Read the following passage and answer the questions that follow:
A large American food processing company, GlobalGrain Inc., recently acquired MehrotraOils, a well-established Indian producer of edible oil with a strong brand presence in northern and central India. MehrotraOils had three oil refineries and an extensive distribution network built over 25 years. After the acquisition, GlobalGrain took control of these refineries and expanded production significantly. Around the same time, the government of the state in which GlobalGrain chose to set up an additional plant offered it space in a newly developed Special Economic Zone (SEZ), along with a five-year tax holiday. The state government also relaxed certain labour regulations to make it easier for companies in the SEZ to hire and dismiss workers as per business demand.
(i) Identify the mode of foreign investment illustrated by GlobalGrain's acquisition of MehrotraOils. (1 mark)
(ii) State one specific advantage GlobalGrain gained by acquiring MehrotraOils rather than starting operations from scratch. (1 mark)
(iii) Why do governments offer tax exemptions to companies operating in SEZs? (1 mark)
(iv) How does relaxation of labour regulations benefit companies investing in SEZs, and what is its impact on workers? (1 mark)
Generated by claude-sonnet-4-6 · 2026-06-26 13:26 · grounding rag
Model Answer
(i) GlobalGrain's acquisition of MehrotraOils illustrates Foreign Direct Investment (FDI) through the mode of mergers and acquisitions, where a foreign MNC takes over an existing domestic company.
(ii) GlobalGrain immediately gained an established brand, three operational refineries, and a 25-year-old distribution network, saving time and cost of building these from scratch.
(iii) Governments offer tax exemptions (tax holidays) in SEZs to attract foreign investment. Companies that set up production units in SEZs do not have to pay taxes for an initial period of five years, making investment financially attractive.
(iv) Relaxation of labour regulations allows companies to hire workers flexibly on a temporary/short-term basis, reducing labour costs. However, this harms workers — they lose job security, regular wages, and protections such as health insurance and provident fund that workers in the organised sector were previously entitled to.
Source: Chapter 4 — Globalisation and the Indian Economy, "Steps to Attract Foreign Investment" and "Competition and Uncertain Employment"
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Explanation
- (i) The key term examiners look for is "FDI via acquisition/mergers and acquisitions." Avoid writing just "FDI" without specifying the mode.
- (ii) Stick to one specific advantage from the passage context — existing infrastructure, brand, or distribution network. Don't list all three in a 1-mark answer; pick the most concrete one.
- (iii) The textbook directly states: "Companies who set up production units in the SEZs do not have to pay taxes for an initial period of five years." Link this to attracting foreign investment.
- (iv) This is a two-part 1-mark question — mention the benefit to companies (cost reduction, flexible hiring) AND the negative impact on workers (job insecurity, loss of benefits) briefly. The Sushila example from the textbook is the classic illustration.