[Assam] Another View of Things/Who Pays the Price for India's "Corporate Welfare"?

Tue Jun 10 09:31:38 PDT 2008

There is an excellent book very much related to this topic called:

The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits by C. K. Prahalad, published by Wharton School Publishing.

Business Success Stories from the Bottom of the Pyramid (BOP) consist part II of the book, which includes the Jaipur Foot Sotry, Homes for the poor - The CEMEX Story, The Annapurna Salt Story, etc. 

Quoted here are two lines from the book. 

             "More than 4 billion people live at the BOP on less than $2 per day. They are the subject matter of this book".

            "If we stop thinking of the poor as victims or as a burden and start reorganizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up."

You have to read the book to feel that after all, MNCs don't have to be beneficial only for the people at the top tier of the economic pyramid. 

“In order to make spiritual progress you must be patient like a tree and humble like a blade of grass.”

> Date: Tue, 10 Jun 2008 08:30:05 -0500> To: assam at assamnet.org> From: cmahanta at charter.net> Subject: [Assam] Another View of Things/Who Pays the Price for India's "Corporate Welfare"?> > This is a story related to the issues involved in the NY Times > article about the Good Life in Gurgaon. And it touches on some of the > points raised by Uttam, and how it impacts the PUBLIC GOOD.> > http://www.evb.ch/en/p25010663.html> > > > Note:> > A report by the McKinsey Global Institute came to the conclusion > that the investment decision of corporations usually was not > dependent upon these benefits. Especially in booming markets like > India, corporations want to be present in any case, but are > nonetheless happy to take advantage of the benefits that are offered > to them. India's elites are not completely innocent: The success of > having attracted a prestigious foreign corporation to one's own state > is a great way to show off. It is India's poor who pay the price.> > cm> > ***************************************************************************************************************> > Who Pays the Price for India's "Corporate Welfare"? (28.01.06)> > > > Two reasons are given for India's economic attractiveness: > well-educated, inexpensive high-tech workers and a booming internal > market. But there is a third, more important motive that attracts > investors: the abundance of incentives and sweetners offered by the > Indian government to foreign corporations.> > "Incredibly India: The Biggest Democracy for Global Investors": With > this slogan, omnipresent in Davos, India takes a jab at China and at > the same time makes clear: India is rolling out the red carpet for > foreign investors. The enticements include tax breaks, tariff relief > and inexpensive building sites already outfitted with the necessary > infrastructure. Exemptions are also made to the applicable > environmental and labor legislation. Since the individual Indian > states are competing for investments, firms can combine individual > and state benefits. And for large projects there are not only the > standard incentives, but also tailor-made contracts and incentive > packets, whose details remain secret.> > The most extensive enticements are granted in the special economic > zones, which are under the direct authority of the central > government's Trade and Industry Ministry. Eleven such regions already > exist, and a further 42 have been approved. The Trade Minister > manages these zones himself; his colleagues in the Departments of > Environment and Finance have no say. Former finance minister Jaswant > Singh has complained, in vain, about the loss of tax authority over > these zones.> > Exemptions Without Rules> Labor laws find only a rudimentary application in the special > economic zones. All firms are treated as public utilities, which > means that workers may not strike. A toy factory has the same status > as state-operated water and electricity utilities. Normal working > hours and overtime as well as wages do not need to be made public, > and there are no regular inspections for compliance with safety and > health standards. In addition, no contributions need to be paid into > the state's social insurance koffers during the first five years of > operation.> > There are also numerous exemptions regarding environment protection, > the most important being that a corporation need not carry out public > hearings as required by the 1986 Environment Protection Act. As a > result, the results of an environmental impact assessment need not be > made public. Corporations in the special economic zones are not > encouraged to conserve; they can use unlimited water and energy, > although these resources are chronically in short supply.> > Last but not least, corporations in special economic zones profit > from comprehensive tax breaks. All corporate taxes are waived for the > first five years, and in the following five years a corporation must > only pay 50 percent of the normal tax rate. This arrangement applies > for a further five years for reinvested profits. In concrete terms, > these tax breaks permit a firm in a special economic zone to double > its profits in the first three years compared to a firm outside the > zones.> > The incentives for technology firms are even greater; these firms > receive the benefits of a special economic zone, no matter where they > are located. This applies not only for highly-skilled technology > activities like software development, but also for simple call > centers and data processors.> > A Workplace for 420,000 Dollars> An example: Ford started a joint venture with the Indian firm > Mahindra in 1999. The Indian states of Maharashtra and Tamil Nadu > competed with each other to bring the factory to their state. The > contract was eventually awarded to Tamil Nadu. The benefits for Ford > included the exemption of sales tax on all locally-produced autos for > the first 14 years. The state also offered land at no cost and > subsidized electricity for four years. Then came a guaranteed water > supply and the promise to build a purification plant. By an estimated > production of 50,000 autos during the 14-year tax-free period, the > additional profit for Ford (and the loss of tax revenues for the > state) comes to a hefty US $378 million. The factory creates about > 900 workplaces, which means that each of these positions costs the > the state of Tamil Nadu US $420,000.> > This example shows that the combined measures from India's "Corporate > Welfare" program create only a few jobs, at an absurd price. If, on > the other hand, the state had higher tax revenues, it could itself > create jobs, for example in the rural economy. Seventy percent of the > Indian population earns its livelihood in agriculture, and eighty-one > percent of those live in poverty (with less than US $2 per day). > Instead of building streets and public utilities for the wealthiest > transnational corporations, slums could be redeveloped and basic > services could be assured for the poorest. A report by the McKinsey > Global Institute came to the conclusion that the investment decision > of corporations usually was not dependent upon these benefits. > Especially in booming markets like India, corporations want to be > present in any case, but are nonetheless happy to take advantage of > the benefits that are offered to them. India's elites are not > completely innocent: The success of having attracted a prestigious > foreign corporation to one's own state is a great way to show off. It > is India's poor who pay the price.> > Koni Kuhn, Andreas Missbach +41 (0)79 478 91 94> > Sources:> > * Indian Attraction, Profitable multinationals as subsidy junkies > - A study of incentives for foreign investment in India, FinnWatch, > November 2005. www.finnwatch.org> > > McKinsey Global Institute www.mckinsey.com/mgi/> _______________________________________________> assam mailing list> assam at assamnet.org> http://assamnet.org/mailman/listinfo/assam_assamnet.org
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