Chapter 4

CHAPTER 4

CBMA: INDIAN EXPERIENCE

4.1. Introduction
Chapter III discussed Competition, Anti-trust de-merger matters, Legislative
initiatives and establishment of Ministry of Corporate Affairs aspects were discussed.
Chapter IV aims to find out answers to research questions in terms of identifying the
gaps in CBMA environment in India and the in the light of Insolvency and
Bankruptcy Code and RERA.

4.1.1. Indian Experience

Insolvency and bankruptcy code, modifications in FEMA, execution of

demonetisation and issuance of gazette by Reserve bank of India coupled with the
goods and services tax act are the most impactful initiatives taken recently in India.

“Emerging markets promise attractive investment opportunities but pose many risks
and complexities, and in returns, these markets would differ significantly.”1 Emerging
market is a country that has some characteristics of developed market, but does not
meet standards to be a developed market.”2 “The economies of China and India are
considered to be the largest emerging markets.”3

India has a very tragic colonial experience and the national movement of freedom
struggle made many inputs in the economic policy formulations which are suspicious
of free trade and the philosophy of laissez-faire. “As with many other ex-colonial
countries, India too started its economic life in a highly regulated environment with
the infamous license and permit raj the dominated with the so-called Hindu rate of

1
Dobbs R., Lund S. and Schreiner A., How the Growth of Emerging Markets Will Strain Global
Finance, THE MCKINSEY QUARTERLY. (December,2010.)
2
M SCI MARKET CLASSIFICATION FRAMEWORK ( 2014)
3
SUBHASH CHANDRA JAIN, “EMERGING ECONOMIES AND THE TRANSFORMATION
OF INTERNATIONAL BUSINESS ”, EDWARD ELGAR, , 384 (2006)

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 Chapter 4

growth at 3% per annum.”4 “The emerging markets were less sophisticated and the
regulatory system was inconsistent.”5

“In India, the global environment that emerged after new policy regime of 1991,
namely privatisation, trade liberalisation, finance and investment, as well as
technological change has created an environment conducive to cross-border
mergers.”6 “According to Forbes, there are major for trends in mergers and
acquisitions in India, namely, an abundance of liquidity, slowly rising that cars,
energy and technology leading the way, and political factors to watch for in the year
2017.”7 “The major reason behind this is strong government and meaningful support
for growth of business; desire to reduce dependence on supply chain uncertainties by
backward or forward integration, taxation and distressing sales and marketing
department by the horizontal integration.”8

Figure 4.1: Recent M&A Activity in India

Source: Earnest & Young, Transaction 2017

4
DUNNING J.H., EXPLAINING INTERNATIONAL PRODUCTION. LONDON: UNWIN
HYMAN, (1988)
5
Elano B. & Pattnaik C. , Learning before making the Big Leaf: Acquisition Strategies of
Emerging Market Firms, 51(4) MANAGEMENT INTERNATIONAL REVIEW. 461-481
(2012)
6
Capital card 2000 UNCTAD report (2000).
7
Forbes, (January 13, 2017). https://www.forbes.com/newsletters/sss/2017/01/13/new-
recommendation -january-13-2017/ (Last visited on May 6, 2018)
8
PWC report 2017.

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 Chapter 4

Figure 4.1: M&A Recent Behaviour in India

Source: Earnest & Young, Transaction 2017

“According to Economic Times Intelligence, in the year 2017, India saw more than
1000 mergers and acquisitions, the highest in the current decade. The deal making
happened on the back of a record year in terms of raising equity. A total of Rs.
181605 crore was raised in the year 2017.”9 “A record dollars 25 billion was invested
by the private equity players and equal amount was also taken out as exit from
India.”10 The number of CBMA deals also maintained almost parity with the figures
in 2016 in all while there were 368 deals in 2016 there were 340 deals in the year
2017 in the CBMAs in India. This small loss in CBMAs was more than compensated
in the domestic deals which increased from 528 India 2016 to 682 in the year 2017.
The following graphs wide figures 4.3 and 4.4 pictographically depict the cross-
border and domestic mergers and acquisitions scenario comparatively for the years
2016-2017. The inference is clear in that while CBMA registered minor deceleration
the domestic mergers saw a growth phase.

9
SUMAN LAYEK AND BAIJU KALESH, ECONOMIC TIMES INTELLIGENCE BUREAU
UPDATED 16-22 (2018)
10
An EY report 2017 on India

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 Chapter 4

CBMA

370

360

350 CBMA

340

330

320
2016 2017

Figure: 4.3 Chronological Comparison of CBMA

DMA
800
700
600
500
400
DMA
300
200
100
0
2016 2017

Figure 4.4: Chronological Comparison of DMA

The following graphs indicate the deal summary both in terms of numbers and values
for the years 2016 and 2017 and part 2018 (for the two months of January and
February). The fundamental basis of doing business in India is changing. “The round
of mergers and acquisition activity will be around consolidation of business and other
factors promoting the CBMAs include that reduction, sectoral consolidation, static
and challenges of succession planning in family run business and also harvesting by

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 Chapter 4

private equity funds. According to one analyst, sale of stressed assets under the Indian
bankruptcy code is a new chapter in the Indian context.”11

Figure: 4.5: Chronological Comparison of Deal Summary Values

Source: Great Thornton, 2018

Figure: 4.6: Chronological Comparison of Deale Summary Volumes

The above graphs in the above figures 4.5 and 4.6 are relevant proving the impact of
value and volume figures both domestic and cross-border in the all three previous

11
ECONOMIC TIMES, 5 (Kolkata edn., March 24, 2018)

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 Chapter 4

financial years. It‟s clear that financial year 2017-2018 registered impressive growth
in CBMA both in volume and value from which it can be inferred that the legal
initiatives started yielding results.

In 1991, the Indian economy was at the size of $ 1 trillion. Over a decade period, the
economy touched the size of $ 2.2 trillion. This was achieved through many measures
in the both structurally and by taking on new initiatives, within economy In spite of
the above, reforms are required in important sectors such as natural resources, roads
and electricity, mining and shipping, and in areas like intellectual property rights.

4.2. The FDA and Emerging Markets: The Case of India

The FDI inflows into Asia were down by 15% to US $ 43 billion in the year 2016
which is a decline for the first time in six years. India witnessed an inflow of US $ 44
billion in 2016 remaining as the most favoured destination due to its attractiveness
among multinational corporations for CBMAs according to the United Nations trade
report. “Flows to India were stagnant at US $ 44 billion in 2016. CBMAs deals have
become increasingly important for foreign multinational enterprises to enter the
rapidly-growing Indian market according to the United Nations Conference on Trade
and Development World Investment report 2017.”12

4.3. Economic Policy Reforms and CBMA

The economic policy reforms are as follows:

(a) The privatisation of public enterprises,

(b) Removal of controls and permit,

(c) Easing industrial licensing,

(d) Elimination of trade barriers,

(e) Regulating the industrial policy,

12
A. Mehra, Why 2018 May Become A Blockbuster Year for Mergers and Acquisitions, THE
ECONOMIC TIMES., weblink-http://economictimes.indiatimes.com/news/company/corporate-
trends/why-2018-may-become-a-blockbuster-year-for-mergers-and-acquisitions/... (Last visited
on Mar 24, 2018)

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 Chapter 4

(f) Establishment of development banks,

(g) Reduction and statutory minimum levels of for reserve ratios,

(h) Gradual dismantling of that administered interest rate structure,

(i) Liberalising foreign investment,

(j) Foreign trade,

(k) Outward investment policies,

(l) Technology imports,

(m) Reforms in foreign exchange policies,

(n) Easing of foreign ownership ceilings, and

(o) Access to global markets.

It also included, among others, the creation of an efficient and profitable financial
sector whose aim was to provide an operational and functional autonomy to all the
institutions including SEBI, RBI, DRI, ED etc. Further key measures include political
reforms, re-engineering rule of a Government through the following initiatives

(a) Political reforms,

(b) Re-engineering government,

(c) Administrative and legal reforms,

(d) Agriculture sector reforms,

(e) Industrial structure reforming,

(f) Financial sector reforms,

(g) Substantial deregulation of the stock market with the new issues market being
introduced in the year 1992,

(h) Controls on the lending rates of the banks, and

(i) Long-term institutional reform.

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 Chapter 4

The differential capital market is also reformed by the following initiatives

1. Establishment of statutory regulator for security market through the

establishment of SEBI.

2. Introduction of electronic trading to improve transparency.

3. Dematerialisation of shares.

4. The diversity of market intermediaries.

5. Bringing reforms in the role structure and functioning of:

(a) Merchant bankers

(b) Underwriters

(c) Share register

(d) Rating agencies

6. Reforms in the takeover code etc.

4.4. Major Legal Reforms of CBMA in India

The GST (Goods and Services Taxes) Act, which come into effect from 1st July,2017,
is the biggest tax reform being undertaken since Independence, if India in 1947. It
subsumes all indirect taxes to create one rate and integrate the country into a single
market. It replaced at least 17 states and federal taxes and brought them under single
tax state.

“GST is a comprehensive indirect tax on manufacture, sale and consumption of goods

and services throughout India to replace taxes levied by the central and state
governments. It is expected to be a qualitative change in the tax system by
redistributing the burden of taxation equitably between manufacturing and services.”13

13
UNCTAD, CROSS-BORDER MERGERS MAKE INDIA FAVOURED FDI ROUTE AMID
STAGNANCY, 11-25 ( 2018 )

244
 Chapter 4

The Modi Government came to power in the year 2014. “The new government is bent
upon to work for result oriented foreign collaborations, design foreign trade, and
investment policies, and focus on infrastructure development, energization through
initiatives that, at make in India, build in India ,and also depend financial inclusion
through Jan Dhan Yojana through the slogan called sabka Saath Sabka Vikas
inclusive growth and inclusive development.”14

According to Sivertsen, “there were 7700 deals of mergers and acquisition in the cross-
border arena worth the US $ 2.7 trillion which was an increase of around 3% from the
2010 comparative year. The market for 2010 was slowed down and in the year 2011, due
to European sovereign debt crisis which continued to affect the global economy on the
wrong side during the comparative period of two decades from 1991 to 2000. One can say
that the share of India in the developing economies has notably improved from 1.53 %in
the CBMAs in 1991 to 8.9% in 2010 and growth rate in between these two periods on an
average of 6%, it shows that when the economy grows, the propensity of the CBMAs‟
contribution to the overall economy and GDP also grows.”15 Study of CBMA in a
comparative manner for the period of two decades from 1991-2010 is essential for the
following two reasons namely that 1991 saw the liberalization in India although belatedly
and secondly India undertook many reforms resulting in utilizing the opportunities that
globalization as a wave offered to all countries.

Demonetisation was not a merely bold step by the Prime Minister of India on 8 th
November 2016 but it is a step in the right direction to digitalize the Indian Consumer
and empower the Indian Tax Collector.

14
3 Years of Modi govt.: 6 Econimic policies that have made BJP stronger, harder to defeat:
BUSINESS TODAY, (May 16, 2017) https://www.businesstoday.in/current/economy-
politics/from-demonetisation-to-gst-heres-what-pm-modi-did-on-economic-reforms-in-last-3-
years-in-office/story/252249.html (Last visited on May 26, 2018)
15
3 Years of Modi govt.: 6 Econimic policies that have made BJP stronger, harder to defeat:
BUSINESS TODAY, (May 16, 2017) https://www.businesstoday.in/current/economy-
politics/from-demonetisation-to-gst-heres-what-pm-modi-did-on-economic-reforms-in-last-3-
years-in-office/story/252249.html (Last visited on May 26, 2018)

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 Chapter 4

Table 4.1: Number of deals and value of cross-border M&As by region/economy of

seller, 1991-2010

Source: Data extracted from UNCTAD – World Investment Report 2011, spreadsheets.

Notes: AVG – Average; India/Developing signifies percentage of India share in Developing economies,
similarly for India/Asia, India/South (S.) Asia, and India/BRIC group. (a). Column 2a, and 8a
parentheses signifies India‟s share as a percentage of the world economy.

4.5. Demonetisation and CBMA

“The Prime Minister, on November 8, 2016 demonetised large currency notes which
was later termed „the single most economic reform in the history of independent
India.”16 “On November 8, the Prime Minister scrapped old Rs 500 and Rs 1,000
notes to what he called a step to root-out black money and fake currency in the
system. Six months later, it was noticed that the move couldn‟t achieve the desired
results as fake currencies were still running and corruption was still rampant.
However, the government succeeded in profiling the people by getting to know the
differences between actual flow of money and the undeclared money. Recently, it
was reported that India has more car buyers than the taxpayers in the country.”17

16
http://www.businesstoday.in/storyprint/252249 (Last visited on June 1, 2018)
17
3 Years of Modi govt.: 6 Econimic policies that have made BJP stronger, harder to defeat:
BUSINESS TODAY, (May 16, 2017) https://www.businesstoday.in/current/economy-
politics/from-demonetisation-to-gst-heres-what-pm-modi-did-on-economic-reforms-in-last-3-
years-in-office/story/252249.html (Last visited on May 26, 2018)

246
 Chapter 4

In FY 2016-17 year, there were only 5.5 lakh people, out of the 3.65 crore individuals
who filed returns, paid income tax of more than Rs 5 lakh and accounted for 57 per
cent of the total tax collection. This essentially means that only 1.5 per cent of those
filing tax returns (3.65 crore) were contributing to 57 per cent of tax kitty. The Prime
Minister wanted to address this issue by bringing the unaccounted money into
banking channel. The US and UK are the most influential developed States among the
comparative group. US has been a market leader followed by the BRIC group sincere
2002 one would realise that BRIC group has surpassed the UK in since 2002 which
may or take us over the next few years, in fact, there is a reunion point between the
UK interestingly US curve represents like a mountain shape and it justifies the theory
of business cycles. One can reasonably say here that there is a moderate competition
between multinational corporations from the developed markets and the multinational
corporations for emerging markets in adopting.

4.5.1 Impact of Demonetisation

While many top-notch economists were divided over its impact on the economy,
former UIDAI Chairman hailed Hon‟ble Prime Minister Narendra Modi‟s
demonetization move and said that it would see a massive activation of digitisation of
financial services in the country. He also explained as to how India‟s over 80 per cent
work force will come into formal channel. He said: “The more important thing is
when the economy becomes formal; when everybody‟s financial transactions are
digitised. India is going to go from data poor to data rich and that will make it more
and more difficult for people to do dishonest things or to be outside the system. You
will reduce the amount of black money in the system.”18

India got an opportunity in the year 2008 to get assets at every undervaluation level and
thus it was correctly utilized and debt financing was also done by Indian investment
bankers themselves because of the possibility of following interesting aspects.

1. Regulatory and legal reforms that happened over a period of time.

18
BUSINESS TODAY, http://www.businesstoday.in/storyprint/252249# (Last visited on June 1,
2018)

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 Chapter 4

2. When a crisis happens and if such a crisis becomes an opportunity to the domestic
industry, then, companies do take initiatives to expand their business activities abroad.

“Global investors feel that the Indian elephant is ready to run after sustained
economic reforms, a top IMF official has said, but underlined the need for
implementing these reforms and having a sound banking sector balance sheet for a
steady growth path.”19 “The Director of the Asia and Pacific Department at
the International Monetary Fund (IMF), also praised the Modi government for doing
well in the area of reforms.”20

4.6. CBMA and BRICS (Brazil, Russia, India, China, South Africa)
“India is changing fast into one of the most open economies in the world today,
honourable Prime Minister Modi said while addressing the BRICS (Brazil, Russia, India,
China, South Africa) Business Council meet in Xiamen as part of the 9th BRICS
Summit.”21 “PM Modi said that the BRICS Business Council played a vital role in
giving practical shape to the vision of the bloc‟s partnership.”22 “The partnerships you
have forged and the networks you have created are energising the economic growth
stories in each BRICS country,”23 he said, “while praising the council for entering into a
memorandum of understanding with the New Development Bank (NDB), the
multilateral development bank established by the BRICS member states.”24

Honourable Prime Minister Modi also voiced his appreciation that the BRICS
Business Council has matching priorities of trade and investment facilitation,
promoting skills development, infrastructure development, small and medium
enterprises (SME) development, e-commerce and digital economy.

19
Mr. IANS, BRICS Summit 2017: GST India’s Biggest Economic Reforms Measure Ever,
FIRSTPOST, (Sep 04, 2017). https://www.firstpost.com/india/brics-summit-2017-gst-indias-
biggest-economic-reform-measure-ever-says-narendra-modi-4007815.html (Last visited on May
6, 2018)
20
Ibid
21
Ibid
22
Ibid
23
Mr. IANS, BRICS Summit 2017: GST India’s Biggest Economic Reforms Measure Ever,
FIRSTPOST, (Sep 04, 2017). https://www.firstpost.com/india/brics-summit-2017-gst-indias-
biggest-economic-reform-measure-ever-says-narendra-modi-4007815.html (Last visited on May
6, 2018)
24
Ibid

248
 Chapter 4

He said that the council‟s work towards establishment of a BRICS Rating Agency,
energy cooperation, green finance, and digital economy was noteworthy. “Let me
conclude by saying that as governments, we will offer full support to your
endeavours. And we also count on the BRICS Business Council to take us closer to
our common objective of improving business and investment cooperation, honourable
PM Modi asserted. ”25

Economic diplomacy at the summit level is taken seriously both by bureaucrats and
businessmen as the following meeting by the heads of the state and the govt. clearly
shows.

“The council‟s meeting was attended by host Chinese President Xi Jinping, Russian
President Vladimir Putin, Brazilian President Michel Temer, and South African
President Jacob Zuma. ”26 Bilateral and multi-lateral trade decisions to the tune of
billions of dollars were facilitated during the above meeting.

4.7. CBMA and International Trade

US has constantly occupied the largest share in the following table figures followed
by UK and their 2011. While US represented the highest value of transactions to the
level of about US $ 271.721 billion and then shortly tumbled to US $ 123.934 billion.
In 2001, this may be attributed to the crisis in the USA which is often termed as 9/11
crisis. UK has surpassed the US between 2004 and 2007 because again the reasons-
being the stability and US .UK being not that severely affected when compared to the
other countries in subprime crisis or other currency crisis in the markets. One can
safely conclude that, to aid by the research report that the subprime crisis that
happened in the year 2007 & 2008 which is basically banking crisis and a financial
crisis resulted in an opportunity that was available for Brazil, Russia, India, and China
group and the maximum advantage reaped by China and India. It was not for nothing

25
3 Years of Modi govt.: 6 Economic policies that have made BJP stronger, harder to defeat:
BUSINESS TODAY, (May 16, 2017) https://www.businesstoday.in/current/economy-
politics/from-demonetisation-to-gst-heres-what-pm-modi-did-on-economic-reforms-in-last-3-
years-in-office/story/252249.html (Last visited on May 26, 2018)
26
. http://engagedscholarship.csuohio.edu/cgi/viewcontent.cgi?referer=https://www.
google.co.in/&httpsredir=1&article=10688&context=bus_facpub (Last visited on May 6, 2018)

249
 Chapter 4

that one should mention here that China also has the Beijing Olympics in the year
2008 which was coincident with the world subprime crisis and China was in a double
benefit Arena in the year 2008 while India too because of political stability and large
part of scam free India till the year 2008 was also benefited.

Fig. 4.7: Number of cross-border M&A by region/economy of purchaser, 1991-2010

Source: BRICS summit press release

“In FY 2016-17 year, there were only 5.5 lakh people, out of the 3.65 crore
individuals who filed returns, paid income tax of more than Rs 5 lakh and accounted
for 57 per cent of the total tax collection. This essentially means that only 1.5 per cent
of those filing tax returns (3.65 crore) were contributing to 57 per cent of tax kitty.
The Prime Minister wanted to address this issue by bringing the unaccounted money
into banking channe.”27

When one plots a trend line for the CBMAs and purchases, represented in the number
of deals for the United States of America the United Kingdom and the BRIC group
and India as it is represented in the figure above, one finds that US firms likely report
the highest number of teams followed by UK since 1991. A number of Indian firms
have initiated to internationalize their products and services since the year 2000 and
changes are noticed remarkably during the period of 2006, 2007 and 2008. We can
also make similar observations for the BRIC group as we have already mentioned
earlier that the subprime crisis in the year 2008 and the banking crisis that happened
27
Nandan Nilekani, Former UIDAI Chairman, in http://www.businesstoday.in/storyprint/252249#
(Last visited on May 10, 2018)

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 Chapter 4

in the year 2008 abroad was a big opportunity for the BRIC countries in general and
India and China in particular. The BRIC group has marketed accidents in both US and
UK from 2008 as we can see in the figure mention above.

The Chinese and the Indian multinational corporations acquired resources and skills
to lead the world economy in terms of parental foreign affiliations and also in the
number of outbound deals. That is to affirm that the Indian and Chinese main
multinational corporations acquiring and establishing mergers and acquisitions
abroad. One must mention here that this is pre Company Act 2013 and outbound deals
were not recognized for the domestic companies. This was the case for Indian
multinational corporations and not for Indian domestic companies. This change has
been very relevantly brought out by making a new act and making section 234 of
Company Act 2013 in the month of April 2017 and thus paving the way to Indian
domestic companies also to acquire assets abroad.

Fig 4.8: Values of cross-boarder M&A by region/economy of purchase, 1991-2010

Source: BRICS summit press release

“Since 1991, the United States of America contributed the highest value to the world
economy except in the years 1999, 2000 and 2007 where in the United Kingdom as
outperformed in the market. From the graph shown here it is clear that the multinational
corporations of the United States invest more amount of equity in cross country deals
which means they acquire firms by transferring equity capital. However, US banks‟
lending norms and investment guidelines are more flexible, easier and they even
motivate firms to participate in international mergers and acquisition negotiations. This

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 Chapter 4

is in contrast to the BRIC group MNCs who have invested significantly in outbound
deals in 1999. The actual growth has commenced from the year 2004 for the gap of
time lag gap of 5 years as the result started reaching in the year 2006. As such, BRIC
outperformed the UK but it declined the year 2007 and surpassed both US and UK from
2008 onwards. From the figures above one can safely conclude that India alone
overtakes UK in the year 2009 and 2010 significantly however, that most of the deal
amount has contributed by the Chinese firms except in the year 2007 because Chinese
MNCs were engaged in order to overcome their competitive disadvantage.”28 In the
year 2007, Indian firms have invested US $ 2900 million. This was phenomenal
growth, representing 333% compared to the previous year. One would notice that the
BRIC group has predominantly started pushing international investment since 2003
where as India from the year 2005 .Thus, there is a gap of two years .However, India
overcame the difficulties and is witnessing an improvement.

Major examples of Indian acquisitions abroad include Tata Steels acquisition of corus
for US $ 12200 million. Hindal‟s acquisition of Novelis for US $ 6000 million and
Suzlon Energy‟s purchase of 33.85% of the equity in RE Power for US $ 1700 million.

4.8. CBMA and Growth in Business

This also proves that a number of Indian parent companies have been acquiring
foreign multinationals through they were affiliates and there were established. Bharti
Airtel acquired Kuwait based Jain Telecom for US $ 10700 million in the year 2010.
Adani Enterprises and GVK power bought Australian based about for US $ 1909
million and Hannah cool for US $ 1260 million respectively in the year 2011. In
addition, one can find the number of Indian firms became the targets for the
Australian MNCs. For example, British Patrol acquired some percentage of equity
shares in the Reliance Petrol for US $ 7200 million in the year 2011.

28
https://www.business.in/storyprint/252249 (Last visited on May 6, 2018)

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 Chapter 4

Fig. 4.9: India’s cross-boarder M&A sales and purchases, 1991-2010

Source: Great Thornton, 2018

The most important trend we can observe is that till 2007 the sales of the CBMA side
can be seen on increasing trend line from 1991 to 2002 and their also from 2000 to till
2006. However from 2007 onwards the purchases have surplus than the sales during
the period of 2007 to 2010. In other words, a number of Indian companies have
become targets for foreign parent firms in the light of the foreign market entry or
other International venturing business models. This happened because of the further
liberalization and globalization was a trend that continued right from 1991
irrespective of who occupied the chair in the centre of economic administration of the
country.

One can see a gradual growth of the liberalization process resulting in the figures that
reflect the overall trend. The Indian firms have been trying to tap International
markets through the diverse inorganic strategy such as

a. Joint ventures,

b. Alliances especially from the year 2003.

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 Chapter 4

However, from the year 2007 onwards, Indian MNCs have invested the highest
amount of equity and cash to buy global entities in various developed and developing
markets.

Dr. Y.V. Reddy the former Governor of Reserve Bank of India is an acknowledged
expert on monetary and fiscal policies and authored critical reports on the financial
crisis of the year 2008 and how India escaped the crackdown of its economy. This
was made possible through institutional intervention by watchdog agencies like SEBI,
DRI and Economic Intelligence Bureau.

4.9. CBMA and Jan Dhan Accounts

Jan Dhan accounts were aimed at bringing 70% of Indian population which remained
unbanked for 70 years to banking network with the purpose of using the rural
purchasing power becoming point of National economy. Tractors, Fertilizers,
Automobiles agricultural marketing societies Food Corporation of India are active
players in rural India and bringing the transactions into the banking accountancy
makes the hitherto unmentioned consumerist activity tangible. It is relevant for
CBMA as many sunrise industries are located in rural area the biggest example being
the mobile phones and solar energy. In both the above fields, global business houses
through CBMAs are the major players.

“It was 15 August 2014 when Prime Minister Narendra Modi launched India‟s
biggest ever financial inclusion drive. PM Modi launched his first flagship
programme called Pradhan Mantri Jan-Dhan Yojana which was country‟s National
Mission for financial inclusion to ensure access to financial services, namely savings
accounts, remittance, credit, insurance, pension in an affordable manner.”29

“Prime Minister‟s move was to provide access to formal banking services to more
than 15 per cent of the unbanked population in the country. It helped Prime Minister
Modi re-establish his image as the leader of masses. Jan Dhan Yojna was not just

29
Ibid

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 Chapter 4

about banking but also about several other benefits that the Prime Minister Modi
offered with the accounts.”30

“Under the scheme, if a person holds an account for more than six months s/he is
allowed an overdraft of up to Rs 5,000. Last year, the ET reported that over 19 lakh
account holders had already availed an overdraft amounting to Rs 256 crore. Jan Dhan
accounts holders are also able to claim accidental insurance cover of Rs 1 lakh. The
scheme also provides life cover of Rs. 30,000 payable on death of the beneficiary.
Prime Minister Modi tapped country‟s over 15 per cent population with just one
economic policy. So far, over 27.84 crore accounts have been opened under Jan Dhan
Yojna.”31

4.10. Peoples Inclusiveness and Economic Reforms

Eventuality always symbolizes the health and robustness of India‟s economy. Hence,
the rate of growth for purchases are sharply declined in 2009 and then immediately
recovered in the 2010. One would propose that a set of political and legal and societal
changes affect the strategies of local and overseas forms when completing in and out
of India.

From here, it can concluded that India‟s economic, banking and financial reforms
have attracted a number of investment bankers and private equity firms in the recent
years. The economic changes in foreign investment policies and firms motivated
Indian multinational corporations to utilize potential opportunities in other developing
economies, for example, Africa and Middle East regions.

30
Ibid
Reddy, Nangia and Agarwal , In the cycle event of 2007- 2008, global financial crisis did
happen and Indian firms were able to purchase foreign firms because of attractive evaluation of
target assets and easy availability of debt financing from Indian based Overseas investment
bankers as it has been correctly pointed out by in their article in Year (2014).
Pang, Vang and John, The Value of Sales and Purchases are Moving Closer Until the Year
2004, After, Value for Purchase as Noticeably Surpassed the Value of Sales from the year 2005.
926 (2008)
31
Indian Elephant Ready To Run After Economic Reforms: IMF Official, ECONOMIC TIMES
(May 16, 2017)

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 Chapter 4

4.11. Indices and Ratios

One proxy variable that shows the effectiveness of the country in terms of it‟s
reformed policies in acquiring assets abroad and thus having a robust economy is the
figure of how many Parent Corporation (PC) that country has and how many Foreign
Affiliates (FA) that country has. According to the figures in the year 2010, we have
in the world economy around 1,03,353 Parent Companies and 8,86,143 Foreign
Affiliates. From henceforth, they are referred to as PCs and FAs from now. Thus, for
every PC if there is an 8.5 FA available in the countries, then the ratio of FA to PC
ratio is equivalent to 8.5. Developed economies represent the highest number of PCs
that is around 70% compared to the developing economies that is around 30%.

In case of FAs, however, developing economies represent 58% and the remaining is
shared by the developed countries. BRIC groups to PC percentage of the world
economy shows that BRIC group own around 20% world PCs and 50% of the world
FAs. Asia‟s share for PCs is around 44% and in case of FAs, it is 55%. China itself
alone contributes to 11.6 % of PCs of the world and 49% of FAs of the world.

Changyong Ree - who oversees the IMF‟s work in the region including its lending
operations and bilateral and multilateral surveillance of economies ranging from China,
Japan, and India to the Pacific Islands - said that investors are telling him that after four
years of impressive economic reforms, “the elephant is now ready to run”. According to
him, I think, “I would rather emphasise implementation. If India can lead global growth
like China in the last decade; you have the potential, you have the population, and you
have the market size everything. Implementation is actually the key.”32

China is much ahead of many countries put together in Asia and also among the BRIC
countries. For instance, India has only 1% of the PCs and 0.23% FAs, Brazil has 0.2%
of PCs and 0.5% of FAs, and Russia has 0.11% of PCs and 0.24% of FAs and in the
same consideration, China has got 11.6% of PCs and 49% of FAs. All put together
,one can say that China is almost 11 times bigger than India and 55 times bigger than

32
PTI , Indian Elephant Ready to Run After Economic Reforms: IMF Official, TIMESOFINDIA.,
(Apr 22, 2018) https://timesofindia.indiatimes.com/business/india-business/indian-elephant-
ready-to-run-after-economic-reforms-imf-official/articleshow/63866194.cms, (Last visited on
May 16, 2018).

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Brazil and almost 100 times bigger than Russia in terms of PCS and also in terms
FAs. Thus, BRIC countries‟ s contribution , summarized,( as 11.61 + 1 +0. 24.1
which comes around the total of approximately) less than 14% as of has been already
figured above that a BRICS own around 14% of this other Asian countries combined
put together the figure is around 24%.

The Director of IMF Asia-Pacific region also added that “India‟s growth rate is higher
than the China‟s growth rate. Many countries are looking at India, whether India can
be undergrowth leader at China in recent decades. India has already many good plans.
There is many, but not as much progress. That was the complaint from the investors
from abroad. The Indian government was working on structural reform and the
coming elections in 2019 are very important. What we are saying is that the coming
election will be very important, but we believe and we hope that the Modi
government would not be slowing down the reform effort and implementation of
reforms because that will determine India‟s future. We really hope that the election
would not derail Modi government‟s efforts to reform. And once the elephant starts
running, it would be having a positive impact on the global economy. When advanced
economies are slowing down due to the global financial crisis, it was China‟s high-
growth which maintained global growth. So now that China‟s growth rate has come
down the emergence of India‟s economy is very good news because it can be another
poll, which can maintain the global and regional growth stop India has to open up
more. India has been a very domestically warranted economy, but now with the high-
growth, India has to open up, has to have more internationally case such that you will
have lots of spill overs. So I think the world actually can benefit a lot if India‟s
elephant can run. There are several important reforms that have been tried and
implemented and that India is a good example of having compared with other Asian
countries and global experiences. Running out of cash and GST implementation has
some problems here and there but one should look at the bigger picture GST
implementation can help India‟s development and India can actually become more
integrated. Double-digit growth is a good ambition but when it is pushed with
stimulus policy it could damage the economy. Despite the recent scandal in Indian
banking sector, the Indian banking sector is not facing any financial crisis Indian

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banks especially the state-owned banks, need to address the non-performing asset
issue and the balance sheet. So that‟s why we believe that the Modi government‟s
effort to recapitalise state-owned banks is a very important issue because without
having a very strong balance sheet their lending ability will be limited. Then it would
be very difficult to support a 7% growth rate. In order to have a higher growth rate in
the medium term, you need to have very sound bank balance sheets to meet the
increasing demand for loans. So as a prerequisite, you need to have a sound banking
sector balance sheet. The recapitalisation given the existing non-performing asset is a
very important step.”33

Chinese FAs are dominating the universe through their PCs that represent nearly 50%
while India‟s share is still not more than 2% in both the cases. This shows how
lagging Indian companies are, in comparison to China when compared to the PC, FA
figures in the world.

China is a neighbourhood country and China attained independence two years later
than India, in 1949. However, China has gone very well ahead of India and China will
become number one economy in the world followed by USA and it is likely that the
3rd or 4th position may come to India.

“Indian share in case of the BRIC group is only around 5.38%. Referring to this
feature, the two researchers Santangelo and Meyer in their research in 2011, suggest
that commitment played a key role in the emerging countries.”34 China is the only
country owning a maximum number of PCs and FAs in each segment such as the
world economy, developing economies, Asia and BRIC group in it both US and UK
combined PC is and FS share is significantly lower than China but their combined
share is higher than India Brazil and Russia.

33
PTI, Indian Elephant Ready to Run After Economic Reforms: IMF Official, TIMESOFINDIA.,
(Apr 22, 2018)
https://timesofindia.indiatimes.com/business/india-business/indian-elephant-ready-to-run-after-
economic-reforms-imf-official/articleshow/63866194.cms, (Last visited on May 16, 2018).
34
PTI , Indian Elephant Ready to Run After Economic Reforms: IMF Official,
TIMESOFINDIA..(Apr 22, 2018), https://timesofindia.indiatimes.com/business/india-business/
indian-elephant-ready-to-run-after-economic-reforms-imf-official/articleshow/63866194.cms,
(Last visited on May 16, 2018).

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Chinese PCs represent the highest number of FAs in the world that is around 434248
out of the 800000. China owns 12000 PCs and their FAs at 434248 which is around
36 times. China will be leading economy followed by US, UK economies and if the
trend continues or by now 2018 it must have been the reality. Indian companies, if
one goes by this reasoning, one finds out that India lags behind due to the following
reasons Firstly, the main causes are the rules and regulations and laws relating to
foreign operations. Secondly, there are complicated processes of acquisitions and
collaboration. Thirdly, environment of cross border mergers is heavily regulated even
after the implementation of the new economic policy in the year 1991 onwards when
compared to China Brazil and Russia.

Brazil and Russia have the highest number of the FAs 18 times of the PCs compared
to India. India has only 1.89 times of PCs. Indian companies own less than 1% of PCs
and Indian FAs are less than 2% of the whole world. Therefore, Indian policymakers
should make an important study and adopt deregulation relating to International
operations and transactions. The Indian MNCs would get the opportunity to
understand the reality. “The more the presence of Indian multi corporations in the
world, the more will be the employment opportunities for Indian, skilled manpower
the more will be the foreign exchange and thus one can have a virtual cycle and on the
other hand, if India becomes the only a market for others, if not decolonization, it
becomes a classical victim of neo-colonialism rather than decolonization or economic
independence.”35

One can safely say here that FAs help to PCs is to access global market, technical
workforce, Technology, culture, and ideas etc. Global economic crisis depressed the
Chinese march in terms of CBMAs. There was another opportunity given to the rest
of the BRIC group namely the Brazil India and Russia among the 25 countries that
contributed more than 1% of the world economy through CBMA sales and 22
countries accounted for CBMA purchase. The US is the leading a country which has
contributed the highest number of deals for sales as a percentage of the world

35
PTI , Indian Elephant Ready to Run After Economic Reforms: IMF Official, TIMESOFINDIA.,
(Apr 22, 2018), https://timesofindia.indiatimes.com/business/india-business/indian-elephant-
ready-to-run-after-economic-reforms-imf-official/articleshow/63866194.cms, (Last visited on
May 16, 2018).

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 Chapter 4

economy at 17% followed by UK 10% in Germany 7% and Canada 5 % each.

Similarly, for the ranks of purchase, the BRIC group contribute for sales and purchase
or Brazil sales 1.6 purchases 3.4, Russia sales 1.63 purchases 1.66, India sales 1.43
purchases 1.49, China including on Crown sales 4.3 and purchases 2.46 respectively.
The Indian shares increased from 1% in 1998 to 2.45% in the year 2009 and fell a
little by 2.12% in the year 2010. In terms of value transactions, the shares increased to
1.5% to 2.42% between the two years 2008 and 2009 and fell to 1.6% in the year
2010. India share represents more than 1% in 6 years for the number of deals and 3
years for value in the last two decades.

4.12. Finance Banking Governance Reforms

This phenomenal growth recognizes that India‟s economic, financial and banking
reforms place the local multinational corporation on the world map through the
International process as it has been already affirmed. While China recorded
transactions to the tune of 3637 in the 20 years period of 1992 to 2010 India‟s figure
for the comparative field was near 1200 which is one-third of China‟s figures. In
terms of the value of transactions, transactions, the figures are 37473 for India and
167262 for China this is also again almost 4.5 times difference in which shows the
even the productivity for the deal come in the Chinese case. In terms of purchase, the
figures are 2217 for China and 1008 for India and transactions for 2220 for China and
830 for India and thus, Chinese average deal accounts higher than India‟s average
dealer both value and number and both in sales and purchase.

There is not a single Transnational Corporation in non-financial banking world among

the first hundred in India for the period 2001 to 2018 in terms of foreign assets. China
has got nine such Trans National corporations (TNC) having foreign assets ranking
among the first hundred in the world in the year 2010 followed by Russia. In terms of
developing economies for the first hundred China has got 9 followed by Russia and
India has only 7 and Brazil has 3. No Indian translation corporation was ranked in the
top 10 list. Tata Steel was ranked number 14, Tata Motors number 25, public
undertakings ONGC 30, Hindalco 33, Suzlon Industries 67, TATA consultancy
services 69 and Reliance Communication 72. Overall 28 TLCs rank from the BRIC

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group and number of TNC in product Industries such as diversified metal and petrol
and natural gas telecommunications.

In the top 10, there are two companies from China and one each from Brazil and
Russia and the first rank was given to Hong Kong divaricate firm Cochin Hutchison
Power Limited followed by China‟s City group. According to Ramamurthy in their
2012 research report, “one would consider that MNCs from developed countries have
to gear up to extract new opportunity in emerging market and MNCs from emerging
markets have had to figure out how to take advantage of opportunities and another
part of the world.”36

Lu, Zui and Hen in the year 2010 observed that “Chinese government promotional
measures and monetary policies have a significant impact on FDI performance.”37 “In
the world investment report of UNCTAD in the year 2011 which gives country
rankings by performance index, India is ranked 80 in the year 2008 and gained to 67
in 2009 and then fell sharply to 97 in 2010. In case of FDI potential index, India is
ranked 86 and then again 79 by 2009. In 2017, UNCTAD gave INDIA third rank in
investment destination. India ranked tenth in terms of FDI inflows in 2016, and India
would be behind USA and China only till 2019.”38

Rankings of India by World Bank, UNCTAD, Moody‟s, etc. are extremely relevant
for CBMA and INDIA‟s biggest competitor for attracting FDI through CBMA is
China. India‟s efforts are on to fill the gap and to utilise the opportunities.

36
PTI , Indian Elephant Ready to Run After Economic Reforms: IMF Official, TIMESOFINDIA.,
(Apr 22, 2018), https://economictimes.indiatimes.com/news/economy/indicators/Indian-
elephant-ready-to-run-after-economic-reformf-imf-official/articleshow/63866286.cms, (Last
visited on May 16, 2018).
37
Pretty Li Hui Zhen is a 2017 Chinese television series starring Dilraba ... Written by, Lu Zhirou
Yang Qing. Directed by, Zhao Chenyang, https://en.wikipedia.org/wiki/Pretty_Li_Hui_Zhen
38
THE HINDU, 1 (Kolkata edn., June 7, 2017)

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Figure 4.10: FDI inflows, 2005-2016 and projections, 2017-2018

Sources: UNCTAD, FDI/MNE database (www.unctad.org/fdistatistics)

Competition Act 2002 is a vast improvement to the negative dysfunctional predatory

MRTP Act of 1969. The above figure clearly brings out the scope for attracting the
FDI through CBMA among all the three major players namely developed, developing
and transition economies.

4.13. IT Act and CBMA

Taxation should not be vexation. The more simplified the tax rules, the more will be
the compliance and the less will be the litigation. Further, attractive tax policies
encourage increasing capital flows through FDI and CBMA.

Another major hurdle faced by the merger regulations is the implication of income
tax. “The Income Tax Act, 1961, has yet not been amended to be in line with the
amended Companies Act and the merger regulations. As per income tax act, in a
scheme of amalgamation, any transfer of capital assets by a transferor company shall
be exempt where the resultant company is Indian company. Again as per Income Tax

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Act, in a scheme of amalgamation in a transferor of the capital by a shareholder in

consideration for the issue of shares in the resulting company shall be exempt.”39

4.14. The CBMA and FEMA

FEMA is better law when compared to the FERA. The draconian FERA was a relic
of the monopolistic license permit raj which made India to stagnate at the infamous
Hindu rate of growth. FEMA is more facilitative than FERA. Two examples here will
illustrate the above point. Despite the new Acts facilitation for CBMA and take over,
worldwide exposure to Indian industry did not happen. One example is Vodafone
Hutchison Telecom deal which has faced tax litigations with Indian revenue
department and tax authorities during 2007 and 2012. But the delay process cost a lot
and sends wrong signals to the world.

“A need for the second phase of economic and financial reforms is felt throughout the
country as in agriculture. Indian companies have a need for a 2nd green revolution
and 2nd White Revolution. Future reform should focus on foreign investment limits
both inward and outward private equity loss.”40 Investment banking is also for
financing and merger proposal, rural banking for improving household savings rate,
overseas investments and agriculture and cattle segment for food security etc. To
attract the multinational corporations promoting research and development and
innovation in India, Indian companies need to have more direct incentives such as
reduced tariff and quantitative restrictions and promoting tax benefits and investment
subsidies. “Friendly relations with other neighbouring countries especially China in
terms of foreign trade and skill based exchange programs are vital aspects of the
regional trade. This study suggests that there is a need to work out in an atmosphere
of collaborative partnerships among emerging markets in India and South Korea,
China in many areas of mutually beneficial aspects like trade, skill development,

39
Sec. 47(vii) of THE INCOME TAX ACT 1961
40
https://archive.india.gov.in/govt/loksabhampbiodata.php?mpcode=4469 (Last visited on May
16, 2018).

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human recourses and climate change. Also having a University level relationship
among China and India also are good initiatives in this concern are desirable. ”41

The government of India needs remove the multiplicity of regulations governing

product market distortions, the market for estate, and in widespread government
ownership of businesses so that it would grow as fast as China.

4.15. Issuance of shares in CBMA

“The merger regulation clearly mentioned that the merging entities will have to
adhere to the foreign exchange regulations in case of CBMA. The main regulations
governing the issuance of shares of the resultant entity pursuant to a CBMA are the
Foreign Exchange Management Act (transferred to security by a person resident
outside India) regulations, 2000 (transfer and issue of any Foreign Security).”42

4.16. The Framework to the IBC Process - Opportunities

The array of bidders would widen as foreign investors will now be able to take part in
insolvency proceedings. This can be beneficial as it would allow for greater pricing
decisions regarding the assets to be sold. But, strict adherence to the timeline
prescribed under the Insolvency and Bankruptcy Code will be imperative in attracting
foreign bidders.

The crucial nature of the economic performance of any country depends not on its
intention but in its implementation. Policy Administration and planned
implementation rather than policy-making are important for any country and the same
is true in the case of India. To enhance India‟s image, it requires lot of restructuring
and read re-engineering of their public administration tools both in terms of the
administrative setup that India has established in terms of tax administration, rule
administration, plan administration for promoting of not only mergers and
acquisitions but also for all other aspects and when India is able to do it, then only

41
Foreign Exchange Management Regulations, 2014
42
Tejasvini Shirodkar, Pearl Boga and Karen Issac, Decoding The Big Takeaways of The New
Cross-Border Mergers Framework, (June 8, 2018). https://www.vccircle.com/decoding-the-big-
takeaways-of-the-new-cross-border-mergers-framework/ (Last visited on June 9, 2018)

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India will be able to attract FDI through CBMAs or increase its domestic investors to
acquire assets abroad. This entire process involves the following initiatives.

Providing administrative training in the areas of tax administration, tax rules making,
consultancy areas with other affecting systems and research areas so as to make the
Indian rules on par with the rest of the countries so that the country‟s advantage as a
destination for CBMAs in terms of inbound logistics will be in favour of the India and
also constantly be keeping a watch on the global monitoring agencies as to how they
are rating Indian efforts and initiatives.

Setting up of economics and business research organisations with infrastructure and

resources so that the best talent that is available abroad and India will be there
working in a seamless manner without any troubles and without any infrastructural
bottlenecks and with synergy and energy.

4.17. Start-ups and CBMA

Looking closely into rural sector, India has to promote economic and financial savings
so that the same economic and financial savings can be utilised for plumbing them back
to the economy and thus, the unemployment and disguised unemployment in terms of
in productive unemployment and under unemployment issues are not there and people
are generally energetic and happy and they‟re not bothered about their earnings
tomorrow.

Designing a comprehensive policy that motivates the younger generation to take up

start-up India projects and not to be dependent only and government jobs as a security
is important. Unfortunately, in India, even if it is a job of the lowest level, a job in
government is more attractive to even a PhD scholar than starting up his own training
institute to train people like him to be most skilful. For example, in a recent Uttar
Pradesh government advertisement for the post of 130 attendants in subordinate
courts in Uttar Pradesh, there were more than 1,50,000 applications out of which
thousands of the people were PhDs and 1,00,000 were Engineers.

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4.18. Kaizen and CBMA

Kaizen means constant improvement. Tayota introduced Kaizen in the Industry for
quality improvement controlling higher education Universities and Institutions by
establishing fraud search committees so that crony capitalism is not reflected in
universities because Universities are supposed to be temples of ethics and they are
supposed to be promoting ethics among temples and hence fraud search committees
must work and without corrupt elements and vested interest among universities as the
faith in the system in the faith and democracy and establishments starts with
Universities. Those who administer Universities must be men of impeccable
character. Indeed policymakers should develop a strategic guideline to view the
financing choices in rural villages and developing minimal infrastructure facilities in
backward districts and areas as rural background and villages offer the greatest
catchment area for both investment and talent, and similarly if neglected the same can
follow the most dictum of encircling the towns with villages. Hence, it is suggested
that the village, towns and cities should not be like gated communities but instead
should be like the place of worship among forest areas so that because of them the
forest becomes a tourist place. One can also say the forest becomes far rest of all.

There should be a greater coordination and control among all the related Ministries
rather than the ministry is being worked in silos. One should never put a led on the
public power and control for one‟s own benefits. Any damage in the social goods is a
public grievance. Banking and financial institution products and services must reach
every corner of the country that would bring more savings and investments. The
following are the observations of Mackenzie report. The consultants observed that
India is a well-developed equity market compared to the banking sector but the barrier
is that successive government intervention through the allocation of capital and a
consequent holding back of growth.

In addition, the barriers are regulations and governing product market, land
distortions, licensing and quasi licensing counterproductive taxation. Suggestions
include rationalization taxes and excise duty is establishing effective and individual
regulator removing restrictions on FDI, undertaking widespread privatization and

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reforming private property and tenancy laws to promote compliance. Developing

countries must reduce restrictions on foreign investment, lower important streamlined
requirements for starting the new businesses.

Success of CBMAs in emerging markets like India require constant learning in a

multidimensional managerial paradigm including legal reform, and administrative
reform, admission reform, best benchmarking practices adaptation, and constant
training with the practitioners as well as policymakers within the crucible of emerging
trends of the CBMAs across the world. The training needs to cover the human
resources practices taking out account differing cultural environments which are
critical success factors if treated well, which becomes critical failure factors if not
considered properly.

Emerging markets differ from developed markets because of their linkages with all
the three phases of economy namely the agricultural economy, the industrial
economy, and the service economy. Any partial or truncated over emphasis on anyone
of the above three sectoral divisions of the economy will ultimately lead to
imbalances in the economy and thus derailing the entire process of the development
that is the main goal of any economic policy in emerging economies.

The purpose of any nation being termed as emerging market is definitely not to
remain as an emerging market but to attain the stage of developed market and all the
indicators in this research were pointing out at the current effort of India to commit
developed market.

4.19. Conclusion
This Chapter discussed many important aspects of CBMA in India. The next chapter
will discuss India‟s Position among emerging economies in comparison to developed
economies.

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