Paper 1
Business Environment & Entrepreneurship
Part A
Business Environment
30 Marks
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LLP
Proprietorship
AOP
Co-Op Society
Partnership
Trust
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MSME
Large Enterprise
MNC
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For the removal of doubt, it is hereby clarified that in calculating
the investment in plant and machinery:
1
2
3
4
The cost of pollution control equipment
The cost of research and development equipment
The cost of industrial safety devices and
Such other items as may be specified by notification
shall be excluded.
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Santa Singh owns & operates a call centre. It is a profitable business. He is
also rich by birth. He has taken the premises on rent. Rent is Rs.1.00 lac pm.
The capitalised value of the premises is Rs.2.00 crores. He has installed
computers worth 9.00 lacs in the business; no other equipment. He owns a
BMW-Z4 costing Rs.60 lacs. He drives this car to work everyday.
The call centre is a micro enterprise, because it has p&m worth < 10 lacs
The call centre is a small enterprise, because it has p&m worth > 10 lacs, since
BMW-Z4 is used in business
Don’t forget the capitalised value of premises; the call centre is a medium
enterprise, because actual + notional value of investment is > 2.00 crores
Only computers will be considered under p & m; neither car, nor premises
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Banta Singh owns & operates a factory for the manufacture of pendrives. He
also repairs for free, in the same factory premises, pendrives sold by him &
found defective by customers. Total investment in p&m is Rs.3.00 crores.
The factory should be registered as a small enterprise under the category of
Manufacturer
The factory should also be registered as a medium enterprise under the
category of Service Provider – Repairs & Maintenance
Repairs & Maintenance is an integral part of production & after-sales service. It
does not require a separate registration
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Banta Singh is an accomplished manufacturer of pendrives. He is also an
accomplished mechanic for repairs to pendrives. He has now decided to offer
repairs & maintenance service in respect of all brands sold in the market – own
+ rivals’ for a fee. Total investment in p&m remains steady at Rs.3.00 crores.
The factory should be registered as a small enterprise under the category of
Manufacturer
The factory should also be registered as a medium enterprise under the
category of Service Provider – Repairs & Maintenance
Repairs & Maintenance of all brands is a separate independent service. It
requires a separate registration
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Funny that Banta’s factory is registrable as a small manufacturer &
simultaneously as medium sized service provider
True, that is how the law is written
If Banta Singh can separate his Repairs & Maintenance Section, he could
perhaps register as a small service provider, in addition to registration as a
Small Manufacturer
If the investment in Repairs & Maintenance Section is between 10 lacs & 2
crores
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How does it matter, whether Banta Singh’s factory & workshop are registered
as Micro or Small or Medium Manufacturer/Service Provider
Government offers incentives to Micro or Small or Medium enterprises
The scale of incentives is linked to the status of the enterprise ie whether Micro
or Small or Medium Manufacturer/Service Provider
Claiming incentives under an erroneous category can lead to serious
consequences
Market Development Assistance is one such incentive
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in the case of the enterprises engaged in the manufacture or
production of goods pertaining to any industry specified in the first
(a)
schedule to the Industries (Development and Regulation) Act, 1951,
as –
a micro enterprise, where the investment in plant and machinery
(i)
does not exceed twenty five lakh rupees;
a small enterprise, where the investment in plant and machinery is
(ii) more than twenty five lakh rupees but does not exceed five crore
rupees; or
a medium enterprise, where the investment in plant and machinery
(iii)
is more than five crore rupees but does not exceed ten crore rupees;
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Micro & Small scale units can get registered with the Directorate
of Industries/District Industries Centre in the State Government
concerned. Such units can manufacture any item including those
notified as exclusively reserved for manufacture in the small scale
sector. Small scale units are also free from locational restrictions.
However, a small scale unit is not permitted more than 24 per cent
equity in its paid up capital from any industrial undertaking either
foreign or domestic. If the equity holding from another company
(including foreign equity) exceeds 24 per cent, the unit loses its
small scale status.
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Why would a large house want to invest in a MSME?
Because MSME has inherent adaptability towards technical
change, which the large house may want to exploit
Am I right in using the word “exploit”?
No, the right word is “synergise”. MSME would manufacture &
large house could sell
A large house could themselves set up a MSME, why invest
elsewhere?
No, establishing & running a MSME is a skill, different from skills
of large house management. Its a different DNA or separate ball
game. Tata, Birla & Mahindra can never imagine establishing a
MSME
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Then why would a large house want to invest in a MSME?
Because the large house may want to control manufacture in a
MSME – perhaps trade secrets
Can’t they set up a large unit?
Yes, they can. But every industry must be sustainable. Scale of
manufacture counts in providing sustainability. Moreover licensing
laws prohibit entry of large houses into MSME sector
What is sacrosanct about 24%
Look at it the other way. MSME would have 76% equity. This
much hold is good enough to stall any adverse moves from large
house. It is also adequate to implement its initiatives. ¾ th majority
is the idea
Can this be called a BPO type arrangement?
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But there is no absolute bar at 24%
True. The MSME would lose that status & become subject to
licensing laws on crossing 24%
How does that help the MSME?
It provides a natural environment for MSME to grow at the right
time. Upon achieving large industry status, they are regulated by
government licensing laws, which is good for the economy
Why is it necessary to regulate production?
Given the freedom, an industrialist may be tempted to look for the
most lucrative area of manufacture, without concerns about
demand & supply economics. Government intends to play a useful
role here by regulations.
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All Industrial Undertakings are free to select the location
of a project. Industrial License is required if the proposed
location is within 25 km of the Standard Urban Area
limits of city unless, it is to be located in an area
designated as an "industrial area" before the 25th July,
1991. Electronics, Computer software and Printing and
any other industry, which may be notified in future as
"non polluting industry", are exempt from such location
restriction. The location of industrial units is further
regulated by the local zoning and land use regulations
as also the environmental regulations, as applicable.
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IEM for Medium Enterprises to SIA.
Medium enterprises will generally submit an Industrial Entrepreneurial
Memorandum to the Secretariat of Industrial Approvals (SIA). But they will
require an industrial license for manufacture of items reserved for small
enterprises.
Registration with DIC for Micro & Small Enterprises
Micro & Small Enterprises must register with District Industries Centre.
Industrial License
Licensing is mandatory for large industrial units engaging in the manufacture of
items reserved for compulsory licensing. Medium Enterprise engaging in
manufacture of any product, outside notified industrial estates will also require
an industrial license
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Large & Medium
Enterprises
engaging in
Manufacture of
items reserved
for Small
Enterprises
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Any Enterprise
engaging in the
Manufacture of
Electronic
Aerospace
Equipment &
Defence
Equipment
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Any Enterprise
related to the
production or
use of atomic
energy including
the carrying out
of any process,
preparatory or
ancillary to such
production or
use
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Coal & Lignite
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Petroleum (other
than crude) & its
Distillation
Products
Distillation &
Brewing of
Alcoholic Drinks
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Sugar
Animal Fats &
Oils
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Cigars and
cigarettes of
tobacco and
manufactured
tobacco
substitutes
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Asbestos and
asbestos-based
products
Plywood,
decorative
veneers, and
other woodbased products
such as particle
board, medium
density fiber
board, and blackboard
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Tanned or
dressed furskins
Paper and
Newsprint except
bagasse-based
units.(i.e. except
units based on
minimum 75%
pulp from
agricultural
residues, bagasse
and other non
conventional raw
materials)
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Industrial
explosives,
including
detonating fuses,
safety fuses, gun
powder,
nitrocellulose
and matches
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Hazardous
chemicals
Drugs and
Pharmaceuticals
(according to
Drug Policy)
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Entertainment
electronics
(VCR's, color
TV's, CD players,
tape recorders)
Chamois Leather
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All industrial undertakings whether exempt or not from compulsory industrial
licensing, are statutorily required to submit a monthly production return in the
prescribed proforma every month, so as to reach the Industrial Statistics Unit
(ISU) by the 10th of the following month positively. This data is used by the
government for publishing IIP (index of industrial production) data.
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Pickles &
Chutneys
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Food
Products
Bread
Mustard Oil
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Ground Nut Oil
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Wood
&
Wooden
Furniture
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Wood Products
Wooden Fixtures
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Paper Products
Exercise Books
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Registers
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Wax Candles
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Other Chemicals
&
Chemical
Products
Laundry Soap
Safety Matches
Fire Works
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Agarbatties
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Glass
&
Ceramics
Glass Bangles
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Mechanical
Engineering
Excluding
Transport
Equipment
Steel Almirah
Rolling Shutters
Steel Chair – all
types
Steel Tables – all
other types
Steel Furniture –
all other types
Padlocks
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Stainless Steel
Utensils
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Domestic
Utensils Aluminium
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A small scale unit manufacturing small scale reserved item(s), on
exceeding the small scale investment ceiling in plant and
machinery by virtue of natural growth, needs to obtain a Carryon-Business (COB) License.
No export obligation is fixed on the capacity for which the COB
license is granted. However, if the unit expands its capacity for the
small scale reserved item(s) further, it needs to apply for and
obtain a separate industrial/license. The application for COB
License should be submitted in revised form "EE", which can be
downloaded from the web site (http://dipp.nic.in) along with a
crossed demand draft of Rs.2500/- drawn in favour of the Pay &
Accounts Officer, Department of Industrial Policy & Promotion,
Ministry of Commerce & Industry, payable at New Delhi.
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Entrepreneurs are required to obtain Statutory clearances relating to Pollution Control
and Environment for setting up an industrial project. A Notification (SO 60(E) dated
27.1.94) issued under The Environment (Protection) Act, 1986 has listed 30 projects in
respect of which environmental clearance needs to be obtained from the Ministry of
Environment & Forest, Government of India. This list includes industries like
petrochemical complexes, petroleum refineries, cement, thermal power plants, bulk
drugs, fertilizers, dyes, paper etc. However, if investment is less than Rs.1000 million,
such clearance is not necessary, unless it is for pesticides, bulk drugs and
pharmaceuticals, asbestos and asbestos products, integrated paint complexes, mining
projects, tourism projects of certain parameters, tarred roads in Himalayan areas,
distilleries, dyes, foundries and electroplating industries. Further, any item reserved for
the small scale sector with investment of less than Rs.10 million is also exempt from
obtaining environmental clearance from the Central Government. Powers have been
delegated to the State Governments for grant of environmental clearance for certain
categories of thermal power plants. Seting up industries in certain locations considered
ecologically fragile (e.g. Aravalli Range, coastal areas, Doon valley, Dahanu, etc.) are
guided by separate guidelines issued by the Ministry of Environment and Forests,
Government of India. Details can be obtained at the website of Ministry of Environment
and Forests (http://envfor.nic.in).
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Land allotment from Industrial Development Authority/or shed Allotment from
District Industries Center or Industrial Development Corporation. Sheds are
provided by such corporations on long term lease of 99 years on commercial
rental terms.
The industry is allowed to create a charge over the leased land/structure with
the prior permission of the corporation, for the purposes of availing funding
facilities.
Transfer of land & structure is also permissible subject to prior approval on
payment of premium.
Standard Design Factories are built within SEZ, which are available for
commercial rent.
Such regulated allotment of land & structures attract concessional stamp duty &
registration fee.
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NOC from Pollution Control Board under the provision of Water
(Prevention of Pollution) Act 1974, Air (Prevention of Pollution) Act
1981,Environment (protection) Act 1986 is necessary. However, in
case of non-polluting SSI industries, which are presently
exempted by Pollution Control Board from obtaining NOC, the SSI
registration granted by District Industries Center itself is Sufficient
and no separate application for NOC is needed.
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Building Map approval from concerned
Authority/Designated Authority of notified area.
Development
Fire Department NOC
Registration with Factory Inspector in appropriate category –
below/above 10/20 workers
Registration with ESI & PF Board
Registration with Legal Metrology Office for weights & measures
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Obtain PAN, TDS number & TCS number
Registration under the local VAT Law, Entry Tax Law or Octroi Law
Registration under the Central Sales Tax Act, 1956 for conduct of
inter-state trade & commerce with the use of C forms, E-1/2
Forms, F Forms & Forms H
Apply for TIN
Registration with Excise Office via www.aces.gov.in
Registration for Service Tax via www.aces.gov.in
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Letter of Intent to be filed with Ministry of Industries, Government of India, by
specified industries presently notified by Government of India, as well as those,
not covered under the provisions for exemptions, from Industrial Licensing.
Sanction of power for Construction/Production & Administrative use.
NOC from District Magistrate, for storage of Diesel for the units which store
diesel for their D.G. Sets/Furnace etc & Explosive License from Central
Government
NOC from Drug Controller, for setting Drugs & Pharmaceuticals and Cosmetics
products manufacturing units, covered under Drugs & Cosmetics Act 1940.
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NOC from Director Ayurvedic & Unani medicines, for setting up
Ayurvedic/Unani medicines manufacturing units.
NOC from Forest Department, for setting up wood based units.
Allotment Assurance from state Excise Department for setting up
Alcohol based units for ensuring the availability of Alcohol.
Registration under Shop and Commercial Establishment Act for
the units having employees posted in their offices, not covered
under the Factories Act, 1948.
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Industrial License from Ministry of Industry, Government of India.
Presently, some Industries, are required to obtain industrial
License from Ministry of Industry as well as those not covered
under the provisions for exemptions from Industrial Licensing.
Government of India.
Factory License under the Factories Act 1948, in case of factories
where manufacturing process is carried on with the aid of power, if
the number of workers employed is ten or more, and without aid of
power, if the number of workers employed is twenty or more.
Clearance from Director, Electrical Safety, under Indian Electricity
Rules 1956, if power connection/D.G. set is installed.
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Drug License under Drugs & Cosmetics Act 1940, for Drugs and
Pharmaceuticals and Cosmetics products manufacturing units covered under
Drugs & Cosmetics Act.
Excise License under the State Excise Act for Distilleries & Breweries, covered
under the said Act.
License from Food Commissioner, for units manufacturing food items
License under Milk and Milk Product order for milk based industries
Registration of Boiler if used in production process under the Indian Boilers Act
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in the case of the enterprises engaged in providing or rendering of
(b)
services, as –
a micro enterprise, where the investment in equipment does not
(i)
exceed ten lakh rupees;
a small enterprise, where the investment in equipment is more than
(ii)
ten lakh rupees but does not exceed two crore rupees; or
(iii)
a medium enterprise, where the investment in equipment is more
than two crore rupees but does not exceed five crore rupees
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Growth of the industrial sector at a higher rate and on a sustained basis is a major
determinant of a country's overall economic development. In this regard, the
Government of India has issued industrial policies, from time to time, to facilitate and
foster the growth of Indian industry and maintain its productivity and competitiveness in
the world market. In order to provide the Central Government with the means to
implement its industrial policies, several legislations have been enacted and amended in
response to the changing environment. The most important being the Industries
(Development and Regulation) Act, 1951 (IDRA) which was enacted in pursuance of
the Industrial Policy Resolution, 1948. The Act was formulated for the purpose of
development and regulation of industries in India by the Central Government. The main
objectives of the Act is to empower the Government:(i) to take necessary steps for the development of industries;
(ii) to regulate the pattern and direction of industrial development;
(iii) to control the activities, performance and results of industrial undertakings in the
public interest.
The Act applies to the 'Scheduled Industries' listed in the First Schedule of the Act.
However, small scale industrial undertakings and ancillary units are exempted from the
provisions of this Act.
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The Act is administered by the Ministry of Industries & Commerce through
its Department of Industrial Policy & Promotion (DIPP). The DIPP is responsible for
formulation and implementation of promotional and developmental measures for growth
of the industrial sector. It monitors the industrial growth and production, in general, and
selected industrial sectors, such as cement, paper and pulp, leather, tyre and rubber,
light electrical industries, consumer goods, consumer durables, light machine tools, light
industrial machinery, light engineering industries etc., in particular. It is also responsible
for facilitating and increasing the foreign direct investment (FDI) inflow into the country
as well as for encouraging acquisition of technological capability in various sectors of the
industry.
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The development council shall perform the following functions assigned to it by the
Central Government:(i) recommending targets for production, co-ordinating production programmes and
reviewing progress from time to time.
(ii) suggesting norms of efficiency with a view to eliminating waste, obtaining maximum
production, improving quality and reducing costs.
(iii) recommending measures for securing the fuller utilisation of the installed capacity
and for improving the working of the industry, particularly of the less efficient units.
(iv) promoting arrangements for better marketing and helping in the devising of a system
of distribution and sale of the produce of the industry which would be satisfactory to
the consumer.
(v) promoting the training of persons engaged or proposing engagement in the industry
and their education in technical or artistic subjects relevant thereto, etc.
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The IDRA empowers the Central Government to regulate the development of industries
by means of licensing with suitable exemptions as decided by the Government.
Accordingly, the entry into a business or the expansion of an existing business may be
regulated by licensing. A licence is a written permission from the Government to an
industrial undertaking to manufacture specified articles included in the Schedule to the
Act. It contains particulars of the industrial undertaking, its location, the articles to be
manufactured, its capacity on the basis of the maximum utilisation of plant and
machinery, and other appropriate conditions which are enforceable under the Act. If an
application for licence is approved and further clearance (such as that of foreign
collaboration and capital goods import) are not involved and no other prior conditions
have to be fulfilled, an industrial licence is issued to the applicant. In other cases, a letter
of intent is issued, which conveys the intention of the Government to grant a licence
subject to the fulfilment of certain conditions such as approval of foreign investment
proposal, import of capital goods, etc. The Government may order for investigation
before the grant of licence to an industrial undertaking.
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It can make a full and complete investigation if it is of the opinion that in the respect of
any schedule industry or undertaking, there has been or is likely to be:(i) a substantial fall in the volume of output; or
(ii) a marked deterioration in the quality of output or an unjustifiable rise in the price of
the output.
Also, if it is of the opinion that any industrial undertaking is being managed in a manner
highly detrimental to the scheduled industry concerned or to the public interest, it orders
investigation. As a result of such investigations, the Government is empowered to issue
directions to the industrial undertaking for all or any of the following purposes:1 Regulating the production of output by the industrial undertaking and fixing the
standards of production;
2 Requiring the industrial undertaking to take such steps as the Central Government
may consider necessary to stimulate the development of the industry to which the
undertaking relate.
3 Prohibiting the industrial undertaking from resorting to any act or practice which
might reduce its production, capacity or economic value;
4 Controlling the prices, or regulating the distribution, of an output for securing its
equitable distribution and availability at fair prices.
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The power of control entrusted to the Central Government under the Act extends to that
of the take over of the management of the whole or any part of an industrial undertaking
which fails to comply with any of the directions mentioned above. The Government can
also take over the management of an undertaking which is being managed in a manner
highly detrimental to the scheduled industry concerned or to the public interest. Further,
the Central government can take over the management of industrial undertaking owned
by a company under liquidation, with the permission of the High Court, if the
Government is of the opinion that the running or restarting the operations of such an
undertaking is necessary for the maintaining or increasing the production, supply or
distribution in the public interest. Until liberalisation, the industrial licence was required
for the establishment of a new industrial undertaking, manufacturing of a new item by an
existing undertaking, change of location of an industry, substantial expansion of existing
capacity and for all other purposes. But the new industrial policy has liberalised this and
exempted many industries from obtaining industrial licence. In today's scenario, only 6
categories of industries require industrial licensing under the Industries (Development
and Regulation) Act, 1951 (IDRA). Other industries must file an Industrial
Entrepreneur Memoranda (IEM) with the Secretariat of Industrial Assistance
(SIA),Department of Industrial Policy and Promotion to obtain an acknowledgement.
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The power of control entrusted to the Central Government under the Act extends to that
of the take over of the management of the whole or any part of an industrial undertaking
which fails to comply with any of the directions mentioned above. The Government can
also take over the management of an undertaking which is being managed in a manner
highly detrimental to the scheduled industry concerned or to the public interest. Further,
the Central government can take over the management of industrial undertaking owned
by a company under liquidation, with the permission of the High Court, if the
Government is of the opinion that the running or restarting the operations of such an
undertaking is necessary for the maintaining or increasing the production, supply or
distribution in the public interest. Until liberalisation, the industrial licence was required
for the establishment of a new industrial undertaking, manufacturing of a new item by an
existing undertaking, change of location of an industry, substantial expansion of existing
capacity and for all other purposes. But the new industrial policy has liberalised this and
exempted many industries from obtaining industrial licence. In today's scenario, only 6
categories of industries require industrial licensing under the Industries (Development
and Regulation) Act, 1951 (IDRA). Other industries must file an Industrial
Entrepreneur Memoranda (IEM) with the Secretariat of Industrial Assistance
(SIA),Department of Industrial Policy and Promotion to obtain an acknowledgement.
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As the name suggests, any company is referred to as a multinational company or
corporation (MNC) when that company manages its operation or production or service
delivery from more than a single country. A company is as international company when
its manufacturing operations are performed in one country & its products are sold in
many countries. As defined by ILO, MNC is a company, which has its operational
headquarters based in one country with several other operating branches in different
countries. The country where the head quarter is located is called the home country
whereas, the other countries with operational branches are called the host countries.
Apart from playing an important role in globalization and international relations, these
multinational companies even have notable influence in a country's economy as well as
the world economy. The budget of some of the MNCs are sometimes even higher than
the GDP (Gross Domestic Product) of developing nations. Economic data suggests that
liberalization in 1991 has brought into India, multitude of foreign companies and the
share of US is the highest. They account for about 37% of the turnover from top 20
companies that function in India.
MNC is not defined by value of investment in plant & machinery like MSMEs & large
enterprise, but by operational spread in many jurisdictions.
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Why are Multinational Companies attracted to India?
There are a number of reasons why the multinational companies are coming down to
India. India has got a huge market. It has also got one of the fastest growing economies
in the world. Besides, the policy of the government towards FDI has also played a major
role in attracting multinational companies. For quite a long time, India had a restrictive
policy in terms of foreign direct investment. As a result, there was lesser number of
companies that showed interest in investing in Indian market. However, the scenario
changed during the financial liberalization of the country, especially after 1991.
Government, nowadays, makes continuous efforts to attract foreign investments by
relaxing many of its policies. As a result, a number of multinational companies have
shown interest in Indian market. Apart from the regulatory aspect, India also presents
MNCs with a huge qualified work-force, at competitive wages. Politically speaking,
democracy in India, is a conducive environment to business growth, as opposed to
communism or dictatorship.
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Profit of MNCs in India
Companies come and settle in India to earn profit. A company enlarges its area of work
beyond its native place when they view a wide scope to earn a profit. That is true of
MNCs that have flourished here. Host country government generally scoff at profit
making motive or dividend declaration by MNCs. But this will remain unchanged for long
time to come. And profits are derived from:
Huge market potential of the country
FDI attractiveness
Labour competitiveness
Macro-economic stability
Political stability.
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Advantages of the growing MNCs to India
There are certain advantages that developing countries like India derive from the foreign
MNCs:
1
Initiating a higher level of investment.
2
Reducing the technological gap
3
The natural resources are utilized in true sense.
4
The foreign exchange reserves improve
5
Boosts the basic economic structure.
Disadvantages of MNCs
Roses does not come without thrones. Disadvantages of having an MNCs in a
developing country like India are as under:
A
Competition to MSME
B
Pollution and Environmental hazards
C
Some MNCs come only for tax benefits
D
Exploitation of natural resources
E
Lack of employment opportunities
F
Diffusion of profits and Forex Imbalance
G
Working environment and conditions
H
Slows down decision making
I
Economical distress
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Mc Donald’s, the world’s largest seller of beef products has managed to grow
successfully in India, a country where the cow is sacred. Yet successful MNCs like Nokia
have gotten it wrong. Most companies that enter India have a few good years and then
they counter a wall. That is because they are all serving the affluent which is just the top
5%, so after five or six years, the growth is stalled and it becomes highly competitive as
everyone is fighting for that small pyramid on top. To win in countries like India and
China, companies have to do things very differently from what they do in other parts of
the world & company managements hate doing things differently for a particular
geography and they hate change.
The list of transnational giants, however, is getting crowded with a multitude of
companies from emerging economies, including India, which are rapidly increasing their
international footprint through aggressive overseas acquisitions. In the last four to five
years, most Indian companies had followed a strategy of aggressive international
mergers and acquisition to expand their global footprint. But business groups like Tata
and Birla seem to have more advantage when it comes to becoming global, perhaps
because of resources.
098 251 20338
CS Smitesh Desai
lex4biz@yahoo.com
To cut costs and contain attrition, Indian MNCs are moving into tier-2 cities. While 96 per
cent of MNC have locate their R&D in cities like Bangalore. Increasingly many are
moving to tier-2 cities such as Ahmedabad, Jaipur, Chandigarh, Coimbatore, Vadodara,
Nagpur, Pune and Thiruvananthapuram. R&D talent pool is growing at the rate of 9 per
cent every year and is expected to reach 2.5 lakh by 2015. MNCs started expanding to
tier-2 cities due to advantages like higher catchment area, lower attrition, cost arbitrage,
etc. Typically, tier-2 cities were a preferred destination for IT and BPO companies which
were grappling with commercial real estate and attrition costs. This trend is seen now
with multinationals such as Dell, Nokia, Amazon and others who are looking at tier-2
cities that would be in addition to their existing centres in major cities. Cost of living in
tier-2 cities is 10-25 per cent lower compared to tier-1 cities and provide cost advantage
of 15-40 per cent in commercial real estate costs.
098 251 20338
CS Smitesh Desai
lex4biz@yahoo.com
The East India Company was the first major shareholder-owned multinational company (MNC). It
found India rich and left it poor. When the company was established in 1600, in the reign of Queen
Elizabeth I, and for 150 years thereafter, there were no products England could export that the East
wanted to buy. Spices, textiles and luxury goods sailed west. Only money sailed east. It was the
ability to acquire land and control government services that raised the fortunes of the Company -and broke India. As the mighty and opulent Mughal Empire declined, the Company acquired land
beyond its vulnerable trading ports, extorted taxes, manipulated terms of trade in its favour, and
built up a private army. In 1757 Robert Clive fought and defeated the Nawab of Bengal. Later, Lord
Cornwallis defeated Tipu Sultan in the south. In both cases, and in many lesser incidents, the
Company's executive officers extorted huge ransoms and accumulated unimaginable wealth. At a
stroke the zamindars, under the Mughals, were transformed into landlords, and Bengal's 20 million
smallholders were deprived of all hereditary rights. Just five years after the Company secured
control of Bengal in 1765, revenues from the land tax had tripled, beggaring the people. The
devastating effects last to this day. These conditions turned one of Bengal's periodic droughts, in
1769, into a full-blown famine. An estimated 10 million people, one third of the population of Bengal,
died. But, rather than organise relief efforts to meet the needs of the starving, the Company actually
increased tax collection during the famine. Granaries were locked, and grain was seized by force
from the peasants and sold at inflated prices in the cities.
098 251 20338
CS Smitesh Desai
lex4biz@yahoo.com
The Company became feared for the brutal enforcements of its monopoly interests. For example, it
was infamous for cutting off the thumbs of weavers found selling cloth to other traders, to prevent
them ever working again. In rural areas two-thirds of a peasant's income was taken in tax, nearly
double that under the Mughals. Consumption of salt was forced well below the minimum prescribed
in English jails: the effect was to treat the people of India as sub-human, a class below the criminal.
This disgraceful control of an essential commodity was only withdrawn after Gandhi's famous Salt
March in 1930. The Company's performance, through pursuing profit for its shareholders and its
chiefs, contrasted starkly with its claim, in the mid-19th century, that it ruled for the moral and
material betterment of India. In Britain, so powerful was the Company's grip on politics, that
attempts to control its affairs could bring down a government. An attempt, led by Edmund Burke, to
place the Company's Indian possessions under Parliamentary rule led to the dismissal of the
government. The general election that followed was so generously funded by the Company that it
secured a compliant Parliament in which a tenth of the seats were held by `nabobs'. A Nabob is
an Anglo-Indian term for an East India Company servant who had become wealthy through corrupt
trade and other practices. Booty from India created this new class of `nabobs', the chief executive
officers (CEOs) of Georgian England. The nabobs themselves had no conscience about their
wealth. Robert Clive, having extorted a fortune after the battle of Plassey, defended himself at a
House of Commons enquiry into suspected corruption, saying that he was "astounded" at his own
moderation at not taking more. Only a few dissenting voices, like the Quaker, William Tuke, pointed
to the humanitarian disaster that the Company had wrought in India. But the case for reform was
overwhelming and in 1784 the India Act transferred executive management to a Board of Control,
answerable to Parliament -- a kind of public-private partnership.
098 251 20338
CS Smitesh Desai
lex4biz@yahoo.com
Although there were expressions of intent that the Company should promote a mission to make
Indians "useful and happy subjects," the underlying ethics of the public-private partnership
remained the same. By the 1850s, just 15,000 pounds sterling was being spent on non-English
schools compared with a military budget of 5 million pounds sterling. Railways were built to
accelerate access of British goods to Indian markets. Mill-made cloth brought from Britain shattered
the local village economies, which were based on the integration of agriculture and spinning. The
great textile cities of Bengal collapsed. Indians were worn down by the hegemony of the British
presence, by the unfair trading rules, the crippling taxes, the draining of India's wealth, and the
contempt in which they were held. Retaliation was inevitable. The final insult to Indian sentiments
came when sepoys were forced to use a rifle cartridge greased with cow and/or pig fat -- an
outrage to both Hindus and Muslims. Catastrophe struck in 1857. Mutiny. The massacre of
Europeans generated a ferocious bloodlust in English society. Reprisals were brutal. Long- standing
plans for increased dominance in all spectrums of Indian life and economy had now received their
'justification'. In 1858, the East India Company was abolished and direct rule by queen and
Parliament was introduced.
098 251 20338
CS Smitesh Desai
lex4biz@yahoo.com
098 251 20338
CS Smitesh Desai
lex4biz@yahoo.com