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New Report Critical of German Investments in India

A report released today by Public Interest Research Group has critically examined investments by the German corporations into India, during the post-liberalization period, 1991-96. The report entitled The Reality of Foreign Investments : German Investments in India (1991-96) looks into trends and patterns of investments from Germany to India. The report investigates and critically analyses the main factors and motives of German investments in India. According to the report, there are three major reasons for German corporations to invest in India - availability of cheap labor coupled with toothless labor legislation's; India's huge domestic markets of goods and services; and India's lax environmental and public health regulations with their ineffective implementation by the state machinery. In the rush to attract foreign investments with no overall developmental agenda, Indian government has given permission to a large number of investment proposals from Germany without looking into their implications on people, economy and natural resources. These proposals include large investments in 'low priority' areas. Besides, investments have also been approved in dyestuffs, PVC, agrochemical, foundries and other industries which are considered to be highly polluting and environmentally destructive.According to the report's author, Kavaljit Singh, "The rapid increase in German investments into India can be attributed to Germany's own domestic compulsions and problems such as high labor wages (which are highest in the world) and growing awareness of people on environmental and health issues and subsequent strict enforcement in Germany, rather than their motives to make Indian economy efficient, competitive and vibrant."

The report states that it is becoming economically unlivable for the German corporations to continue their manufacturing in Germany because of these factors. As a result, German corporations are
shifting their manufacturing plants to India where labor costs are very cheap, domestic market is huge and environmental and health regulations and standards are laxed.The report also provides evidence to prove the labor, public health, environmental and other violations committed by German corporations while doing businesses in India. The report calls for immediate action by the Indian authorities to seriously examine these implications and take suitable steps to enforce regulatory mechanisms and legislations.

Executive Summary

The Reality of Foreign Investments :
German Investments in India (1991-96)

Kavaljit Singh

Since 1991, the Indian government has announced many policy measures to attract foreign investments as part of structural adjustment program. Although the economic reforms initiated by Congress government since 1991 were criticized by all major political parties, ranging from the right-wing Bhartiya Janata Party to left-wing communist parties. But, with the change of governments at the Centre in 1996, commitments to continue liberal foreign investment policy first by BJP and later by United Front, it is becoming very clear that there is a growing consensus among political parties on
inviting foreign investments to India. However, despite the growing confidence of foreign investors, the actual inflows are just 19% of the approved investments during 1991-96.During the post-liberalization period ( 1991-96 ), the industrial sector alone has contributed over 90 percent of the total German collaborations. The agriculture sector collaborations amount to less than 2% of the total collaborations and the rest belong to service sector. The rapid increase in German investments in
India as compared to other countries, since 1991, is an outcome of intense lobbying and pressures from German TNCs as well as government representatives. The German investments have been largely facilitated by offering major concessions including Investment Protection Treaty and Double Tax Avoidance Pact between India and Germany. Much of pressure from Germany to amend India's Patent Act has come from big German TNCs involved in drug business in India. German drug TNCs are waiting for 2005 to takeover Indian drug market, thus enabling them to rig drug prices at will. Large volumes of German investments have come to India in post-1994 period when the Indian government announced major policy reforms in power, telecom, mining and other sectors to attract foreign investments. The major attractions for German investors in India are cheap labor, huge domestic market, and lax environmental and public health regulations with ineffective implementation by state machinery.The cheap labor with toothless labor legislation's in India are one of the major attractions for German investors. The growing wage disparities between India and Germany can be understood by putting this question : Whom would you rather employ - one German worker, two Americans, five Taiwanese, eight Brazilian or 128 Indians? The hourly wage bill for each of these five groups of workers turns out to be the same. If an Indian manufacturing worker can be hired for only Rs 8 (25 cents) an hour, compared to $32 in Germany, surely it makes sense for German investors to shift their production to India.

German TNCs do not loose but gain more by shifting production processes to India as activities such as design, patent, marketing and finance contribute many times more than the value (eg. a shirt) than its basic manufacture. Over the years, a number of labor legislations for the organized sector got enacted in India to protect labor from unfair and anti-labor policies of the management. However, very few will disagree with the fact that these labor legislations have, by and large, remained on paper. Instead of advocating improvements in the living conditions of the workforce and effective implementation of existing labor laws and schemes, there has been a growing demand by German investors and government for the dilution of labor laws. Germany has been consistently pressurizing India to change existing labor legislations through various forays. The major demands centers around amendments in Industrial Disputes Act and introduction of an Exit Policy. The famous 54-point memorandum submitted by German Chancellor Helmunt Kohl to Indian government demanded the amendments in the labor laws to make these more investment-friendly.Unable to make amendments in the existing labor laws due to strong opposition from the workers, many German corporations in India are adopting new strategies to marginalise and reduce the bargaining power of the Indian labor. These strategies include ban on new recruitment's in unionised categories, parallel production, Voluntary Retirement Schemes, etc.

Another major attraction for German investors is India's huge domestic market of goods and services. The truly scarce commodity in the world today is not capital; it is markets. Our investigations found that 82 investment proposals from Germany were cleared during the period, 1991-96, into areas which can be defined as 'low-priority' areas. These investment proposals include products like Beer, toilet soaps, cosmetics, perfumes, jewelry, decorative tiles, BMW mobikes, Mercedes Cars, fruit juice concentrates and many more. Besides, many German TNCs are involved in takeovers and mergers with existing Indian companies thus capturing increasing share in domestic markets. German TNCs - Seimens, Bayer and Hoechst are involved in takeovers and mergers in India.Besides cheap labor and domestic market, India's lax environmental and public health regulations are the other major factors facilitating German investments in India. With the growing awareness of people on environmental and health and safety issues and subsequent strict enforcement of these standards in Germany, German corporations are getting more attracted to India where one can get easily away from any catastrophe. German companies are currently investing in dyestuffs, PVC, agrochemicals, foundaries and forging, and other polluting industries in India. India is becoming a major manufacturing base for German corporations.German companies involved in dyestuff industries are closing down shutters as environmental movement has gained political clout and implementation of anti-pollution norms has become very stringent. With the high cost of effluent treatment plants and other anti-pollution measures, it becomes economically unviable for these companies to continue their plants in Germany. Out of total investments of Rs. 302 million in India's dyestuff industry during 1991-96, 52% has come from Germany alone. Following are some of the recent instances of violation of existing environmental, public health and other regulations by the German TNCs in India. These instances clearly indicate that German companies have been allowed to get away easily whereas in Germany both public opinion and state machinery would have ensured otherwise.n In 1996, Boehringer Mannhein India Limited was involved in a controversy as its drug, Comsat Forte, was found to be contaminated which led to the death of two people and seriously affected several others. n Hoechst India has been accused of its involvement in transfer pricing by importing a drug intermediate from its German company Hoechst AG, at seven times more than the international competitive prices. n In 1994, Siemens was accused of dumping in India a cancer cure machine which has been banned in the West. Siemens was offering these machines at dump prices in order to get rid of the large stocks of sub-standard equipment which it cannot market in the West.n In 1996, Bayer (India) has been accused of 'modifying' production processes and claiming price control exemption on the grounds that the new processes are being developed through indigenous R&D.n Hoechst, which is also involved in biotechnology, has been found of taking biological/genetic resources from India and making commercial use of these resources, including by obtaining patents.

It is high time that Indian government look into the wider implications of foreign investments, including German investments, on India's domestic industry, economy, people and natural resources and strictly enforce regulatory mechanisms and legislations.

The copy of The Reality of Foreign Investments: German Investments in India (1991-96) is available for Rs 80 ($10).

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Kavaljit Singh is Coordinator of Public Interest Research Group, a Delhi-based NGO.

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