An Attack on India's Sovereignty


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Globalisation = Huge Foreign Investments

               (i) Foreign Direct Investment

               (ii) Portfolio Investments

               (iii) Foreign Debt Trap


Foreign investments basically come in two forms, Foreign Direct Investment (FDI) and Portfolio Investments. The latter include Foreign Institutional Investments (FIIs) and financial instruments like GDRs, ADRs, etc 1, and also NRI (non-resident Indian) deposits. Foreign investments also come in the form of foreign ‘aid’, loans, etc., which comprise part of the foreign debt.

FDI is that capital which enters the country from abroad, that is involved in the setting up of (or taking over) of business within the country. They comprise capital chiefly of TNCs that seek to grab India’s markets and sources of raw materials. This capital is of a more fixed nature, and sucks away vast quantities of India’s wealth through profits in the form of interest, dividends, technical (and other) fees, and through various dubious means like under and over invoicing. 2 It also indirectly extracts wealth through numerous other means like paying huge salaries and perks to foreign (expatriate) directors and massive fees to technical ‘experts’.

FIIs comprise chiefly flighty speculative capital that moves in and out of the country, making gigantic profits overnight through speculation on India’s Stock Exchanges (buying and selling of equity and now derivatives)3, on the rupee exchange rate and in real estate. This is done chiefly by the powerful investment banking companies, like Morgan Stanley, Merrill Lynch, etc. and the investment banking wings of the traditional foreign banks. As they have at their disposal enormous amounts of capital, they de facto control the stock markets and govern the price fluctuations, thereby assuring themselves of windfall profits. Losses for them are rare in countries like India, as it is their own fund manipulations that determine the rates of various instruments. It is like a casino owner who pre-fixes gambling results; or like the fixed test matches that gives a definite return to the fixers.

NRI deposits are basically money of the wealthy business families of Indian origin settled abroad. With the Indian government offering them huge interest rates (compared to the measly 2% in international markets) and now full liberty to repatriate interest and capital, large amounts have, of late, been flowing into the country.

Earlier ‘aid’ was a major instrument of imperialist intervention into backward countries. It still continues today. Making countries dependent on huge loans, at high interest rates, was used as a method of controlling them. This reached gigantic proportions in the 1980s with the vast quantities of petro-dollars floating around the world. India, from its very inception in 1947, has been dependent on ‘aid’, of the notorious PL-480 type first, and later through multilateral agencies like the IMF, World Bank, etc. In the 1980s this ‘aid’ peaked in India as well. In the 1990s, though ‘aid’ continues as a weapon of neo-colonial control, it has been complemented with a wide network of other controls, like FDIs, FIIs, exchange-rate manipulations, etc.

Now having got some idea of what these terms actually mean, let us now look at the real ground-level penetration of foreign capital in this period of globalisation.

i) Foreign Direct Investment

We have seen in Chapter II how the existing policies of the government are being continuously changed in favour of foreign capital. What we present now, is merely some of the major changes. But, thousands of other minor changes are taking place each week in some sector of the economy or the other, creating a vast network of incentives for FDIs that help it grow in both depth and extent. The pace of its growth in India, at both the Central and State levels, shows quite clearly that policy is now fully dictated by the imperialists and their TNCs, with the local Central governments acting as mere rubber-stamps.

Now the question that arises is that what is the problem with allowing FDI into the country? All parliamentary parties favour it, the entire media (visual and print) keep extolling its advantages, the bulk of the economists favour it (even the ‘left’ type say that it is needed in the core sector), and most liberals find it inevitable, even if undesirable. So what is the problem with it? Why then are we opposed to it?

There are a number of reasons:

First, international finance capital enters India, or any other third world country for that matter, not for philanthropic reasons, but to extract profits. And their profits go to their parent company, based in New York, London, Tokyo, Berlin, etc. So, whereas in indigenous companies the surplus generated stays within the country, and its expansion results in further industrialization (capitalist) and therefore employment growth; with these foreign companies (or foreign collaborated companies) the cream is siphoned out abroad, with no benefit to India.

Second, the rate of return on imperialist capital invested here is triple, quadruple, or even more than what it would earn in their home country. Ruthless exploitation of Indian labour, extraction of cheap raw materials, and little or no environmental restrictions give them windfall profits, which they could never even imagine in their home country. So, we find that the amounts actually taken out far exceed that put into the country.

Third, it is said that India lacks capital for investment, like on infrastructure, energy, etc. This is a big hoax. If the drain on monies extracted by the imperialists is stopped, if the over 100 billion in Swiss Banks by India’s comprador bureaucrat class is recovered, if the vast black money economy is confiscated (a mere demonetisation is enough), and if the gigantic wasteful unproductive expenditures on ministers, bureaucrats, MPs, MLAs, police and defense is drastically reduced — if all this is done, the country would generate ten times the capital that is now being got from abroad.

Fourthly, it is maintained that for advanced technology we need foreign help and collaboration. History has proved that the erstwhile socialist countries were able to undertake leaps in technology on their own, and their growth was in no way impaired by the imperialist embargo. Besides, what India needs is appropriate technology to develop the productive forces in the vast backward hinterland; not oasis of hi-tech amidst a vast desert of extreme backwardness. In addition, are not India’s best scientific brains serving in America for want of opportunity here?

And lastly, the type of industrialization promoted by these FDIs is anti-people, comprising luxuries and not the necessities of life, as profit margins with the former are much larger than those of the latter. This foreign capital has no social orientation whatsoever and develops an economy in its own image. With a market primarily geared to luxuries, it cares only in enhancing the purchasing power of the already wealthy (and an upper section from the middle-classes) while reducing the masses to further penury. But, as the vast masses are impoverished, it retards growth of the Indian home market, and therefore industrial development, leading to structural retrogression of the Indian economy.

In fact, of the total FDI coming into the country it is estimated that roughly 70% goes to buy up existing businesses in the country and only a small amount goes in setting up new enterprise. In other words, such capital is not employment generating. In fact, it enters bringing with it its sophisticated machinery (imported to India at inflated rates) thereby displacing a large number of jobs.

In this period of liberalization the quantum of FDI has been increasing at an exponential rate, from $74 million in 1991 4 to $4,060 million in 2001.5 In just the one month of May 2002 the FDI that entered the country was $500 million. 6 In other words in just the one month of May this year the amount of FDI was over seven times that got in the entire year of 1991!!

The rate of FDI invasion is increasing at an exponential rate, particularly since the last 20 months. In the 2001/02 there was a massive 65% increase in inflows (over the previous year) to a record $4.06 billion. 7 And in the first five months of 2002 (up to May) there was a further 60% increase (over the same period in the previous year) to $1.9 billion. In the year 2001, while world FDIs fell by half (the larest fall in three decades), FDI flows into India increased by as much as 47%, indicating that with the imperialist economies in a crisis, they have turned more aggressive seeking more and more domination over economies of backward countries like India. In such periods of crisis foreign capital turns more aggresive against backward countries, using its brute power to swallow up the relatively smaller companies in the undrdeveloped world. With share prices in India at rock-bottom rates and a pliable government, the FDIs can swallow up companies at throw-away prices. In fact even these figures do not give the real picture, as they do not include the reinvestment of TNC earnings within the country. Nor do they include direct capital flows to these companies. If these are included (which is the norm in IMF calculations) the actual FDI inflows in 2001/02 was a massive $8 billion — or 1.7% of India’s GDP. In other words total inflows since 1991 till date would be $26 billion; and together with reinvestments it would be well over $50 billion — i.e. at the current exchange rate it would mean a massive inflow in the decade of over Rs 2.5 lakh crores.

We find that FDIs have penetrated virtually every sector of the Indian economy. Table III.1 gives a picture of the extent its tentacles have spread:

Table III.1 8

Sector wise breakup of FDI Approvals during the period Aug. 1991 to Feb. 1999


Number of Approvals  Amount in Rs crores

Fuel (power and refinery)................






Service Sector...................................



Chemicals (other than fertilizers)...



Metallurgical Industries..................



Electrical Equipment........................



Food Processing Industries...........



Hotels & Tourism.............................












Though the actual inflows are barely 21% of the approvals granted by the government, the above list shows the wide reach of the FDIs, penetrating all sections of the economy. Also, the large number of approvals in chemicals, electricals and transportation, with relatively less FDI amounts, indicates an extent of its penetration into the medium and even small scale sector. In fact, the de-reservation of a large number of items from the small-scale sector is to allow the FDIs of TNCs to swallow them up.

If we look at the country-wise pattern of FDI in the country, the US tops the list accounting for 22% of the total FDI approved between 1991 and end 1999; the UK was next with 7.6%; followed by Japan with 4.3% and Germany with 3.8%. 9 In the 1991-1999 period FDI approved from the US was Rs 46,184 crores; from the UK Rs 15,977 crores and from the rest of Europe Rs 30,683 crores. But this does not give the full picture as, of late, large amounts of investments have been routed through the tax haven, Mauritius. In fact, it is estimated that roughly 35% of all FDI is routed through Mauritius in order to avoid tax payment in India. 10 As a large number of these are from America, the percentage of US FDI would be much larger than that shown above.

Also the character of the FDI has been slowly and surreptitiously changing. First they came as minority holdings in joint ventures with the Indian collaborators. Once in, they soon began demanding a 51% stake in the company — i.e. a majority stake in the company, with management control. Having achieved that, they have now been continuously increasing their holdings at the expense of the collaborator with the aim of having wholly owned subsidiary (i.e. 100% ownership). In fact, while earlier approvals were for a minority stake in a company, now the bulk is for majority control or for wholly owned subsidiaries. This is clearly to be seen from the fact that in 1995 minority equity participation of FDI amounted to 73% of the amount approved. In just two years, in 1997, it amounted to just 13%. In fact, seen as a whole in the nine years of liberalization, fully owned FDI approvals comprised one-third of the total amount. 11

From this it is clear that FDIs seek total control of companies in which they invest. This we shall see in more detail in the section on take-overs.

So we see there is no stopping of the pernicious tentacles of FDI in India. The government has gone so far as to allow FDI into such sensitive areas as, insurance, banking, mining, defense production, media and now even the small scale sector, agriculture and handicrafts.

ii) Portfolio Investments

Portfolio investments are even more dangerous than FDI, as it only loots the country’s wealth without giving anything in return whatsoever. Today, the bulk of this is dominated by America, whose gigantic investment banking institutions dominate the world’s financial markets. It comprises part of the gigantic $ one trillion that roam the markets daily in the form of speculative capital. In India it plays havoc with our stock exchanges, rupee exchange rates, and now even commodity prices (including agriculture), which are being speculated on in the form of ‘derivatives trading’ (i.e. futures options, etc.).

Prior to 1990 there was barely any FIIs coming to India. In fact, even at an international plane, it was only in the last decade of the twentieth century that this type of capital came to dominate the world’s financial markets. There has been a spurt of such investment in India in the last few years. In the last financial year the amount of FII that entered India exceeded that of FDIs. A continuing loosening of controls has facilitated this penetration by successive governments — particularly by that of the BJP.

It was first the Congress(I) government that allowed the FIIs to invest as much as 24% (of paid-up capital) in any Indian company. This itself was a serious blow to indigenous capital as a block 24% can give virtual control to the foreign investors. But, the imperialists were not satisfied — they demanded more and more control. The UF government increased this cap to 30% in Chidambaram’s ‘dream budget’ of 1997/98. The BJP government then increased this to 40% and in Dec.2000, to 49%. 12 And once again, in Sept.2001, under instructions of the finance ministry, the RBI allowed FIIs to make equity investments equal to that of the FDIs , which itself was enhanced in some sectors from 74% to 100%.

So we find that the net FIIs coming into the country were a mere Rs 13.4 crores ($4 million) in 1992. This increased to a gigantic Rs 13,061 crores ($2,795 millions) in 2001. The total FII in the period from 1992 to 2001 was a huge Rs 55,040 crores ($14.5 billion). 13

But this net figure does not give a full picture of the total FII operations in the country, which entails vast sums coming in and equally vast sums going out ( in their speculative activities) — and it is only the net figure that is quoted above. But it is the huge total figures that act to flood the financial markets of the country, resulting in a vice-like grip over them. For example, in the two years 2000 and 2001 a massive Rs 1,27,036 crores was infused into the country, while an equally large Rs 1,07,464 crores was taken out. Though the figures stated above are the net amount from these transactions, the actual profits made are from the gross figures taken in and out — through speculation.

Besides, when the Bombay Stock Exchange (BSE) itself has a market capitalization of a mere Rs 6,61,445 crores — of which only about 40% (i.e. about rupees 3 lakh crores) comprise floating stock (i.e. stock which is bought and sold, the rest being controlled by the promoters of companies) — the extent of the domination of FIIs on the BSE can well be imagined. In fact it is estimated that the FIIs defacto control 20% of the stock that is traded on the BSE. With such domination over the BSE they, in effect, control stock prices, pushing them up through heavy purchases and making them crash by overnight sales. This gives them windfall profits, the bulk of which is not even taxed by the India government. While going after the ordinary middle-class person with newer and newer stringent tax regulations, the government has allowed these FIIs to loot thousands of crores from the country, without paying a single paisa of tax, by allowing them to register in the tax-haven Mauritius. The Indian government specifically signed a ‘Double-Taxation Avoidance Agreement’ with Mauritius, in order to facilitate this tax-avoidance. In fact of the 525 FIIs operating in India 136 have registered in Mauritius, and these account for 60% of the total FIIs entering the country.14

In addition to this, companies have raised a huge $8.7 billion in GDRs (Global Depository Receipts) between 1992 and 2000. These are basically shares of companies sold in the European financial markets and held by foreign companies. They receive their dividends in the form of foreign exchange.

Therefore the total FII figure invested in India amounts to over $23 billion.

Now, with the BJP-led government opening out insurance, banking, mutual funds, etc. the entire financial sector of the country is coming under control and domination of international finance capital. The extent of control we shall see in the next Chapter; meanwhile, let us take a look at India’s huge foreign debt.

iii) Foreign Debt Trap

Among the underdeveloped countries India continues to be one of the largest recipients of foreign ‘aid’. The average annual disbursement of ‘aid’ in the first half of the 1990s was close to $2.9 billion. On a yearly basis it financed over 4% of the combined spending of the central, state governments, and public sector enterprises. 15 In fact there was a spurt in the flow of foreign ‘aid’ during the period of ‘economic reforms’, which averaged roughly Rs 3,500 crores during the 1980s, which jumped to an average of Rs 9,650 in the first five years of globalisation from 1991 to 1996. What is more this ‘aid’ grew more expensive in this latter period, with the percentage of grants to total ‘aid’ dropping from an average of abut 15% to about 9%. 16

In the post World War II period, so-called aid has been an important tool of imperialist neo-colonial domination of the backward countries of the world. This ‘aid’ has gone to promote imperialist TNC interests in the country and for purposes of outright subversion. For example, ‘aid’ poured into the country to promote the ‘green revolution’ to further US agri-business interests in the country. Today vast quantities of World Bank ‘aid’ is flowing to the TDP government in Andhra Pradesh for supposed ‘rural projects’; but in fact to try and wean away the masses from the growing Maoist movement in the State. Those enormous funds are for nothing but counter-revolutionary subversion of the popular peoples’ movements to enable the government and police win over the ‘hearts and minds of the people’. They also come with stringent conditionalities and Structural Adjustment Programmes. The TDP’s various ‘Vision Plans’ are nothing but World Bank dictated reforms to be implemented in return for the loans taken.

Till March 2001 the total foreign debt was over $100 billion, (excluding NRI deposits) having increased from about $20 billion in 1980 and $83.7 billion in 1990. Of the $100 billion only 40% is at concessional rates of interest, while a huge $60 billion is paid back at market rates. The reason for the relative slowing down of net foreign ‘aid’ in the 1990s compared to the earlier decade, is that in this latter period most of the capital flows are now taking the form of FDIs and FIIs in which the return on capital invested is much higher.

In addition the actual interest rates work out much higher than the market rates due to the continuous devaluation of the rupee, which has dropped from Rs 18 to the dollar in 1990 to Rs 49 today — a drop of 170%. This has a double impact on the amount to be repaid. As both repayment and interest are to be given in dollars, both the figures would increase by 170% over the decade; as for the given amount to be paid in dollars, a far larger quantity of rupees would be required. So, we find that interest payments have increased from Rs 1,954 crores in 1990/91 to Rs 5,480 crores in 1999/2000; while debt-servicing charges (i.e. repayments plus interest on the foreign loans) have gone up from Rs 4,283 crores in 1990/91 to Rs 15,166 crores ($3.5 billion) in 1999/2000. 17

Infact the situation is so bad, that since 1995/96 the entire new loans were not sufficient to cover debt-servicing charges. In other words, the entire new loans were being used only to pay back the international creditors. This is nothing but a debt trap.

Now let us turn to understand the impact this type of investment is having on industry and finance in the country and the extent of the control foreign finance capital asserts on Indian enterprise.




1. Global Depository Receipts and American Depository Receipts are shares by big comprador companies floated in Europe and purchased in dollars.

2. Over/under invoicing refer to the mainipulation of prices of imports/exports in order that illegal transfer of funds takes place abroad.

3. Derivatives are trading in futures, stocks, options etc. into which gigantic amounts of international finance capital flows.

4. EPW; Sept. 15, 2001

5. The Hindu; July 12, 2002

6. Hindusthan Times; July 4, 2002

7. The Hindu; July 12, 2002

8. Deccan Herald; July 5, 1999

9. Tata Year Book; 2000-2001

10. Economic Times; Nov. 21, 2001

11. Economic Times; Dec. 17, 2001

12. Economic Times; Dec. 22, 2000

13. Tata Year Book; 2001-02

14. Times of India; Oct. 23, 2000

15. EPW; May 8, 1999

16. ibid

17. Tata Year Book; 2001-02



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