The industrial policy resolution of the government in1956 had earlier guided the development of industry in India. This helped to build a strong and diversified industrial structure after gaining independence from colonial rule. To begin with, when the liberalisation-privatisation process was set in nation, the 1956 resolution was ignored but not formally replaced. The ideological shift in 1991 was clear but cautious in implementation of the privatisation programme in the industrial sector. It was not surprising in this context that the rate of growth of investment in industry far from picking up, which was supposed to be the aim of the policy, decelerated.

The growth of industrial production was 7.6 per cent in the fifties and 6.3 per cent in the sixties. It dropped down to 5.2 per cent in the seventies, with the second half of the seventies showing some pick up to 6.0 per cent. But the rate of growth of industrial production again came down to 5.5 per cent in the first half of the eighties. This position did not improve to any significant extent in the second half of the eighties either, in spite of heavy injection of foreign inputs which were relied upon to pull Indian industry to a higher growth path.

The idea that screwdriver technology and production structure based on a heavy import content would enlarge and modernise some segments of industry and bring about a spurt in the growth of industrial production was misconceived to begin with and was soon found out to be so in practice. If the official spokesmen and some business circles gloated over the growth of automobiles industry, especially the sector catering to demand for private transport, and reliance was placed on the so-called “sunrise industries” such as entertainment, electronics and chemical fibres for boosting industrial growth, industries producing essential goods, such as basic drugs and relatively cheap cloth as well as development inputs such as steel and capital goods tended to stagnate.

Pressure, meanwhile, was stepped up for better, competitive, terms and conditions for direct foreign investment. India was asked to match Indonesia, Singapore and Mexico. What matters, it is suggested, is not “dramatic departure from the past practices” but “comparative advantages among different investment markets”. The Indian government cannot rest content with what has already been done to attract direct foreign investment; it is required to do much more. The facile notion of a large market comprising 100 to 150 million of upper and middle segment of the population (which seems to be an exaggeration) in India for foreign capital to exploit, does not obviously impress foreign investors who, ironically seem to be more sensitive than cynical Indian politicians, administrators and comprador businessmen to the barrier of mass poverty in India for growth impulses to become effective and provides profit - maximization opportunities which foreign capital seeks. Foreign investors are not interested in going down to the impoverished masses in India who are not in a position to generate effective demand for them in the market. Experience shows that market for profit-maximisation in India gets easily and quickly saturated. Hence the relatively modest scale of foreign investment in India and the drive to extract quick returns from it.

The foreign investors, above all, multinational corporations, too are engaged, in the framework of the structural adjustment programme, on a well - planned operation in India. They have enlarged their demands on India backed by political - strategic pressure of the governments of the developed countries and the international financial institutions, World Bank, IMF and GATT, for the integration of the Indian economy with the global market. They have, therefore, been putting in the reverse gear, in a hurry, indianisation of top management personnel of their subsidiaries already in India, insisting on the use of the brand names of their products in the Indian market and occupying commanding positions in the running of joint ventures with Indian business interest. Pepsi has shed the Indian prefix for marketing its soft drink, Lever Brothers and Glaxo have replaced Indians by expatriates in top management positions. Multinational corporations are tightening control over the product-mix, use of technology, R&D - the entire gamut of the working of their subsidiaries as well as joint ventures in India. When the Japanese increased their equity stake in Maruti-Suzuki form 40 per cent to 51 per cent, they moved with alacrity to exercise full control over this prestigious and trend-setting venture for them in the Indian market.

India is now globalised. This is not as much because of foreign investors, the FIIs or foreign banks; it is integrated with global financial markets because 250-odd Indian companies want to operate in collaboration as junior partners with the multinational corporations. This is now clear as the global financial crisis was transmitted promptly and rapidly to India primarily through MNCs already in India. India's balance of payments, financial markets, the exchange rate and money markets too were impacted hugely by the actions and responses of India's multinationals.

The developments in the Indian financial markets following the collapse of Lehman Brothers in New York on September 15, 2008 were quite unprecedented. One was the sudden change in conditions in the money market. Call money rates shot up immediately after September 15. Despite swift action by the RBI, the tightness persisted. Rates kept going above the RBI's policy rate corridor reflecting the tightness in the money market.

At the same time, there was huge pressure on the rupee-dollar market. The rupee depreciated sharply. The RBI attempted to prevent an even bigger depreciation of the rupee by selling dollars. It sold $18.6 billion in the foreign exchange market in October alone. This had the undesirable effect of sucking liquidity out of the economy at a time when the economy was already facing huge liquidity shortages and call money rates were shooting up. Another interesting element of the story is the behaviour of the rupee-dollar forward market. Firms, or banks lending to them, taking dollars out of India appear to have planned to bring the money back when things become favourable for them. The price at which they would bring money back is usually at a premium for them. (IPA Service)