21 Jul 2013

Foreign Direct Investment (FDI) : Good for Indian Economy?

"An investment in knowledge pays the best interest."- Benjamin Franklin

Does above quote makes any sense in latest context of Foreign Direct Investment (FDI)? The answer is very simple “YES”. We are living in a global village and everything is on our fingertip. The capacity to understanding the world’s scenario may open many doors.

Foreign-Direct-Investment-FDI
So, What about the FDI means in Indian context? We have to go into our history, in early 1498 when a Portuguese Vaskodigama arrived at Calicut. He saw the prosperity of Indians. He introduced India in whole world. Later people started to visit India. Portuguese, Dutch, British and French they established their premises in India and start trading with Indian people and dynasty. Sir Tomas Roe was the first British who came as the ambassador of British emperor and get the permission of trading in Mughal India. After this they created the ‘East India Company’ and started their business. It was the initial form of FDI in India.

Later it got many changes according to the world’s financial status and become more popular word as foreign direct investment and the more similar word called foreign institutional investor (FII).

Concept:-

FDI is a term of investment where one or more companies /people from a particular nation put their capital into other nation according to their development needs. In more specific words according to International monetary fund (IMF) the total capital of 10% or more of a foreign company/people into a unit is considered as FDI below this limit is only a shareholding.
        
The foreign institutional investors (FII) are the group of people, who invest their capital through any financial firm or institution for a good return. Mainly they focus on short term goals and wish to gain immense profit for their investment. The key factor of FDI and FII is that “Money makes Money”. It is very true that no one will invest without gain accepts the inland government, according to welfare approach.

Foreign-Direct-Investment-FDI-Walmart

India is a developing country and the part of this global village. Its growing rate is immensely good since last decade. Whole world is keep watching us on our developing strength, here are many sectors which require vast investments and absolutely it will return a huge interest for same. Nowadays Indian government is opening its door of market for many investors in various sectors like telecom -100%, Insurance-49%, retail single brand -100% and retail multi brand -51% etc. many companies shows their interest like Ikea (Netherlands), Wal-Mart (USA), Damini(Italy) etc. Reserve bank of India (RBI) and Foreign Investment Promotion Board (FIPB) are the responsible body for FDI.

Facts-FDI in India:-

  •     We get 38% of FDI from Mauritius root due to tax relaxation treaty with this. Shungalu committee analysed the issue and gives a solution as GAAR which is yet to implement.
  •     Apart from Mauritius leading sources of FDI for India are Singapore, United Kingdom and Japan.
  •      Highest FDI was recorded in the services, telecommunication, construction activities and computer hardware and software and hospitality sectors.
  •      According to UNCTAD’s world investment report India is the second lucrative place for FDI after china.
  •       Few sectors are not permitted for FDI like atomic energy, railway, stock markets, real estate and mining of coal and metals.
Advantages:-
  1. Sufficient flow of capital towards development in various sectors as well as revenue generation.
  2. Improvement in technology and skill which reduce the cost and increase the efficiency of working process.
  3. Increase in job opportunities in many sectors, resulted as uplifting in their life style and acceptability.
  4. Infrastructure and administrative reforms which create effectiveness and accountability of nation.
  5. Social and economic growth due to awareness from various sources like schools, colleges, constitutional body and information technology etc. which is possible due to FDI.
  6. The healthy competition will increase, so at the end customer will be in profit.

Disadvantages:-

  1. Domestic industries are seeking due to overflow of cheap products and monopoly which makes them uncomfortable to survive.
  2. Political pressure always tries to control the flow of FDI to get advantages which create the obstacle in development.
  3. Inflation is on high due to lower value of money, we have to pay high due to lack of money in the market because it is shifting to FDI companies.
  4. Unethical behaviours like corruption, redtapism and selfishness is increasing day by day because of money matter for example Wal-Mart issue.
  5. Our foreign dependency will be increased so it will affect our overall development in technology, agriculture, production etc.
Foreign-Direct-Investment-FDI-India


Solutions:-

It is always said “if there is a problem there is a solution”. So next we explore the proper solution which is must to prevent any future damage.
  1. Adequate and strong policy which should be prepared according to every aspects of FDI, including its pros and cons.
  2. Government should be proactive. Supervision is required for each and every steps and proper action is must.
  3. Analysis of a plan on frequent basis may create a good confidence and put a positive impact on FDI related issues.
  4. Should promote some alternatives like FII, venture capitalist and Indian innovation which will definitely increase the strength of Indian market.
  5. Transparent system required for small enterprises, local industries, farmers and affected people.

Final Thoughts:-

As per our analysis we got there is many positives and negatives and they have their own importance. We are in the 21st century and we can’t ignore the universal trends easily. The co-operation is the key of success. With the continuity of our keen interest in primary, secondary and tertiary sector, we should try to explore its importance. Care should be taken to utilize the increase in foreign money inflow. FDI would lead to a more comprehensive integration of India into the worldwide market where India can also make a strong position in global market by exporting their quality products and services.

Foreign-Direct-Investment-FDI

We are 121 crore people and having youngest population in the world, if we can convert this population into skilled one than it can revamp our lives. It is truly said that “there is a will there is a way”. According to current scenario we are the 3rd largest purchasing power parity (PPP) nation. If everything is done in proper manner and with right attitude than there is no doubt that we will be riding on high pitch of economical waves. The prosperity comes to us and Himalaya will be more glitter as a crown on India’s forehead.
“A Penny Saved is a Penny Earned” 

                                               ― Benjamin Franklin

Do you think, will India regain its historical position as “Golden Bird”?

Is allowing increased FDI in retail and other sectors good for Indian economy and small vendors and farmers for the country?

What steps should be taken by the GOI to make the Indian economy stronger?

Please comment your views…

(Written by Jey Mitra of the event Group Discussion for UPSC CSE (Daily 9PM to 11PM) of the group Mission Mussoorie UPSC Civil Services based up on daily discussions. Please join and give your valuable views)







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