Despite liberalisation. the actual inflow of foreign direct investment has been limited. Even an optimist like Finance Minister Manmohan Singh is reported to have stated recently that three years hence, India can expect at most an inflow of $1 billion of foreign investment a year. Thus, there are no signs of a flood of investment. What appears to be more crucial is a shift in transnational corporate strategy involving investments at the margin that have significant implications for control over assets and markets.
 
Investments have occurred in two areas. Those involving the "purchase of market shares" through take over bids or mutually accepted buy-outs; and those needed to enhance the ownership of assets that are already in the control of transnationals. Nothing illustrates the latter more than the controversy surrounding the increase in shareholding by FERA companies in the wake of liberalisation that permits 51 per cent (or more) foreign holding. In most of those cases, foreign controlled rupee companies (FCRCs) have resorted to preferential allotments of shares to the foreign holder, based on an appropriate resolution of an annual general body meeting, rather than expecting the parent firm to purchase additional shares from existing shareholders. The controversy relates to the price at which these shares have been transferred to the parent firm. Prior to the abolition of the office of the Controller of Capital Issues, the price of shares was decided in consultation with the government, and was obviously influenced and often equal to the ruling market price. Subsequently a number of FCRCs have increased their stake at terms which involve a discount on the market price. Under section 81 (1A) of the Companies Act, a resolution for preferential allotment of shares to existing shareholders can be carried only if 75 per cent of those present and voting at the AGM vote in its favour.
 
Colgate-Palmolive, for example, managed to hike its equity share in its Indian venture from 40 to 51 per cent at a premium of just Rs.50 on a Rs.10 share, when the market price was ruling at Rs.615. And Castrol India manoeuvred a price of Rs.110 as against the ruling market price of Rs.1000 plus. Discounts have amounted to 78 per cent in the case of ABB, 70 per cent in Lipton, 76 per cent in Alfa Laval and 80 per cent for Philips. Through these means, foreign firms have picked up large volumes of shares, that would form the basis for enhanced dividend repatriation in future, at rock bottom prices. Since many of these areas can hardly be treated as hi-tech fields needing special incentives, the net outflow of foreign exchange that an exercise of this kind could involve can hardly be defended.
 
Besides enhancing equity in units already controlled by transnationals, the principal strategic weapon at enhancing long term profit earning capacity appears to be one of "purchasing market shares" through acquisitions and mergers. The most startling of these is no doubt the sell-out by Parle Exports, the dominant Indian producer of soft drinks, to international giant Coca Cola. Coca Cola Inc ("serving more than 685 million drinks each day in more than 195 countries") and India's Parle exports have signed an agreement under which Parle exports has transferred the rights of all its soft drinks brands - Thums Up, Limca, Citra, Gold Spot and Maaza - to the Coca Cola company. This gives the latter the right to withdraw these brands, accounting for 60 per cent of the Rs.1200 crore soft drinks market, as and when it chooses. Similar changes are under way elsewhere as well. One landmark tie-up, which could change the structure of the detergent market is the proposed acquisition by Unilever subsidiary Hindustan Lever (HLL) of Tata Oil Mills Company Limited (TOMCO). The deal, which is still under challenge in the courts and the MRTPC, would result in the creation of a transnational subsidiary that would control 70 per cent of India's toilet soap market, 30 per cent of the detergent market and 10 per cent of the detergent cake market. Gillette which has been struggling through its joint venture, Indian Shaving Products, to push beyond 10 per cent its share of India's 2.7 billion-a-year blade market is acquiring a 26 per cent stake in leaders Malhotra and Sons. The Malhotras, who in the past had fought competition backed by Lever and Wilkinson to retain 86 per cent of the domestic blade market, have decided that rather than upgrade their now dated technology themselves and meet the foreign challenge, they may as well resort to the collaboration route to stay in the game. Gillette, of course has been able to buy-out a share in the market without having to meet the high costs of building goodwill and a brand image over time. Not surprisingly many transnationals are resorting to this strategy. According to a study of 121 takeovers and mergers during 1988- 1992 by Sushil Khanna of the Indian Institute of Management Calcutta, not only has there been an acceleration in M & A activity since the June 1991 liberalisation, but an increase in the share (to between 33 and 48 per cent) accounted for by transnationals.
 
It should be clear that even at existing levels of output, the enhanced role of transnationals spells an increased net outflow of foreign exchange. This is all the more true because transnational expansion is taking place in areas where the principal target of enhanced TNC activity is the home (rather than the export) market. And that expansion is being ensured, because of devaluation and the liberalised share acquisition policy, at terms which involve relatively small costs in foreign currency. For a country that is seeking to overcome the balance of payments vulnerability that the 1990 crisis revealed, this can hardly be a positive trend.