The rise in competition has resulted in the need for larger capacities and the latest equipment, and the resources of diversified groups have been stretched thin. What more lucrative way of solving the problem than selling off a stake to an MNC? For MNCs too acquiring a unit makes for speedier entry into the market than the long drawn-out process of setting up a new venture. Consequently, what started as a trickle is fast becoming a deluge. According to CMIE, in 1996 foreign investments on account of transfer of shares from residents to non-residents was a mere Rs 303 crore. This rose three-fold to Rs 954 crore in 1997, and leaped to a high of Rs 4,059 crore last year. Transfers to MNCs were Rs 650 crore in the first three months of the currentfiscal.

Do we need to worry because MNCs are not creating new capacity, but merely taking over Indian stakes in existing units? No, since the money paid to the Indian promoter is, more often than not, used by him to strengthen his businesses. Foreign takeovers have not been hostile, after the Asian Paints experience. And there is no sign of Indian business being swamped by foreign competition. On the contrary, foreign firms have been a much-needed source of cash for Indian promoters.

Of greater importance is that these businesses have resulted in an improvement in standards, as domestic companies are forced to benchmark themselves with the best in the world. And increasingly, foreign-managed firms are using India as a sourcing base for their operations around the world.