C H A P T E R II

INDIAN JOINT VENTURES ABROAD

In this chapter an attempt is made to study the

evolution and growth of Indian joint ventures ~broad and the

atmosphere in which they were conceived and promoted. Such a

study is essential to understand the rationale and

motivation behind Indian efforts in promoting

ventures. An analysis of the Government of India's

also reveals the scope and the limitations of the

joint

policy

joint

venture strategy. The study brings out how New Delhi

attempted to accomplish through joint ventures export

promotion, building an industrial image imbued with the

spirit of collective self-reliance among the Third World

countries,

developing

technology.

promoting regional economic

concept of transfer the

A critical appraisal of

co-operation and

of intermediate

the Indian joint

ventures abroad also enables one to understand how far India

can make use of the joint venture strategy as ~n instrument

of economic diplomacy.

The study also attempts an analysis of the Indian joint

ventures abroad by examining the specific fields of

collaboration, the patterns of investment, the region-wise

dispersal and the size of the units. The success and failure

of the joint ventures have also been focussed upon to

highlight the strong points ~nd the weaker aspects of Indian

technology and managerial ability besides the effect of the

policies adopted by the Government of India.

q~~~~ [~[ l~4~~~[iiLi~i~i~~ ~

With the underdeveloped countries waking up to the

15

reality that only industrialisation could pull them out of •1

backwardness , efforts were made on a big scale to

manufacturin•J industries in many of these countries. This

process involved import of technology and capital from the

developed affluent countries. In their quest for

technolo•Jical know-how and expertise, so essent.i.;;l for

accelerated development of their backward economies, the

developing countries have alw.a.ys been lookin9 to the 2

developed countries. Apart from technology, the need also

was felt For foreign assistance for import oF equipments,

components and spare parts, since the level of savings in

the developing countries and their ability to mobilise

resources were limited.

The multinational corporations of the West with their

enormous capital base, international linkages, sophisticated

technology and efficient management started availing of the

vast opportunities that opened up when the newly independent

countries were making effod"s to industl'i.:tlise their

economies. In fact, a substantial part of the international

capital Flows since the 1950s was closely linked with the

"1. Hans t.J. Singer, "The Distribution of Gains Bet~,o,•een

Investin9 and. 8orrowin9 Countl'ies", f!mg_r.i£.-iHi sf.Q.!:lQ.II!i£. B!1l!~ f§R!!! !D1 Er£S!!1iDg§ <Stanford, CaliFornia), vol.40, t1ay ·1950, p.473.

2. thi'bans Sin9h, "Indian Joint Ventures In Southea.st Asia", Paper presented in The International Seminar on India-Malaysia Relations, University Of Madras <Madras, •1980), p.·1.

16

3 growth and expansion of large international enterprises.

The multinational corporations started moving by

directly investing through their wholly owned subsidiaries.

It has been estimated that in 1970 there were 4,000

companies and nearly 50,000 affiliates which had set up

subsidiaries, joint ventures and overseas plants or sub-4

assemblies in different parts of the world. The investment

of the multinational corporations was estimated in the same

year to be over U.S. S 140 billion, growing at ~n annual 5

rate of, over ·10 per cent.

Multinational investments were always looked upon with 6

certain amount of suspicion in the developing countries.

Extreme views on the harmful effects of economic penetration

by multinational 7

corporations have very often been

e:-:pressed. The perception of the developing countries was 8

inevitably coloured by their colonial past. At the same

3.

4· •

these countries were also in dire need. of foreign

Grant L.Reuber, Eri~!l! [QL!ign Q!Y!l£RID!Dl <London, 1973), p.3.

P.N.Agarwa1.3, ·1978), p.48.

5. Ibid.

6. S.Venu, Ib! Q!~!!eeing g&QDRmi!i !Drt 1b! !Dl!LDiliRD!l E.r.~m!~Q.Lt <New Delhi, ·197·1), p.·176.

7. V.!<. Narasimh.:an, "t1ultination.3l Corporations <:~nd the Third World", Minoa Masani and Gotfried ~Juest, ed. l.b! I.blr~ ~2!1~- gyQ Y§~ll ? <Bombay, 1969), p.161.

8. Jagdish Bhagwati, ~£YDl!1!2 <London,

Ib! t&QDQ.mi&i ·1977) p.·14b.

Q£

17

capital, expertise and technology. As a result, depending

upon the political ideolO!JY of the rulin•J elites, each

country evolved its own policy towards multinational

corporations and forei!Jn capital. The trend towards joint

ventures was a. consequence of the Third World response to

meet the needs of development and, at the same time, to curb

the evil effects of unbridled foreign enterprise.

Under the changing international political and economic

scenario, the foreign investors realised that their own

interest \1.1 0Ul d be bettet' ·:;erved by securing the

participation of local capital and management. The risk of

nationa.lis~ton could be obviated by resorting to joint

venture approach. It also ensures a 'quiet life' for 9

the

oligopolisti.c investor. The local partner is in a better

position to secure '1 0

fa. i r treatment from the public and

government.

By making the shareholding d.ivided between the

multinational corporation and a domestic entrepreneur and,

in some cases, the investing public in the host countries,

the hold of the multinational corporation is

9. S.Venu "Alternative Theorie·:; of Forei•Jn Investment Rationale of f'1.N.C.s"., Ib.!i I.:.J.irlf!.'d, 7 December ·1982.

10. Taranath Bhat, ''Indian Overseas Joint Ventures with Special Reference to Sri Lanka.", Paper presented in the International Chamber of Commerce Symposium on Investment Possibilities in Sri Lanka <New Delhi, March •19£,·1), p.-1.

18

diluted and the element of proverbial exploitation reduced.

International sharing of technology via joint ventures would

be complementary and to the mutual adv-:l.ntage of the

participating countries. Achievement of

specialisation and diversification of production structure ·1 ·1

would also be easier through joint venture strategy. And,

in the national context, it could also lead to efficient

allocation and utilisation of available factors of

production.

The emergence of Third World intern~tional entreprises

was also partly due to restrictions imposed on the entry of •12

multinational corporations. Quite a few developing

countries have started'offering collaboration and investing

capital their national frontiers. t D -3.

study made by the United Nations Centre for Transnational

Corporations, by mid-1970 as much as U.S.$ 180 million worth

investment in Argentina, BraziL Chile, Columbia, Equador,

Mexico and Venezuela originated either from each other or

from the Latin American countries. In .O.sia too, South

Korea, Taiwan, Malaysia, Thailand, Hong Kong and Singapore

11. Indian Investment Centre, !n~i~n J£iD1 ~!Dl~L!~ 6bLQ!1: bD 8RR!iJjiJ <New Delhi, 19831, p.2.

·12. Ram Gopal Agarwal, "lb.ir.9. \1QL1.9. ~Q[QQ!.:~li2ni~ ln9.i~D (~Q!!.:i!Df!'', Paper presented in a S e rrd n a r 0 r 9 a n i s e d b y E a s t -- ~J e s t C e n t 1· e ( I t o n o 1 u 1 u , Hawaii), September ·197?, p.S.

·13. J.C.Srivastava, "India's Joint Ventures Abroad", Paper presented in a Seminar on "Indi.::1's Investment in Busi.ness"(New Delhi, ·1979), p.3.

have moved across their national borders and have made •14

investments in each other's economies.

In its efforts to get closer to the developin~J

countries, New Delhi also naturally wanted to play a benign

role within its limited means. The Third Five Year Plan

s pelt out the philosophy underlying the Indian joint

ventures abroad as follows

Assistance from one country to another had a significance no less for economic progress of the less developed countries than for the building of a world community in which each country contributes to development of others according to its capacity. This is an obligation which India fully accepts and as her economy develops, within the limits of her resources she will endeavour to share her experience with other developing nations.15

The question naturally arises, did India have the

capability to embark on joint venture scheme ? Joint

ventures abroad means internationalisation of

this presupposes growth of manufacturing

development of technology, skills .:1 nd •16

competitiveness.

business and

capabilities,

inter· nat i o na 1

Since the advent of independence in 1947 India had made

subst.3.ntial progress in several sectors of economy through

·14. Ibid., p.4.

•1 5.

·16.

Ind.i-3, De lhL

Planning Commission, •1962), p.27.

San.jaya Lall, Multinationals:;

"The Indian

Jd.§.Y.§l.QJ2ID.§D.1 p. ·127.

(London),

Fmergence of Third Joint Ventures £\bro.:~d",

vol.·10, no.2, February

~·Jorld

tJg.r:J.b1 ·1 ?82'

20

THESIS 327.5405493 R1414 In

II I II II II 111111111 \Ill Ill TH3157

a programme of planned development. The share of primary

production in its gross national product had gone down

considerably and industry, transport and other services

accounted for a much larger share of India's national •17

income.

Over the years there has been a stress on crPating an

industrial structure, from a traditional to a modern one

leading to expansion in the modern fields,

metallurgical and mechanical engineering besides H3

.:~. n d allied industries. The technologies

covering

chemical

originally

imported have been mastered and adapted to make the best use

of lower manpower costs. India has reached a level of

competence where it is in a positon to share its development ·19

with other developin•J countries. Further,

industrialisation efforts have been amply aided by

facilities for technical education and research .and

development activities which eventually helped India to

achieve the status of a technology exporting country.

New Delhi's confidence in its technical development

resulted in the setting up of the Indian Technical and

Economic Co-operaton <I.T.E.C.) in 1964. Over the years the

r.r.::::.c. has become the cornerstone of India's aid

programme. By the end of 1978 the I.T.E.C. has deputed 500

- ---·- -----·- -·--·----------- --'=-t-"\:-'= -~"-~-- --·----- ---- ----- ------- -·---------- -----

21

·17. Hari Shankar Singhani-:t, IQ.::Q~i -?.D.Q IQ.:.I!!Q.LLQ.~ Delhi), p.72.

( New;.r'·~· .. ·> , ~ . ·-... ()' ~-

1 8 • I b i d •

""• \ • .. C'· \ .. " - ... ,. t1 .. - '· ~)

."• .. " /

·~ 19. T.N.Chaturvedi, ILiD.ii!L Qt I££bD.Q.lQgi 6m2ng Q~~!!2e(D.2 ~QYDl!l!i <New Delhi, 1982), p.37.

\~ c-"

'.J l.-\ 4 I \ ~ L.\ "-\ \J (j-.) ~ S' ' ) ~s-

technical experts abroad and about 1,200 foreign nationals

were receiving training in Indian institutions. It may be

stated that about 35 per cent of India's aid in the 1970s 20

was for technical assistance.

The Indian ability to offer technical assistance was

internationally recognised in an increasing measure. At the

various meetings of the United N.3.tions Industrial

Development Organisation (U.N.I.D.O.l to promote specific

indu.stt··ial projects in Asian and African countries, I nd i .:1.

was identified as a potential country which could offer

technical and industrial collaboration. As a result of the

understanding arrived at between the Government of Indi~ and

U.N.I.D.O. and consequent to the International Science and

Technology Transfer Conference held in 1972, India had been

initiating exchange of missions with developing countries in 2 •1

technology familiarisation and transfer programme. At the

Third Asian Meeting on promotion of joint ventures between

developed and developing countries, organised by the

U.N.I.D.O. at Kuala Lampur in November 1973, India was again 22

identified as a resource giving country. India h.3.s thus

received international recognition as a country tapable of

transferring technology to other developing countries.

20. Dewan C.Vohra, lD~i§~j ~l~ QiRlQID§fY iD 1bJ !bir1 Ygrl~ (New Delhi, 1980), p.37.

2"1. Chaturvedi, n. ·19, p.34.

22. Ibid.

22

Apart from the technological progress, t h t: r t:· w e r e a J s r•

other F-3.ctors which prompted Indi'ln entrepr~neurs to venture

abroad. While the country made steady advancement in the

field of industrialisation, it must be point2d out that

there we>re cert.ain serious distortions in the industria.]

growth.

Indian pJ~nning in thP Jatr 1950s and Parly 1960s laid

emphasis on manufacture of capital ~nd interm~diate aoods.

An impflrt substi.t.ution strat.f.·gy aimf:'cl .;;t the futtdamet.t-::.1

transformation of the economy to strengthen the dom~stic

23 capacity for capital goods formation was Follow~d. As .:=;l.

result, heavy industry and heavy enginrPring industry 24

received gr~at emph.lsis and top most priority. High~r

priority to heavy m~chinrry was given because this would

facilitate a much quicker rate oF industrtalisation aFter ?.:i

the formative years. As a result of this policy,

indus t r i-3.1 production picked up and in the course oF the

Serond and Third Plans industrial production doubled. The

value add~d in intermediate goods industry incre~s~d hy

23. Francine R.Franknel, 1D~lj~l fgllllf§l gfQ~QIDi= J1~l=ZZ <London, 1978), p.117.

24. Oaldev Raj N.;;yar, Ih~ tl~dtcnL~~li~n lffig~c~lt~~ ~~g fl~DDlD.9 <Delhi, ·1972), pp.·1·14·-S.

25. P.C. M.a.halanobis, "The Approach of Operation.,d RE-'se.:Jrch to Pl.3.nnin•J in India",§~D1.bi§ <Calcutt.1, ·1?55), vo1.·16, parts 1 and 2, pp.3 - 130.

2·3

almost seven times and in machinery industry by ten 26

times, .3, s could be seen from Table 1 given in the

Anne:<ure.

increase in production was impressive in several

fields, no proper inter-industry and inter··sectoral balance

was worked out. The result had been the creation of serious

imbalances in the industrial ·;;tructure. ~1a ny industrial

projects had been completed without complement .. 3.t''Y inputs

from other industries, which were neglected or were without

adequate demand for their products, which were to feed into

other industries. One reflection of the imbalance in the

industrial structure was the excessively large unutilised

capacity in Indian industry which would seem to represent a 27

misallocation of investment resources.

Table 2 furthet·· illustrates the imb<'.llanc€' in the

grovJth. As could be seen, sugar production had gone up by

three times, whereas sugar mill machinery manufacturing went

up by 40 times. Again in cotton textiles industry, the cloth

produced increased by about 40 per cent but cotton textile

machinery production went up by 300 per cent. While

fertilizer production capacity had been enormously built up,

production oF petroleum, the primary input, had increased at

a much lesser rate. The increase in the pr0duction of

machine tools had been phenomenal, but metal industries

26. Nayar, n.24, p.·172.

27. Ibid., p.'174.

utilising these machine tools had grown at a much sluggish

pace.

Thus, by the second half of 1960s, India was left with

a surplus of machinery without a proper plan to absorb them

into the economy. There had been a sustained stagn~tion of

demand for industrial goods within the country's market.

Even in the existing industries, capacity utilisation was 28

poor. Textile and engineering were both industries where

Indian domestic capacity to manufacture the required

machines had over long period been in excess of the domestic

demand.

Under the circumstances emerged an approach of

expediency of ensuring export of capital goods by securing

industrial collaboration with the developing countries.

Motivating Indian companies to start overseas joint ventures

and restricting their participation by the export of plant

and machinery made in India was a novel strategy adopted to

tide over the crisis. This was indeed an ingenious method of

securing an export outlet for Indian surplus machinery. It

was an example of the government trying to turn an adversity

into a virtue. A renowned expert on Indian joint ventures,

M.K.Raju explains :-

The impetus given by the Government of India to the concept of Indian joint venture was clearly triggered by the capital goods recession in India. All regulations that governed the Indian joint ventures clearly reflected the desire of Government of India to

28. Ibid.

find outlets for idle capacity in the machine tool industry and to earn foreign exchange.29

Until 1976, about 50 per cent of the joint venture

units abroad were in engineering and textile industries.

These were the two industries in which, as seen earlier,

domestic capacity seemed to be far in excess of the domestic 30

demand. The use of international investment as ~ means to

f i 11 idle capacity in the capital goods industry has been

historically proved and widely cited in international

economics lite1·ature. The Indian experience was lHl

e:·:ception.

Joint ventures abroad mean export of c~rital from the

venturing country into the host country as the capital

market in most of the underdeveloped countries is not well 32

organised. It should be noted that India was in a

critically capital starved condition when the government

29. M.K. Raju and C.K. Prahalad, !b! giD!!~iD~ !bi!1 ~~Ll~ ~glliD~ll~D§l~ lD~i~D sD~!L]Li2! ln Ib! ~§g~N E!~l~D <Madra·::;, ·1980), p.26.

30. The number of closed textile mills increased from 45 in 1967 to 80 in 1968 and 103 in 1973. Between 1956 and 1965, engineering industry grew at the annual rate of 22 per cent, between 1966 and 1?71, the rate of growth came down to only 6 per cent. S.C. Kuchchal, ~~l£C

lD~Y2l!l!2 ~£ lD~ii <Allahabad, 1974l, pp.2 and 107.

3'1. K.Balakrishn..:l.n,"Indian Joint Ventutes t\broad Geographic and Industry P.1ttern·:;", g.f~D~mi.f .§D~ .E.Qlili.f-21 ~!!.tl:;:· <Bombay), vol. :d, no .22, 29 May ·1976, p.35.

32. S.M. Bijli, lD4~11Cifli~~li£D in lb~ Ibic4 H~cl4 <Aligath, 1973), pp.75-6.

26

st.'irted its 33

promotional activities for enc:our.=:.gi.ng joint

ventures. This is all the more clear when we note th-:~t

until •1964' according to the Foreign Exchange Regulations,

Indian companies were not .allowed even to e ;-:port their

capital in production form i.e., in the form of supply of

machinery and equipment to exchange for the shares 34

enterprises established in other countries.

of the

Although promotion of joint ventures ~bro~d was an

expediency devised to meet the crisis in c,3.pital

industry yet another reason was earning of the much needed

foreign exchange. During the first two plan periods, the·

strate·~Y of generating exports to pay for the development

could not be pursued because of several limitations. The

plans themselves implicitly assumed a closed economy for a

situation of stagnant export earnings through inelasticity

of e:-:port demand. Furthet'", the huge sterling

accumulated during the war created a sense of compl.:~.cency

about foreign exchange position. The Korean War also created

a temporary boom in export earnings from traditional

thus adding to the sense of complacency. Then ensued the era

of foreign aid which India obtained from both the cold war

33. J.b_g f:.f.Q.D.Q.[Ii1!.1 (London), ·1·1 December ·1?76, p.·1·13.

34. Ibid.

35. Martin Wolf, iD.£!.t~:_~ I;.;H.Q.L1.2. (LoTtdon, 1982), p.·18.

27

36 contestants, thus anaesthetising the need to think of

e:-:port earnin•JS.

India's exports between 1957 and 1966 presented a

picture of all round stagnation. While world exports had

increased by 80.8 per cent during this period, Incli.;::.n

e:<ports rose by only 14.4 per cent. To put

pointedly, on average between 1957 and 1966, India's export

earnings were sufficient to finance only 60.9 per cent _of

her import payments. The annual average growth rate of

exports was 1.4 per cent between 1957 and 1966 compared with 37

growth rates of per cent for imports.

There had been a continuous gap in the balance of trade

and balance of payment position since 1949. The wars imposed

on India by China and Pakistan further aggravated the

position. To meet the deficits, increasing rel~ance was

placed on foreign aid. But in an atmosphere of super-power

detente the developed countries were growing allergic to 38

foreign aid. India sought the help of the World Bank,

the Internatonal Monetary Fund <I.M.F.) and a few foreign

governments, but even with all these assistance the

36. Khub Chand, ''Import.:ance of Forei9n Tr.:ade Economic Growth", Ashok V Bhuleshkar, ed., lD.Qi~D b.f.QD.QJ!IY iD §g.fi~lli!J!i, <Delhi, ·1975),

37. Animesh Haldar, ·1976), p.30.

in Ind.i.:::.'s §.rg~..1b _g£

p.537.

38. U.S. aid was suspended soon after the War with Pakistan in 1965. See P.S. Jha, lD~i~ ~ ~ fgll..1if~l g.f.QD.QJ!IY .Q£ §..1~.9D~..1i.QD <Ne•,.o Delhi, ·1983), p. -L

28

situation could not be remedied. The h Ed ping a 9 e Tt c i €":> B. n d

aid giving countries apprehended further deterioration and 39

suggested/pressurised India to go in for devaluation.

Although it was claimed that declining world demand for

traditional export commodities was the main reason for the

slow gl"owth of India•s e~·~ports., what. is sought to be

focussed here is the lack of incentive and thrust f 0 t

the in.3dequacy of f<::cilities in the form of

information and bank crertit and a general f.~ilure 0 f

economic policy. The deteriorating situation led inevitably

to the jolt of devaluation of Indian currency in 1966 and,

as a result, export consciousness was sufficiently created.

An e:<plicit inttoduction of the "e:<pO!"t sector",

realised, could help to evolve a pattern of investment which

would attempt an effective e:-:ploit.ation of the =?:·=:port

potentialities of the various sectors and suh-sectors in the 40

economy. The concept of establishing joint ventures was

recognised as one of the strategies of export promo ton in

the Export Policy Resolution of 1970. It, w.::;, ~ increasingly

realised that promotion of joint ventores in developing

countries by India and projecting the im~ge as a supplier of

39. The Aid India Consortium exerted ~xtreme pressure on India in favour of devaluation. Gerald M.Meier, b!~~iD2 1~~~!~ iD J;.f.QD.Q!!!i.f l?!~.§.l.Q.P!It!D..1 (Nev.• York, N.Y., ·1976), p.67.

4-0. Leela Rangaswamy and N.Somashekhar, gf .El~DDiD2 <Bomb.3.y, ·1974), p.67.

29

capital goods and technology to these countries, 1,1,•ould also

yield recurring benefits in the form of foreign exchange

earnings from dividends, technical know-how fees and

royalties. In addition it was also realised that joint

ventures could be an effective tool for retaini~g and

expanding an already established market and also for opening 4·1

new avenues for exports.

The strategy 'to promote joint ventures must also be

viewed in the backdrop of various efforts to foster economic

co-operation among the developing countries. The first

United Nations Conference on Trade and Development

( U-. N • C • T • A • D • l emphasised the

significance of co-operative economic ventures and the

promotion of trade and efficient d. i v e r s i f i cat. i o n of 42

industries. Even eat··lier, in 1963 the India-Africa

Development Association was ~stablished with the objective L;.3

of promoting such co-operation. In 1966 in a tripartite

meeting between India, United Arab Republic <U.A.R.l and

Yugoslavia, the importance of joint ventures as a vehicle of 44

economic co-operation was highlighted.

4'1. Taranath Bhat, n.10; See also BQQ12 Q£ 1D1l3~2 [QL~l£D EQll~Y •198'11, p.79.

A.Appadorai, QQID&21lf 11~Z=12Zg <New Delhi,

42. Final Act of the U.N.C.T.A.D. <United Nations, 16 June 1965) quoted in S.Venu, Q&~~lQRlD£ g~QDQIDl!! ~Dg lb! lD1~LDi1lQDil £LiiD!~QL1 <Madras, 1971), p.32.

43. Indian Investment Centre, l2int ~!n1~L!i 6~L2!~ <NPw Delhi, 1972), p.2.

4·4. Ibid.

ao

It was also felt that overseas joint ventut·es would

-further enhance the India a.s an industri.=tlly

advanced country in many developing c:ountrjf::s by pt··ojecting

its capabilities as an exporter of technical know--how •3.nd

capital equipment. Such co-operation would also be a welcome

effort by developing countries to pool their resources and

know-how to the extent possible so that they need not depend

exclusively on the high cost technology of the developed

countries operating through their multinationals. The

government officials often maintain that the value of

building through the overseas joint ventures is to be rated 45

high. In this context, the role of joint ventures is to be

gauged not merely on the basis of dividends and other

earnings, but .=tlso through their indirect. result.

project in·~ the image of a developing India, interested in

sh.3.ring its e:-:pertise and e:-:perit::nce with other devel.opin9 46

countries.

To the big Indian entreprenPurs,

were also an escape valve from what

joint ventures abroad

they considered an

irksome atmosphere of government controls and regulations,

which curbed their expansion and slso resulted in high tax

burden. It is interesting to note that nearly 60 per cent of

45. Federaton of Indian Chambers of Commerce and Industry, ~Qr1~bQ£ gn ln.fli~D }gin1 ~~n1~r£2 ~n.fl ErgJ£f1 s~£gr12 E~£..9!1 <New Delhi, ·1982), p.L-:.

46. J • R. ' lD.fli~

"Joint Ventures Thrown Out. Of ~!oint", 12.\:!.§.i!l~ii <Bombay), no. 72, 8····2·1 December ·1980, p.73.

31

the joint ventures abroad emanate from the big industrial

houses who claimed that their activities have been either

regulated by the Monopolies and Restrictive Tr~de Practices 47

Act (M.R.T.P.) or may eventually come under M.R.T.P.

According to an expert on the subject, monopoly houses like

the Birlas went abroad primarily .in response to legislative

measures restricting the growth of monop~lies within the 48

country. Going to a low tax area for starting an industry

similar to their dome·::; tic enterpri·::;e thought 49

worthwhile.

Moreover, such ventures, in majority of the cases, did

not constitute a cash drain for the Indian partners, as the

machinery was purchased on deferred terms through loans from 50

Industrial Development Bank of India CI.D.3.I.l.

It is against this background that we have to examine

the Government of India's policy relating to overseas joint

ventures. Joint ventures 5 •1

in the late fifties ~nd early

si:·:ties, when there were no definite guidelines, were

allowed on the basis of a case by case study. It was only in

the late sixties the need to formulate an appropriate policy

47. Indian Institute of Foreign Trade, !n~i!:i J£iD1 Yl.D.1.!:!I.§.2 .6.Q.rg~g <New Delhi, ·1977), p. 75.

48. 8alakrishn.=tn, n.3·1, p • .tt8.

50. M.K. Raju, !Dl!tDili£Di!ii~li£D £f !D1i~D ~~iiD!i! <Bombay, 1980), p.4.

5"1. For a list of joint ventures promoted until Table 3 in the Annexure.

32

was clearly felt. The gener~l guidelines governing Indian

participation in joint ventures were issued in •19.S8 7 thus

marking a departure from an ad hoc state of affairs to

comprehensive 52

technology.

policy for the e:.;port of capital and

These guideline~: defined the Pxtent of

participation of Indians in promoting joint ventures in any

country. From the very beginning only minority participation 53

by Indian party was allowed. Association of local partiEs,

local development banks, financial institutions and local

government, wherever necessary, 54

wa.s .:tl~:;o faVOU!'ed fo1·

p!'omoting joint ventures. Barring small amounts to meet

the preliminary expenses for setting up a joint venture

abroad, ca:; h remi tt.;.J.nce f 0 I' the promotion of such ventures 55

abro.3.d wen:: not .allowed. The pr,licy .:>lso mad.r ft. cl er.::r

that indigenous Indian machinery, equipment and technical

know-how required for promoting new ventures should

represent the Indian share of equity participation. In case

the ~alue of machinery and know-how falls short to make up

the necessary reasonable equity required to be maintained

(at a level higher than what was obtainable through export

52. Institute of Company Secretaries of India, Y!DlY!!l ~~!2~~ <New Delhi, 1983), p.24.

53. Government of India, Guidelines Governing Indian Participation in Joint Overseas Industrial Ventures <New Delhi, ·19691, Cl.3.use (i). Indian Investment Centre booklet, lD~l~D l~lD1 ~!DlY!!~ 6~!~j~ <New Delhi,1772), p. •13. .

54. Ibid.

55. Ibid., Clause (ii), p.13.

3J

of capital goods alone) provision was also made to consider

the inclusion of structural steel items and consti'Uction

materials e:·:cludin·~ 56

component·3, as part of Indian equity

participation. Machinery to be exported was to be of

Indian make and no export of second-hand or re-·condi tioned

machinery against Indian investment allowed.

With a view to promoting Indian investment overseas, !:;7 .. ~ ;

normal import replenishment e:-:port

of such machinery and equipment, to a registered exporter

under the import policy in force, was also allowed on export 58

against equity capital. The level of cash assistance was

restricted to 10 per cent of the F.O.B. value of exports nf

machinery and equipment provided such an assistance was 59

otherwise admissible under the policy.

As far as pos~~ible, stress was laid on promoting

turnkey jobs with a view to lightening the responsibility of 60

the Indian investors. The guidelines also defined that to

the e:·:tent possible a provision in the joint venture

56. Ibid., Clause (iii I, p.13.

57. Import Replenishment means entitlement to import

58.

c:·o ::) I a

60.

licence. It is a kind of incentive to promote exports, intended to help the exporters obtain thP inputs easily by direct imports.

Cash assistance is an incentive given to exporters, promote exports by enabling them to quote low in international market.

to the

Government of India, Guidelines, Clause v, n.53, p.13.

Ibid. , Clause <viii p.14.

·'=iQt'·eement should be made for the tr-:~.ining f.:acilities of 6·1

forei•Jn n.:ation.:als in India.

lj Q.Q. if. i£~1.i9.Il?. i!l 1.b.§. l?.9.li£:i

In September •1978' the '] o vet'· nm en t rr1ndifit>d t. he

guidelines governing Indi~n joint ventur8s abroad and issued

a fresh set of guidelines to make them more comprehensive.

While a few of the provisions as contained in the old

guidelines were ret.;:l.ined. in th€' new policy, some new

guidelines were incorporated. The salient features of these 62

new guidelines were as follows

For speedy clearance of the joint venture

proposals a focal point was created in the form of an

inter-ministerial committee with comprt'hens1 ve

monitoring and evaluation facilities.

Indian equity participation was permitted in

e:·:ception,3.l cases in one or more forms like export of

~::nov.•···how, c.:J.ptalis.3.tion of service fees, t'·oyalit.ie~. ~nd

other payments and by raising of foreign exchange loans

abroad.

Cash remittances were also permitted in hard ~nd

deservin•J cases.

61. Ibid., Clause <viii), p.14.

62. Government of India, Guidelines Governing Inrtian Joint Ventures Abroad (As modified on 28 September 1778), Federation of Indian Chambers of Commerce and Industry, ~grt!b£R QD ln~i!D d£in1 ~~nlY!!1 !D~ Er£J!s1 g~R£!11 = B!R.Q!l <New Delhi 1 ·1932) 1 pp.29-3·1.

Schemes for commercial, tradin9 or servicf!

ventures were also permitted under the new 63

•3uidelines.

To make overseas joint ventures commercially attractive

for the Indian entrepreneurs, the Government of India

arranged for concessional credit through the mechanism of

refinance facilities of the LD.B.I. The intere·::;t

charged per cent pe1·· annum. To protect thE

investment, an overseas inve·.:;tment insurance was also 64

introduced.

8esides this, the Indian government provi.deci flthe·r

incentives to Indian entrepreneurs investing abroad. Several

concessions under the Income Tax Act were extendEd.

These included deduction from income, 65

profits and gain from

projects

dividends,

outside 66

India

royalties

and deduction in respect of

f !'"om certain enterprises and in

respect of remuneration received for services 67

rendered

outside India. The government also extended the avoidance

of double taxation agreements with more than 25 countries.

63. Ibid.

64. Indian Investment Centre, !n~i~n J£in1 ~!nL~L!i ~~L~id ·· §g.:y_gr.D!B.D.1 .E.f!ll.fl.st.§ <New Delhi, ·198·1), p.7.

65. See Income-Ta:{ Act, Section 80·-l1H8.

66. Ibid., Section 80-N.

67. Ibid., Section 80·-0.

36

Exports against equity participation in joint ventures are

entitled for facilities of import replenishment at pat with 6f!l

normal exports under the import policy.

Thus, we find that as a result of the policy

modification the regulations governing the joint venturss

were fairly relaxed. Allowing cash remittances in selected

cases is an important change. The decision to set up a

point clearing authority is intended to s;peed up

approval procedures. Also the decision to allow trading,

commercial and service activities is a mejor departure from

the earlier pattern of investments.

It is nearly two decades since India st..:trtect m-3king

concerted promotional activities and succeeded in generating

a large number of joint ventures. In the early 1970s, thanks

to the intensive export promotion activities, Indian exports

picked u~ in a big way. With it ther0 had been substantial

growth in other activities such .::ts project contracts,

consultancy service and technical co···oper-J.t.ion,

brought about better scope for interacting with other

countries. The result had been an impressively perceivable

spurt in joint venture activity in 1975, when in a single 69

year 23 units were commissioned for commercial operation.

Till the end of July 1978 more than 300 proposals for

joint ventures were approved. By then nearly 100 were under

68. Indian Investment Centre, n.64.

69. Balakrishnan, n.3·1, p.48

37

70 various stages of implementation. The year 1979 witn~ssed

a virtual explosion of foreign investmrnt activity as a

result of the policy changes mentioned earlier. By early

1980 the total ·equity invested overseas came to Rs.60Q

million in 195 projects, some of them in production and the

under construction. r. . ,, 1 n c €· then th~'l'e h.:;;s been

steady growth in the number of registration for joint

ventures. The factual position as on 1 July 1982 is given in

Table 4 in the Annexure.

An analysis of Indian joint ventures according to the

field of collaboration is given in Table 5 in the Annexure.

It may be seen from the Table that Indian joint ventures

have been into those which undertake

manufacturing activities and others. Out of the total of 134

joint ventures in operation, 87 or 65 per cent were engaged

in manufacturing activities but they accounted for 94 per

cent of the total Indian investment by way of equity share 72

capital. Among the joint ventures that have so far become

operational in the manufacturing sector, the maximum number

is in the field of light engineering (30) followed by

te:-:tiles (·19), the traditional fields in which Indian

7Q. Federation of Indian Chambers of Commerce and Industry, ~~Ll~G~~ ~n ln~i~n J~inl ~~nl~L~~ ~u1 EL~ls~l [~~~Ll~­R!~~Ll <New Delhi,1979l, p.23.

71. Federation of Indian Chambers of Commerce and Industry, H2r12DQ£ QD lngi~D lQiD1 ~~D1gr£2 IgrD1~~ ~ng Ibirg ~Qgn1r~ ErQJ~..£12 ·- B~£QI1 <Nev.• Delhi, ·1980>, pp.Z--3.

7 r, C.. n Indian Investment Centre, n.·1·1, p.·lo.

as

entrepreneur·:. have Bcqui1··ed -3 Cf?rt.s.in d.E1gref:' (It

73 capability. Other industries i.n which Ind.ia.n joint

ventures have been S2t up include chemicals and

pharmaceuticals ( ·12) , palm ol.l refinin•j ( 9) ' i , .. on and s t E.' € 1 74·

products ( 5) 7 p.3.per ( 3) and gl,lSS ( 3) • In tenns of

investment in share capital, te:-:ti.les hf'ld. the prE• dominant

position with about 30 per cent of the total Indian equity

follriwed by palm oil refining <18 per cent),

cent), light engineering (15.3 per cent) and chemicals and

pharmaceuticals (4.3 per cent). In t.hP non-manufacturing

sector, the large·:;t number was in trading and marketing I ~-

foilo~,o.•ed by hotels a.nd rest.:;u1··.;~nts ( ·1ft ) 75

engineering contracts and construction (7).

Non-·manufacturing investments do not contribute to thr

value of equity but thi:!ir number',; h.3. v e

dramatically with the shift in policy to establish s<.~.les

agencies, consultancie·:;, civil construction and the lik~.

The Middle East has attracted a number of such investments \

since the prOITiOtion of various turnkey projects and

consultancies. Indian hoteliers have been notably successful

overseas, the Oberoi •]roup, operating mainly under

management contracts, has set up a chain of luxury hotels,

from Australi.::t, via Southeast Asia, Sri L.3.nk.3., E•;~ypt and

73. Ibid.

74. Ibid..

75. Ibid.

Spain to the U.S. The Taj g r a'-' p, ["'<:II'' t. of the T<:!t..s.

i s now venturing ~broad with a Sri Lanka 76

Rs.SOO million hotel in Sri Lanka.

India's main interest, however, lies in m~nufact.uring.

Here the aggregate figure shows that despite their late

entry, Indian firms have spread abroad in diverse range of

activities. While a number of simple, relatively· low

technology and labour intensive vent.urts SU9ar'!

simple metal products) are there, roughly half of th2

foreign equity is accounted fer by ventures in more complEx

capital intensive <steel mills, paper ·3.nd pulp, chemic,ll·:;)

or skill and technology intensive (pharmaceuticals, 77

machinery, transport equipmentsl activities.

Indian joint ventures currently in opPration are

dispersed over 26 countries. h.alf of them ·:tre

concentrated in four countries, t·1.a lays i .:J ( 28) '

(14), Indonesia (12l and Kenya (10). Regionwise, the largest

number of Indian joint ventures are located in the

neighbouring countries of Southeast Asia <73l, follo\l.'ed by

Africa ( 23) • Indian entrepreneurs were init.i~lly attracted

towards Africa, in which continent many countries became

politically independent in the 195Qs and 1960s anM many of

whom were looking to India as providing a model for their ;e,

economic development. As a constquence,there was a spurt

76. Sanjay.:a Lall, n.·16, p.'135.

77. Ibid.

78. Indian Investment Centre, n.11, p.7.

0 r- ptoposals for joint ventures in African

countries. However, pe1··ceptible orientation towards

Southeast Asia was visible in the last decade when a

share of the investment was directed to count1·ies like

Malaysia, Indonesia, Singapote and Thailand, because of

various incentives these countries offered and the rxistence

of stable political' conditions. This attraction towards

ASEAN area resulted in Southeast Asia accounting for 61 per

cent of the tJotal Indian Investment in joint '.Jentur:?s

.:1.broad. Of late, however, there has been a revival 79

of

interest in Africa especially in Nigeria. summarised

statement given in Table 6 in the Annexure shows the

regionwise distribution of effective joint

1,1} it h Indian investement in share c~pital. f v e n a. m o n 9 t. h e

Southeast Asian countries, which has been the

single largest recipient of IndiBn capitr.::l j !;. being

overtaken by Indonesia which accounts for the largest eo

·::; t 0 c k

of Indian equity.

A very noticeable missing link in India's joint venture

effort, t i 11 recently at le.ast, the absence of

79. Ibid.

80. As on 3'1.3.·1982 the approved <under implementa.t.ion-) Indian equity in Indonesia was over Rs. 4.75 crores as against Rs.0.39 crores in Malaysi~. Fquity investment in respect of units already in operation are, Malaysia Rs.12.5 crores and Indonesi~ Rs.10.93 crores with Malaysia leading marginally. Indian Investment Centre, n.·1·1, p.29.

successful penetration in the immediate and contiguous

neighbouring countries of Pakistan, Nepal,

8 hut an , S r i Lank -3. and the t'1 a 1 d i v e s • 1-: a r d 1 y any pI' o j e c t h -:i d

fructified in Nepal even though 11 proposals had been

approved so far for locating joint ventures in that country.

Even among the projects reported to b2 under implementation (?. ·1

the progress seems to be tardy.

It could be stated that so far as the South Asian

neighbours are concerned, India has not succeeded in

promoting a sizeable number of joint ventures although there 82

has been a spurt since 1977-78.

The principal reason for this is that on the political

plane India's relations with most of its neighbours have not

been cordi-3.1. "Wr: seem to b0: suffering ftom political hang

up in collabotating with contiguous countries in South 83

With Pakistan and later Bangladesh h&ving bPen ruled

out for reasons of strained relations, the other neighbours

left out are the small states of Nepal and Bhutan in the

north and the islands of Sri Lanka anct the Maldives in the

8·1. Ibid., p.·10.

82. Until 1978 thete were only 4 operating Indian joint ventures in the South Asian countries. The break-up is -3.5 follows :

Bangladesh··· ·1 N e p.l - ·1 Sri. Lr.1nka - 2

Federation of Indian Chambers of Commerce and Industry, ~2tt~b2e 2n in4iin J2in1 ~!nl~tei 6~tR24 in~ EtRl!£1 ~~22L1~- R!22L1 (New Delhi, 1982), pp.75-7 and 96-7.

83. Bal.3.kri.shnBn, n.3·1, p.43.

south. The economic potential for investment in Nepal and

Bhutan are very limited and there js no surprise in the

conspicuous absence of Indian investment there. The Maldives

is an infant economy with neither !'eSOUI''C€S nnr loc.:~.l

entrepreneurial talent to think of joint ventures. Th2 only

other neighbour is Sri Lanka which remained a closed economy

until ·1977. With the liberalisation of the economy a good

number of Indian joint ventures were sought to be put ur in

Sri Lanka.

The picture that emerged in 1982 with regard to Sri

Lanka was more promising thah had been the earlier.

Apart from the two old units which werr jn operation from

the 1960s, four more commenced operation in the early 1980s.

8 e s i de s .t he s e , there are 11 proposals under implementation,

among which thre2 are for the construction of 84

hotels.

five-star

India and the neighbouring countries like Sri l.anka

have a common socio-economic backdrop with a number of

common problems like poverty, u.nPmployment, 85

population and inflation. The consumption pattern and the

life styles are nearly similar in all these countries. India

has relatively large industrial growth and has built up its

c.3.pability to e:-:port it·:; The

pro:dmi ty and the mutually assimilable st..;:;te of

84. Indian Investment Centre, n.11, p.10.

85. M .C. Bhatt, "Indi.'£in Joint Ventures in South and Southeast f>;sia", I. J. B rJ. had u r Singh, E· d. , lmti.i!.n?. in §.QlL~.b.EE~.§.1 ~.§.L~ <New Delhi, ·1982)' p. ·177.

86 technologies of the countries make it appear that on the

face of it, all the neighbours could economically interact

with each other. But still the paradox is that Indi~n joint

ventures have limited acceptability in all these countries.

Earlier, minority participation hy thP Jndian promoters

was specifically insisted upon, but the present guidelines

are resilient enough to accommodate ruajority participation

if permitted by the host country where the joint ventures 87

are to be located. Nevertheless, with the rising trend of

assertion of economic independence in many developing

countries, insistence is increasingly being madf:.' that

foreign pa.rticipation in industrie·.:; that .3. r e being

established in their cou.nt1··ies should bP rrd ntH i t.y in

char.acter.

From an an.:dysis of t h€' joint ventures already

established abroad, it can be observed that in .':3. vast

rna j o ,,. it y of the u n i. t s ( i • e ., ·1 ·1 3 out of ·1 3 L; ~1 c: c: o u n t i n g f o ,,. 8 4·

per cent of the total) Indian participants held only

minority interests which l. s in consonance with t hf:'

aspir.ations of the developing countries. There were 21 joint

ventures in which the Indian participants had majority shart

It is also noteworthy that apart from these 21

86. Government of Sri Lanka, B!jl~Dgl g£~D~IDi£ ~~-

~R!!ili~D' 1D1~-~!Yl~D g£~D~IDi£ ~~=~Q!!ili~D ~~IDIDill!! <Colombo, 1968), p.8.

87. Indian Investment C~ntr~, n.11, p.4.

units with majority Indian shareholding, there were 69 units

accounting for 51.5 per cent of thr total number, 88

Indian share ranged from 31 to 50 per cent.

i.n which

Another significant feature of Indian joint ventures

that has had a vital bearing on their performance and

operating results, is the small size and scale of operation

of the majority of the units. The average size of an Indian

j a i n t v e n t u ,,. e i n t e r m s o f e q u i t y r .:;:;. r• i t a l. e m p 1 o y e ci w o r k s o u t

to about Rs.107 lakhs, but an analysis of the frequency

distribution of joint ventures according to thr size of the 89

equity base is l~s.·10 lakhs or 1 e s s • the non·-·

manufacturing units, whose equity is comparatively much

smaller than manufacturing units, are ·:;;egre•;p.ted, the

position would be somewhat better. T~bl8 7 in the Annexure

·~ives the frequency distribution of joint ventures

( manuf.3.ctur i n9 units) by the magnitude of their share

capital.

Howeve1·, this trend of establishment of s 1.1 b -· Cl p t i m a 1

units (at least in the manufacturing sector) is •;Jra.du.3.lly

being reversed in the case of units whirh h~v0 been

on stream during the last two or three years and also in the

case of units which are in the process of being implemented.

Table 8 in the Annexure shows the profitability

position of the Indian joint ventures abroad. The OV!I'.:J.ll

- ·- -- ··- .... ·- -- --0

- ·- ·- - ·- ·- -N ---- ·- ·- - R ... R- ·-- ·- ·-- ·-. H-- OR- - -- -· ·-·- N- ~·N .._ ·- 0•- -- - NP.- - 0

--

0

- - ·- - N -- NO

88. Ibid.

8?. Ibid.

I

sales turnover and the profit earned between the years 1975-

76 and 1979-80 are shown in this Table. The profitability

and the rate of considered quiet ~

successful, as those

return may not be 90

of other countries. It is argued that

allowing for the normal teething trouhles, requisite

gestation period and initial losses, the level of

remittances could not be reg~rded ~s insignificant. The

efficacy of the Indian joint ventures abroad have to be

evaluated taking into account the impact they have created

on promoting additional exports, contributing bigger

remittances and creating better image for the country. ThesP

aspects are more critically analysed in a subsequent chapter

after going into a detailed study of the working of the

Indian joint ventures abroad.

90. Indian Institute of Foreign Trade, n.47, p.87.