ trial licensing done by its Estimates Committee (1966-67), the Administrative Reforms Commission study of economic administration (1967), and the Industrial Licensing Policy Inquiry Committee headed by P. Dutt (1967-69).

Dislodging Multinationals

ed Rs 20 million; (2) they were financially interconnected with com¬ panies of that size; or (3) they sold more than 60 percent of any product or service produced in India. The act next required com¬ panies that satisfied these criteria, the so-called MRTP companies, to secure special government permission to expand production substan¬ tially, or to establish productive capacity in new product lines. The act also empowered the government to investigate the operations of reg¬ istered companies when it suspected that these companies impeded domestic trade or had otherwise violated their industrial licenses. Fi¬ nally, the act called upon the government to identify those industries “open” to MRTP companies, industries to be accorded high priority by government regulators evaluating proposals for expansion or new investment. In each of these ways, then, the MRTP Act sought to increase government’s control over the access of industrial conglome¬ rates to the Indian market. While lobbying with the Monopolies Commission for special dis¬ pensations, Indian business houses frequently secured the support of other government agencies. A principal ally proved to be the government-appointed secretary for each industry’s advisory council, a body dominated by industry oligopolists. That secretary was typ¬ ically the senior administrator within the Directorate General for Technical Development (DGTD) charged with regulating technology imports and granting production clearances in that industry. Fre¬ quently, this DGTD administrator shared the perspective of an indus¬ try’s largest producers: Between 1971 and 1977, for example, of the thirty-six applications referred to the Monopolies Commission, only two encountered objections from the senior administrator within the DGTD.32 By contrast, the Directorate General for Small-Scale Industry, a separate agency, objected to all eighteen applications that

32. The advice of various government agencies—as well as of the applicant’s com¬ petitors, suppliers, and buyers—appears in reports prepared by the Monopolies Com¬ mission, which carefully investigated only a few of the licensing applications submitted by MRTP companies. In fact, between 1971 and 1978, the government sought full reports from the commission in the thirty-six cases discussed here; the remaining cases, the government felt, did not merit such detailed evaluations. For titles and case descrip¬ tions, see the various annual reports of the Monopolies and Restrictive Trade Practices Commission; the best compendium is India (Republic), Ministry of Law, Justice and Company Affairs, The Fifth Annual Report Pertaining to the Execution of the Provisions of the M.R.T.P. Act, 1969 (Faridabad: Manager of Publications, 1977), pp. 35-36. A member of the Monopolies Commission during this time, H. K. Paranjape, reviews the most important cases in his “Industrial Growth with Justice—India’s Strategy,” in Charan D. Wadhva, ed., Some Problems of India’s Economic Policy (New Delhi: Tata McGrawHill, 1977), pp. 325-55. For further details, see Encarnation, “A Rationalist Theory: Capital-State Relations in India,” pp. 110-13.

140

Markets

threatened the market position of its own constituency, firms with scant financial and managerial resources to influence government regulators. By successfully lobbying government regulators, Indian business houses continued to secure access to the Indian market. Again, Birla’s success stood out: Between 1971, when the Congress government issued its first MRTP order, and 1977, when that Congress govern¬ ment toppled, MRTP companies controlled by Birla secured licenses for nearly one-sixth of all new investment sought by all MRTP com¬ panies, according to the data summarized in Figure 4-5. To secure these licenses, Birla continued to rely on its familiar strategy: It inun¬ dated government regulators with multiple applications, recognizing that government would reject a large proportion of these applications (more than two-fifths). By contrast, Tata continued to submit fewer applications than did Birla (see Figure 4-5), while securing government approval for nearly four-fifths of its smaller total. These new approval rates actually com¬ pared favorably with Tata’s success during the 1950s and 1960s (see Figure 4-4). As a result, between 1971 and 1977 Tata secured the same number of government approvals as did Birla—testimony to the continued skills of Tata’s “industrial embassy.” That “embassy,” for example, organized TELCO’s suppliers, mostly small-scale enter¬ prises, into a business association, which subsequently made separate representations before the Monopolies Commission and other regula¬ tory agencies, endorsing TELCO’s applications for expansion.33 As a result, Tata neutralized one of its principal opponents within govern¬ ment, the Directorate General for Small-Scale Industries. Even though Birla proved less successful than Tata in shepherding its applications through India’s bureaucratic labyrinth, Birla nonethe¬ less overcame this disadvantage by submitting multiple and early ap¬ plications for large projects designed to corner a considerable amount of targeted capacity. In fact, each successful Birla application entailed sizable investments—up to four times the amount of those by Tata. Birla’s assets therefore grew 12.5 percent compounded annually be¬ tween 1969 and 1977, faster than the growth in Tata’s assets (and faster than the growth in the corporate private sector as a whole).31 33. H. K. Paranjape discussed these activities in interviews held during 1977-78 and in a dissenting opinion before the Monopolies Commission. See India (Republic), Mo¬ nopolies and Restrictive Trade Practices Commission, “Report on Tata Engineering and Locomotive Company Request for Substantial Expansion in Manufacture of Com¬ mercial Vehicles” (mimeographed, 1971). 34. Birla’s assets in 1969 were Rs 4.2 billion, according to the government; see Rakesh

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C5t £ o 4 72_73> 80, 126-29, 139,

196, 206 Baran, Paul A., 27n Bardhan, Pranab, 5n, 14, 19, 25, 177, i78n, 204, 212-13, 217, 225 Bargaining: over access to finance, 10-12, 36, 46, 65, 76-81 over access to markets, 14—15, 30,

123> i34> i52> i69-75 over access to technology, 12-13, 18, 29-30, 85, 102, 107, 115-20 between business houses and multina¬ tionals, 188—93 economic efficacy of, 24-25, 178, 202-4, 211—15, 225 between multinationals and the state, 180-84 as mutually beneficial (positive-sum) game, 4, 24, 53-55, 78> 80-81, 117, 119-20, 171-75, 182-83, 186-87 obsolescence in, 13, 23-24, 30, 120, 181, 191, 217-18 power defined, 4, 19—20, 118, 120, 21911 process of, 20—27, 179 between the state and business houses, 184-88 three-stage model of, 3, 8, 76-81, 178-79, 216, 224-25 as zero-sum game, 24, 36-37, 47, 88, 1240—2511, 143, 145, 161, 171, 185 See also Bargaining theory; Dependen¬ cy theory; Dependent development Bargaining theory, 4, 7-8, 19 227

Index Bargaining theory (cont.) Brazil and,

Bureau of Public Enterprises, 3gn—4 m,

177

critique of, 4,

i3on

ign-2on, 24-26,

177-

Burroughs Computers, 71,

78, 217-20, 222-25 India and, 3, 23,

23-25,

13,

15,

18-19,

176-77

Business houses; theo¬

economies of scale in, 77, 99,

financial assets of, 45-47, 90,

43, !45n> 194-96,

x

141,

207-9

foreign financing of, 57-64, 71, 91-

Bengal Chamber of Commerce, Bennett, Douglas C., 2n,

156

95. 155-56,

i7n, 22, 23n-

Bergsten, C. Fred,

100, 130

117-18,

i37n

industrial licensing of,

Bhagwati, Jagdish N., 36n, 47n, 52n,

1240—250, 1350 Bhatt, V. V.,

167-68

foreign technology in, 63, 85-95, 97,

25n, 216, 2i8n

134—36,

io6n

84-85,

Bilateral monopoly, 24,

116,

Bird-Heilgers group, 63-64, 108,

170, 217-18, 223-25

116,

119’ 147-51. 172-73. 197 152

136,

184

local R&D by, 95-98,

marketing skills of,

financing of, 47-50, 52, 61-63, 8384

170-72 19,

134,

155-56,

133,

158-59,

nationalization of, 41, 45—46,

Bombay Chamber of Commerce,

198-

201

141-48 technology in, 29-30, 85-90, 93,

116,

170-72 market shares of,

133-37,

118-19

managerial skills of, 45, 83-84,

134.141.155-56, 184-92, 217

market access by, 98-99,

17, 45, 77,

joint ventures abroad by, 98-100,

i7gn-8on

Birla, G. D., 28-29, 76-77,

139—

47 as institutional innovations,

Biersteker, Thomas J., 2n~3n

101

136

Bombay Plan (of 1944), 28n, 29, 76, 80,

7on, i73» l84

i

126-27,

!73 as political organizations, 134-41,

19, 25, 88,

150-51, 220-21, 225

state financing of, 46-57, 61-62, 90,

Brazil:

93

compared to India, 3, 5-8, 14-18, 22, 31,

176-78,

11 — 12,

193-204,

compared to Korea, 4, 18, 22, 31,

177,

193,

11-12,

14-16,

11-12, 203 10—11,

193-

198-202

multinationals in, 5-13, 13-17, i8n,

194-202, 223 196—98

Bargaining

See

Foreign direct

Capital goods industry, 84, 88-90, 108,

See also See also

ITC

Bureaucratic behavior, 2on-2in

228

licensing

124,

128-29,

148,

150,

101,

155,

Machinery industry

Capitalism,

See

Industrial

71_73. i87

Great Britain

British-American Tobacco.

See

1

cy theory

See also

1

investment

194-202

Bargaining theory; Dependen¬

See

135—

36

Capital controls.

markets in, 5-7,

See also

individual

i47n

Capacity licensing.

17—20,

95, 201, 223

technology in,

Busjeet, Vinod,

Canada,

193-96

local business groups in,

the state in,

cal private enterprise;

Calcutta Chamber of Commerce,

economic performance of, 202-4

finance in,

Bargaining; Brazil; Korea; Lo¬

199, 203-4,

213, 221-25

exports by,

See also

business houses

215-16, 222-25

Britain.

116,

170-72, 209, 212, 224-25

155

Birla group,

Brazil; Business

houses; Korea, Republic of

Baumol, William, 27n

170,

See

Business groups.

See also Bargaining; Dependency ry; individual authors Barriers to entry. See Bargaining Bechtel,

167-

69

177, 215

predictions of, 2-3,

1130,

1-2

Private capitalism; State

capitalism Caporaso, James A., 25n, 2i8n-i9n Cardoso, Fernando Henrique, 2n, gn

Index Caves, Richard, 2n,

Daimler-Benz, 57, 61, 84, 98

i2n

Cement Allocation and Coordinating Organization,

i38n

- ,

- ,

3°-33>

i

in Brazil and India,

Dasgupta, Subhendu, 870,

101 n,

Data General Corp.,

114

ii3n,

Departmental enterprises.

157-59

143 44

138,

,

54 55 99

Cement industry,

Dalmia-Jain group, 58

— ,

5 7

See

i37n

State-

owned enterprises

200-201

Cement Manufacturers Association,

138,

Department of Electronics,

io6n,

ii2n,

i68n—6gn

x57 Central economic planning, 53—55> 79’

101’ 123’

See also State Chaebol. See Korea,

15, 35-41,

126-32,

185

Republic of

bargaining and,

19, 22-25

Brazil and, 2—3,

176, 216

critique of, 3-4,

i9n-2on, 24—25, 27,

176-78, 215-17, 220-25, 2ign,

Chemical industry: in Brazil and India, 5-6,

198—200

financing of the, 39, 53-57, 63-64

market access to the, 152-54,

124-25,

158-63,

technology in the, 94-97,

22m predictions of, 2-3, 7, 9-10, 16, 22-27,

in Korea and India, 208—10

143-44,

Dependency theory:

132-33,

189-90

101,

108—

See also

12,

14,

176, 218-19

Bargaining; Bargaining theo¬

indi¬

ry; Dependent development;

vidual authors Dependent development:

11 Cheng, Tun-jen,

i2n, 2o6n, 2ion—lin

Chesebrough-Ponds, 71, 75,

and bargaining, Brazil and,

165

Chowgule group, 63

causes of,

Ciba-Geigy, 69,

defined,

166

Coal industry, 35,

122,

127-32,

173,

Coca-Cola, 73,

10 176,

i77n,

193, 216

Bargaining; Bargaining theo¬

Desai, Padma, 36n, 470, 52n,

Cole, David C., 2050

io2n,

i24n-25n, 1350

165

Collaboration agreements.

See

Bargain¬

See State financial individual banks

Development Banks. institutions;

ing; Joint ventures; Technology

Deyo, Frederic C., 2o6n

licensing Collective benefits, 21, 25—26,

179,

187,

Digital Equipment Corp.,

ii3n

Directorate General for Small-Scale In¬

219—20, 225 and logic of collective action, 26-27,

dustries,

141

Directorate General of Technical Devel¬

172-73,187, 214-17

See also

16

ry; Dependency theory

165

Colgate-Palmolive,

178, 216

12—14,

India and,

See also

187

10,

10

Economic nationalism; Private

opment (DGTD), 62n-63n, 9411, io3n,

capitalism; State capitalism Commerce Research Bureau, 390—4on

See Banking industry vehicles. See Transport

140

Downs, Anthony, 2111

See

Commercial banks.

Drugs.

Pharmaceutical industry

Commercial

Dutt Committee.

See

Industrial Licens¬

ing Policy Inquiry Committee

equipment industry “Comprador bourgeoisie,” 27 Computer industry, 23, 166-69,

113-15,

i22n,

137-38,

128-32,

144-45,

111,

162-63,

121 — 188,

3>

12

167,

197 Soviet Union; Technology

East India Company, 28, 32, 34 Economic efficiency,

See also

202

See also individual industries Control Data Corp.,

io6n,

Copper industry, 23,

129

Corruption, 88n, 90,

138

Cotton textiles.

See also

102-4,

licensing

192

Consumer goods industry, 47, 25,

Eastern Bloc countries, 183,

177»218

Congress Party, 27-28, 187,

106,

See

1 1311

Textiles industry

12411-2511, 214—15

Bargaining

Economic nationalism, 26, 76-77, 80, 115-16,

See also

170,

184-85, 218-21

Bargaining; Collective benefits

Economic performance, 202-05, 211 —

15

229

Index Economic Times (Bombay), 150 Economies of scale: and bargaining, 20—22, 25, 179, 219, 224-25 See also Business houses; State-owned enterprises Efficiency. See Economic efficiency Eldridge, P. J., 47n, io2n Electrical equipment and machinery. See Computer industry; Electronics in¬ dustry; Machinery industry Electric power industry, 35, 38-39, 101, 122, 128-29, 131. 139 Electronics Corporation of India (ECIL), 106 Electronics industry, 73, 76, 93-95, 112-15, 128-29, !33> J44> l57> 166-69 in Korea and India, 209-10 See also Computer industry; Machin¬ ery industry Employment, 10, 19, 55, 96, 104-5, 109, 121-22, 131, 139 Emmons, Willis, i28n-29n Engineering goods, 39, 53, 99, 101, 11 in, 116, 128, 133, 149, 160 See also Machinery industry Equipment industry. See Machinery industry Equity. See Social equity Erdman, Howard L., 56n, 1370-380 Escorts, 450 Ethiopia, 98, 15m Europe, 130, 104 See also Multinationals; individual countries Evans, Peter, 2n, 10, i2n-i3n, 15, i8n, 22n, 25, 27, 176, 1770, 193, 1940g8n, 2i5n, 216-17 Export processing zones, 166-67 See also Exports Exports: promotion of, 11-12, 14, 16, 148—50, 163-68, 182, 210-13 restrictions on, 96, 100, 109, 113—14, 117, 170 value of, 11 — 12, 113, 211 — 12 Fabricated metals industry, 54, 74, 12829. J54> 157-6o, 167 in Brazil and India, 6—7, 200—202 See also Steel industry Faletto, Enzo, 2n, gn Federation of Associations of Small In¬ dustries of India, i56n~57n

230

Federation of Indian Chambers of Com¬ merce and Industry (FICCI), 28n,

i35-36» 15°. 156 Fertilizer industry, 47, 56—57, 102, 108, 128-31, 152 Finance Ministry, 47, 52n Food industry, 47, 124—25, 128—29,

131. 152-55. 163. 165. 189-9° See also Agriculture; Plantations Ford, 203 Foreign aid, 11, 16, 79, 206-7 Foreign branches. See Multinationals Foreign debt, 9, 11, 15-16, 47-48, 6163, 66—67, n6. 182, 211 Indian attitudes toward, 15-16, 2829

See also Foreign direct investment Foreign direct investment: disinvestment and, 11, 62, 210 foreign debt and, 8-9, 16, 66—67 foreign equity and, 8-9, 65-67, 76,

83 by Indians, 18, 98-100, 119, 147—51,

. .

153 173 197 regulation cross-nationally of, 14-15, 198-99. 204 value of, 11, 60, 66, 76, 209 See also Multinationals; Technology licensing Foreign exchange, 121 allocation of, 47-48, 61-62, 93, 139 controls, 47, 92 crises, 29, 47, 59-60, 78, 86, 91-92, 107, 116, 122-24, 153, 174 See also Foreign Exchange Regulation Act Foreign Exchange Regulation Act (FERA): foreign investment and, 61-62, 6578, 81, 181, 188, 199, 210 foreign technology and, 92-93, 97, 109-12,118-20 market access and, 144, 150, 160-69, 174-75 Foreign portfolio investment, 33 See also Managing agencies Foreign subsidiaries. See Multinationals Foreign technicians. See Technology licensing Forum for Free Enterprise, 137 France, 13 Frank, Andre Gunter, gn Frankel, Francine R., i22n Froebel, Folker, 4n Furtado, Celso, i4n

Index Gabriel India, 68—69 Gandhi, Indira, 57n Gandhi, Mahatma, 28, 136 Gandhi, Rajiv, i77n General Insurance Corporation of India (GIC), 42-43, 51, 54, 72 General Motors, 203 Gereffi, Gary, 2n~3n, 7n, ion, i2n, ign, 22n, 23, 25n, 216, 2ign Germany, West, 57, 75, 118 Gerschenkron, Alexander, i3n Ghana, 15m Ghose, Aurobindo, 4m, 5on, 52n, 55m56n,i55n Ghosh, P. K., 550 Goenka group, 6in Goldsbrough, David J., gn— ion, i6n Goldsmith, Raymond W., 32n-34n, 4m, 4311-4511 Goyal, S. K., i46n, i62n Great Britain: enterprises from, 13, 32-33, 42, 45, 57~59> 64-65, 75-77, 82-84, 1078, 116, 118, 121, 127, 134, 151-52, 156, 170-71, 188, 207 legacies of, 31-34, 101, 122, 205 and the “Raj,” 28, 34, 82, 180 See also Managing agencies Grieco, Joseph M., 2n—3n, 130, ign, 22n, 23-25, 68n, 1140, 1380, 177, i97n, 2150, 217—18 Gross domestic product (GDP), 202-5, 211—12

See also Economic performance Gross national product. See Gross do¬ mestic product Grupos multibilionarios. See Brazil Guisinger, Stephen, i4n Gujarat, 55-56 Gujarat State Fertilizer Corp. (GSFC),

56-57

Hindustan Lever. See Unilever Horst, Thomas, 130 Hoselitz, Bert F., ion Hyundai group, 207—8 IBM, 68, 73, 75, 118, 165—66, 168 ICI. See Imperical Chemicals ICL. See Imperial Computers Ltd. Imperial Bank, 32—33, 42-43, 127 Imperial Chemicals (ICI): finance of, 48, 63—66, 71, 73 market access by, 136, 152—53, 16062 technology in, 89, 107—9 Imperial Computers Ltd. (ICL), 68, 75, 1130, 166 Import-substitution, 4, 8, 14, 16, 29, 124, 177, 193, 221-22 See also Imports Imports: licensing of, 14, 88—90, 113—14, 122— 26, 175, 180, 209 market shares of, 124-27, 133 value of, 11, 14, 16, 89 Independent companies. See Local pri¬ vate enterprise Indian business houses. See Business houses Indian Institute of Foreign Trade, g8n, i47n,i64n Indian Institute of Public Opinion, 1950 Indian Investment Centre, 60, 76m 98n-9gn, ii2n, 167, 21m Indian National Congress. See Congress Party Indian Tea Association, 156 Indian Tobacco Company. See ITC Indonesia, 10, 99 Indo-U.S. Chamber of Commerce, 16711 Industrial Credit and Investment Cor¬ poration of India (ICICI), 41, 43,

Hagen, Everett, E., ion, 2on Haggard, Stephan, 4n, 8, 1 in, 14m 177, 193, 2o6n, 2ion— nn, 220-22, 224 Hanson, A. H., 370, i22n Haryana, 56 Hazari, R. K., 45n, 58n, 59-60, 840,

5L 54 Industrial Development Bank of India (IDBI), 42-43, 49, 51, 54 Industrial Finance Corporation of India (IFC), 41, 43, 51, 54 Industrialization. See Economic performance Industrial licensing, 86-93, 124-26,

i39n> *55n Heavy electricals. See Machinery indus¬ try; Electronics industry Herrick, Bruce, i8on Hewlett, Sylvia Ann, ion Hewlett-Packard Corp., 1130, 1 14, 1 150

L34-35. 139-47. 153. 160-69 Industrial Licensing Policy Inquiry Committee, 4511, 4811, 5311, 590, 620-6311, 8611-8711, 8911, 9211-9311, 10in, H>7n-8n, 12611, 13m, 136113711, 13911, 16111, 1950

Gupta, L. C., 4m

2 31

Index

Industrial machinery. See Machinery industry Industrial Policy Resolution of 1948, 29, 37, 126 of 1956, 38-39, 42, 53-55, 126-27, 130-32 Infrastructure industries, 34-35, 37-38, 122 See also individual industries Inkeles, Alex, 2on Institutional innovations: and bargaining, 1, 8, 17, 19, 217-18, 223-25 See also Business houses; Multination¬ als; State-owned enterprises Insurance industry, 32-33, 41-43, 5051, 116, 127-29, 151 International Bank for Reconstruction and Development. See World Bank ITC (Indian Tobacco Company), 65, 69-70, 165 International Telephone and Telegraph Corp. (ITT), 1 i3n “Inward-looking” industrialization. See Imports Iron mining. See Steel industry Japan, 205, 207 multinationals from, 75, 104, 118, 175 JK group, 63, 99-100 Johnson, Harry G., 911, 2611, 2ign “Joint sector,” 55-57, 139 See also Joint ventures Joint ventures, 30-31 abroad by Indians, 18, 98-100, 119,

147-5T 72-73. 197 between business houses and multina¬ tionals, 29-30, 57-64, 68-71, 76,

91-95. 155756. 167-68 between multinationals and the state, 40-41. 103-4. 155 between the state and business houses, 31, 40-41, 55-57, 139 termination of, 63-64, 93-97, 159 See also Bargaining; Technology licensing Jones, Leroy P., 205, 207n-8n Jute. See Textiles industry Kapoor, Ashok, 1550 Karnataka, 56 Kenya, 99 Khatau group, 6in, i37n, 138 Khurana, Rakesh, 45n—47n, 49n, 64n, 7on,gon, io8n, i42n-45n, i52n, 16m 232

Kidron, Michael, 15, 27, 30, 33n, 57m58n, 82n, io6n, i22n, 178-79, 188, 217 Kilachand group, 6in, 63, 95 Killick group, 63—64 Kim, Seok Ki, 2o6n—7n, 2ogn Kindleberger, Charles P., 2n, qn, 24n, i79n-8on Kirloskar group, 60, 90, 99, io8n Knickerbocker, Frederick, 24n Kochanek, Stanley A., i34n, i36n—38n, i56n-57n

Korea, Republic of: compared to Brazil, 4, 11 — 12, 14—16, 18, 22, 31, 177, 193, 199, 203-4, 213, 221-25 compared to India, 1, 4—5, 8, 11 — 12, 14-15, 18, 22, 31, 177-78, 193. 199. 203-15, 222-25 economic performance of, 204—5, 211-15

exports from, 11, 210, 212 finance in, 11, 204-8 local business groups in, 207—9, 212— 13. 223-24 markets in, 208-9 multinationals in, 11-12, 209—11 state-owned enterprises in, 205-6, 208, 213 technology in, 210-11 Korean Oil, 206 Krueger, Anne O., 88n Lai, Ram N., 4on Lall, Sanjaya, iion-i2n, i63n, ig7n Lamb, Helen B., 46n Landsberg, Martin, 4n Larson and Toubro group, 64 Latin America, 1, 3, 9, 13, 17, 197 See also individual countries Lax, David A., 2on-22n, 25n, 219 Lecraw, Donald J., i48n Lee, Changsoo, i2n, 204n Leff, Nathaniel H., i7n Levy, Brian David, ig6n Liberalization, 64, 75-76, 112-14, 16670, 213, 220-21, 225 See also Electronics industry; Indus¬ trial licensing “License-permit-quota Raj,” 137, 171, 187, 218, 225 Licensing Policy Inquiry. See Industrial Licensing Policy Inquiry Committee Life Insurance Corporation of India (LIC), 32-33, 42-43, 45n, 50-52,

54. 72

Index Lipton Tea. See Unilever Local capital. See Local private enter¬ prise; State-owned enterprises Local private enterprise: exports by, 96, 100, 148—50 financial assets of, 35, 37—38, 45—47, i43n,i45n,194-96, 207-9 foreign financing of, 43, 57—64, 76,

91~95> 155-56 foreign technology in, 60, 62-63, 85100, 102—4, 117—18 industrial licensing of, 125—26, 134— 36, 145-47, 160-61 local private financing of, 43—45, 50— 51’ 72 local R&D by, 95-97, 110-12, 118-19 market shares of, 158—59, 199—201 nationalization of, 42, 44, 80, 126—29, 132, 173 profitability of, 73—75, i49n state financing of, 41-57, 72-73 See also Bargaining; Brazil; Business houses; Korea, Republic of Local R&D. See Research and development

Machinery industry: in Brazil and India, 5—7, 199—210 finance of the, 53-54, 63, 73, 78 in Korea and India, 208—9 market access to the, 29, 47, 121, 124-25, 128-29, 132-33, i43-44> 148, 153-54, 157-60, 166-69, i87“

89 technology in the, 82, 84—85, 88—90, 94-97,108,111-12 Machine tools industry, 73, 94, 121, 128, 130, 133, 143 MacNeil and Barry group, 58 Madras Fertilizers, 155 Madras Refineries, 41, 155 Mafatlal group, 47, 61, 63, 90, 93 Mahalanobis, P. C., 12m Mahalanobis Committee, 1390 Maharashtra, 55-56 Maheshwari, S. R., 1360 Mahindra group, 59-60, 6in, 90 Malaysia, 10, 98-99, 149 Managerial skills. See Business houses; Multinationals Managing agencies: abolition of, 45 compared to multinationals, 62, 8283, 107, 152 Indianization of, 45, 57-59, 64, 77,

83-85,

106-7, 133“34> 151_52’

170-71 origins of, 33 as political organizations, 156 transformation of, 64, 107—9, 121> 152

See also Bargaining; Business houses; Multinationals; individual groups Manufacturing. See Bargaining; Eco¬ nomic performance; individual industries Marketing skills: and bargaining, 12—13, 19, 24 See also Business houses; Multinationals Markovits, Claude, 28n, i38n Martin Burn group, 58, 64, 121, 151, 160 Maruti Udyog, 41 Marx, Karl, gn, 14 Mason, Edward S., 205n Mauritius, i47n McClelland, David, 2on Mehra, Sanjeev K., 76n, i67n—68n Mehta, Ved, 12m Mercedes-Benz. See Daimler-Benz Merck Pharmaceuticals, 95, 159 Mexico, 1, 10, 193 Meyer, Gerald, 2n Milner, Helen, 221 Mining industry, 39, 101, 108, 111, 128-33, M4» 151-54> 158-60, 183, 187 Ministry of Finance, 124m 13m Misra, B. B., 45n Modernization theory, 1—2, 9m 2on2 in Modi group, 63, pon, 168 Moe, Terry M., 27n Mohammed, Sharif, 1630 Monopolies and Restrictive Trade Prac¬ tices (MRTP) Act, 46, 56, 134, 139— 50, 160-62, 165, 172, 174, 186-87, 214 Monopolies and Restrictive Trade Prac¬ tices (MRTP) Commission, 139-40 Monopolies Inquiry Commission, 4611, 6411, 13311, 13911, 15211, 15711, 20811 Mooney, Joseph, 611, 20011 Moran, Theodore H., 211-311, 1311, 23, 25m 217, 21811 Motor equipment and vehicles. See Transport equipment industry Multinationals: competition among, 85, 93—95, 112— 15, 118, 175

233

Index

Multinationals (cord.) exit by, 68, 73, 81, 165-66 exports by, 163-68 financial assets of, 35, 43-44, 64—65, 108, 152, 160, 194-96 foreign financing of, 65—67, 68—70, 76 foreign technology in, 62-63, 83, 89, 91-95, 107-9, H3- 116-17 industrial licensing of, 136, 144, 153, i56-57> 160-69 by industry, 153—55, 166—68 as institutional innovations, 8-9, 12, 30, 64, 82-83, i52 internal financing of, 74—75 local private financing of, 58-64, 68-

73 local R&D by, 96—97, 105, 110—12, 120, 182-83 managerial skills of, 73—74, 77, 151,

155-57. i70-7i. 174. 189 market diversification by, 152, 162-66 marketing skills of, 64, 73-74, 77, 83,

151-57. 170-71. 174 market shares of, 5—7, 152, 157-63, 199-201 nationalization of, 42, 64, 127, 131, 151. 173

as political organizations, 155—57 profitability of, 73-75, 181 state financing of, 48, 72-73 See also Bargaining; Brazil; Korea, Re¬ public of; individual firms Myrdal, Gunnar, ion Nash, Manning, ion National Council of Applied Economic Research, 86n Nationalism. See Economic nationalism Natural resource industries, 10, 13, 2324, 124, 177, 209, 217 See also individual industries Nayar, Baldev Raj, 84m 97n—98n, i05n—6n Nayyar, Deepak, i2n, i48n NCR Corp., 113m 114, ii5n Negotiation analysis, 218-19, 222 Nehru, Jawaharlal, 29, 36, 42, 180, 184 Newfarmer, Richard, 2n, 6n, i2n, 22n, 23, 20on, 216, 22m Newly industrializing countries, 1, 4,225 See also individual countries Nigeria, 15 m Niskanen, William A., Jr., 2in Nondepartmental enterprises. See Stateowned enterprises

234

Nonelectrical machinery. See Machinery industry

“Obsolescing bargain.” See Bargaining; Bargaining theory O’Connor, Donald, 21m Oil. See Petroleum industry Olson, Mancur, 27n, 217 Organization of Pharmaceutical Pro¬ ducers, 157 “Outward-looking” industrialization, 16, 211-13 See also Exports

Pakistan, 37, 59 Paper industry, 54-55, 99, 125, 128, 133> M3-44 in Brazil and India, 5-7, 200-201 Paranjape, H. K., 52n, 1400 Pardip Fertilizers, 41 Park, Richard L., 46n Park, Yung Chul, 205n Parliament, 49, 52n, io6n, i23n, i37n-

39n Partition, 37, 59, 180 Parry group, 64, 108, 152 Parsons, Talcott, gn Paul, Samuel, i39n Pepsi Cola, 570 Petrochemical industry. See Chemical industry Petroleum industry, 39, 47, 102, 111, 128-29, 154-55. 187 Pharmaceutical industry: in Brazil and India, 6-7, 198-201 finance of the, 39, 54-55, 74 market access to the, 128-29, iw-z.4, 157-59. 166, 188-89 technology in the, 95, 102 Philippines, i47n Philips, 156, i57n Planning Commission. See Central eco¬ nomic planning Plantations, 111, 133, 153-54 See also Agriculture; Food industry Pohang Iron and Steel, 206 Positive-sum game. See Bargaining Power industry. See Electric power industry Prebisch, Raul, gn Prime Computer Corp., 1130, 114, 1150 Private capitalism, 26, 77-78, 80, 117— 18, 171-73, 184-85, 192, 21819 See also Bargaining; Collective benefits

Index Private sector. See Business houses; Lo¬ cal private enterprise; Multinationals Profits. See Local private enterprise; Multinationals Property rights, 26-27, 78, 179. 184, 218-19, 225 See also Economic nationalism; Private capitalism; State capitalism Public sector. See State; State-owned enterprises Punjab, 56-57 R&D. See Research and development Ragagopalachari, C., i37n Raiffa, Howard, 219 Railroads, 19, 34, 37—38, 40, 101, 126— 28, 131, 139, 173, 183-84, 187 Rajastan, 56 Ramamurthi, Ravi, ig6n Rangarajan, C., i43n Rangnekar, D. K., 44n Rank-Xerox, Ltd. See Xerox Corp. Rao, K. S., Chalapati, 1630 Rao, V. K. R. V., 37n-38n Rationality. See Bargaining Raw-material industries, 41, 78, 99, 132 See also Natural resource industries; individual industries Rent-seeking, 88n Research and development (R&D): local expenditures on, 17-18, 30, 9598, 105-6, 110-12, 118-20, 18283, 190, 197-98, 210-11 See also Bargaining; Technology licensing Reserve Bank of India, 35n, 37n-38n, 4on, 5m, 53n—54n, 6in—62n, 66n, 69n-7on, 72n~75n, 96n, non, i54n, i63n-64n, 21m Reuber, Grant L., i4n Reuschemeyer, Dietrich, i3n Rostow, Walter W., gn Rubber industry, 54, 154-59, 189 in Brazil and India, 5—7, 199-201 Rudolph, Lloyd I., and Susanne Hoeber Rudolph, 214 Sakong, II, 2050, 207n-8n Samsung group, 207-8 Samuelson, Paul A., 27n Santa Cruz Export Zone, 167-68 Sarabhai group, 61, 63, 90, 95, 97, 99,

»59 Sarkar Commission, 4gn Schelling, Thomas, i9n-2on, 219

Scindia group, 47, 61, i37n, 143 Sebenius, James K., 2on-22n, 25n, 219 Service industries, 1, 111, 122, 126—31,

154-55. l65 See also individual industries Sharpe, Kenneth E., 2n, i7n, 22, 23n— 25n, 216, 2i8n Shell Oil, 131 Shipping industry, 53, 128-29, 143-44. 173, 209 Shrinivasan, S. N., i38n Shriram Associates, 6n, 6on, 97n, 9gn, io6n, lion, i58n, 2oon Shri Ram group, 61, 63, 90, 93, 101 Singapore, 10 Skocpol, Theda, i3n Smith, David H., 2on Social equity, 214—15 Somjee, A. H., and G. Somjee, i37n Southern Petro-Chemicals Industries Corp. (SPIC), 56-57 South Korea. See Korea, Republic of Soviet Union, 18, 102-4, 183, 197, 216 See also Eastern Bloc countries; Tech¬ nology licensing Stallings, Barbara, i5n State, 215-25 autonomy, 14—15, 19, 36, 39-41, 102, 123, 213, 225 as buyer, 112, 168—69 dominant coalition and the, 25, 220— 21

as entrepreneur, 17—19, 34-41, 79— 80, 100-106, 119, 122-32, 158-59, 173-74.183-88,194-209, 212 as financier, 15-17, 36-56, 61, 7273. 79-8o, 184-86, 196, 205-7, 212 as regulator, 13-15, 19, 58-61, 6871, 75-81, 85-93, 106-12, 116-20, 124-26, 134-48, 153, 159-75. 18087, 190, 198-99, 204, 209-13 See also Bargaining State Bank of India, 42-43, 51, 54, 72 State capitalism, 26, 79-80, 119-20, 173-74.184-87, 218-19 See also Bargaining; Collective benefits State financial institutions debt financing by, 43-44. 46-49, 73 equity financing by, 36, 41-43, 4511, 48-57. 72_73 nationalization and, 42-44, 80, 206 See also Bargaining; individual institutions State-owned enterprises (SOEs): economies of scale in, 40, 79, 173

235

Index

State-owned enterprises (cont.) foreign financing of, 40-41, 103-4,

x55 foreign technology in, 96, 100-105, 119, 123 financial assets of, 35-36, 40, 44, 194-96, 205-6 industrial licensing of, 124-26 as institutional innovations, 17, 34-36, 79, 100-101, 122-23 local R&D by, 96, 105-6, 110—12, 119 market shares of, 126-27, 130-32, 158-59’ 2o8“9 nationalization and, 39, 42-46, 64, 80, 126-29, 131-32, 151, 173 privatization of, 203, 206, 208 state financing of, 34—44, 101, 104, 123 vertical integration of, 37—40, 126—32 See also Bargaining; Brazil; Korea, Re¬ public of State (provincial) finance and develop¬ ment corporations, 41, 43, 51, 54—

55’ 72 State (provincial) governments, 31, 137-

38 as entrepreneurs, 34-35, 139 as financiers, 40—41, 43, 51, 54—56, 72 Steel Authority of India (SAIL), 39, 127 Steel industry: finance of the, 38—39, 43, 80 technology in the, 85, 101-2 market access to the, 19, 121, 124-33, 151, 160, 173, 187, 202 Srinivasan, T. N., 1250 Sugar industry, 139, 152 See also Agriculture; Food industry; Plantations Swadeshi Movement, 28 Swatantra party, 137-38 Tamil Nadu, 56 Tandy Corp., 114, ii5n Tanzania, 15m Tata, J. R. D., 28-29, 560-570, 76-77, 116, 170, 184 Tata Engineering and Locomotive Co. (TELCO), 50-53, 56—57, 61, 84m 133, 14m, i57n Tata group, 184-92, 217, 220 financing of, 29, 45-48, 50-53, 5663, 71, 77, 83-84, 93, 95, 155, 171, 208 market access by, 99, 121-22, 126,

236

!33’ 135-38’ 141~43’ 146-48, 15L 156-58, 170-72 technology in, 29-30, 85-90, 93-99, 101 Tata Iron and Steel Co. (TISCO), 50-

53’ 56’ 133 Tata Services, 92n Tea industry, 116, 129, 151, 156 Technology licensing: competition among foreign suppliers, 85, 93-95’ 102-5, H2-15’ n8 foreign financing of, 62-63, 91-95, 102-5, i°7“9’ 113> 116-17 foreign technicians and, 96, 104—5, 109 joint ventures abroad and, 98—100, 119, 148-49, 172 life cycles in, 114—15 local R&D and, 95—97, 105—6, no¬ il, 118—19 market access through, 112—14, 117, 119-20, 166-67 regulation of, 85-93, 97’ 102-4, 1079, 112-13, 116, 118 restrictive agreements in, 96, 100, 109, 113-14, 117 royalties and fees for, 96—97, 104—5, 109, 117, 123 state financing of, 47—48, 93, 102, 104, 118 termination of, 63—64, 93-99, 109, !59 See also Bargaining; Research and development Teece, David, ii4n Texas Instruments (TI), ii3n Textiles industry: in Brazil and India, 5-7, 200—202 financing of the, 54 in Korea, 210 market access to the, 125, 131, 133, J35> !39’ 148, 151-60, 173, 188 technology in the, 83, 85, 98-99, 106, 108, 116 Thailand, 99, i48n Thakurdas, Sir Purushotamdas, 28n Thapar group, 60—61, pon, 93 Timberg, Thomas A., 46n Tinker, Irene, 46n Tomlinson, B. R., 34n, i22n Trading sector, 39, 128—29, 131 Transnational corporations. See Multinationals Transport equipment industry: in Brazil and India, 5—7, 199-202

Index Transport equipment industry (cont.) financing of the, 22, 41, 54 in Korea and India, 208-9 market access to the, 125, 133, 14m, t43-44, 157-60, 190 technology in the, 85, 94, 97—98, 111 Trebat, T. J., i94n “Triple alliance,” 18, 216 vs. “Uneasy Triangle,” 15, 27, 192—

Vachani, Sushil, 68n-7in, 75n, 11 in, i62n—63n, i66n Valenzuela, Arturo, and Samuel J. Val¬ enzuela, 2 in Veit, Lawrence, 37m 8on Vernon, Raymond, 2n, i3n, 23, 25m 3on,2i7n—i8n Villamil, Jose, 2in

93’ 217 TVS group, 6in

Walchand group, 1370 Weber, Max, gn Weinhert, Richard S., ion Wells, Louis T., i3n, 3on, i66n, ig7n West Germany. See Germany, West Westphal, Larry, i2n, 204n, 2ogn— nn Wolf, Martin, i48n Wolpert, Stanley, 28n, i38n World Bank, nn, 41, ig3n, 203n Wyman, Donald, 3n

Uganda, 15m “Uneasy Triangle,” 30-31, 178 See also “Triple alliance” UNESCO, i8n Unilever: finance of, 48, 63—66, 70—71 market access by, 28n, 136, 161-65 technology in, 89, 111 — 12, 120 United States, 114-15, 193 multinationals from, 13, 75, 104, 118, 134, 166-69, x75> 198-99’ 204 U.S. Department of Commerce, iggn Unit Trust of India, 42-43, 51, 54

Xerox Corp., 76, H3n, 168—69 Zambia, 15m Zero-sum game. See Bargaining

237

Library of Congress Cataloging-in-Publication Data Encarnation, Dennis J. Dislodging multinationals : India’s strategy in comparative perspective / Dennis J. Encarnation. p. cm. — (Cornell studies in political economy) Includes bibliographies and index. ISBN 0-8014-2315-5 (alk. paper) 1. International business enterprises—Government policy—India. 2. Investments, Foreign—Government policy—India. 3. Industry and state— India. 4. International business enterprises—Government policy—Brazil. 5. International business enterprises—Government policy—Korea (South) I. Title. II. Series. HD2900.E53 1989 338.8'8854—dc 19 89-730

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