Articles

FDI For the Changing Times

by Vinod Narayanan

Enhanced FDI inflows to the economy was among the Pioneer headlines in the past week. According to the data of the ‘Department For Promotion of Industry and Internal trade’.

Indian economy received $49.97 Billion in the financial year 2019-20? viz.13%  more than that of last year. FDI inflow during 2018-19 was $44.36 Billion. Total FDI flow between April-June was $11.51 Billion, by the end of August it has increased to $35.73 Billion.

Understanding Foreign Direct Investment

Foreign Direct Investment is an investment made by a corporation, firm/firms, or individual belonging to one country into a business interest located in another country. It also includes regulating and controlling ownership of the business in a country by an individual or entity of another country. Thus, foreign funds will be circulated in the economy creating the growth rate and stabilize the Balance of Payment (B.O.P).

Classification of Investments

Greenfield and brownfield investments are two types of foreign direct investment. With greenfield investing, a company will build its own, brand new facilities from the ground up. Brownfield investment happens when a company purchases or leases an existing facility.

Automatic Route: Foreign Investment is allowed under the automatic route without prior approval of the Government or the Reserve Bank of India, in all activities/ sectors as specified in Regulation 16 of FEMA 20 (R). Government route, approval from the Government Of India is required prior to investment. Economically it is classified into Horizontal and Vertical investments.,

Mauritius, Singapore, and the Netherlands are the top three countries contributing to the total FDI inflow.

 

The relevance of Foreign Direct Investment for a developing economy.

FDI has significance for a Pandemic hit economy as it requires more money to be pumped into society and hike the purchasing parity. For that more business should be created, thus employment opportunities widen and the major investments should concentrate on the infrastructure sector to boost overall growth. It is an important driving element of economic growth which helps in :

Sustaining high growth rate: For sustaining growth rate updating in technology is inevitable from time to time, FDI is not merely funded investment it also includes managing, controlling, and increasing productivity, hence knowledge sharing regarding technology will be done which is useful for developing economies like India. Since FDI bridges the gap between the technological divide.

Increasing Productivity

The overall product ratio of a nation rises when FDI inflows are higher since the raised funds can create or extend the business opportunities which otherwise absent in an economy.

Employment Generation

The creation of employment is achieved through creating new business opportunities as mentioned above.

We have seen a surge of opportunities with the arrival of the I.T sector. IT allied services like Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) has provided a wide range of opportunities to the youth in India. FDI can influx such a positive change in already prevailing sectors.

Stabilizing Balance of Payment

Foreign Direct Investment is the major source of non-debt financial resources of an economy. It helps the Nation to stabilize the BOP and favors the surplus or deficit ratio of the investor country.

Disparity Points 

The entry of large MNCs may displace local businesses. Corporates such as Google is often criticized for driving out local, MSMEs, and start-ups that cannot compete.

In the case of profit repatriation, the primary concern is that firms will not reinvest profits back into the host country. This leads to large capital outflows from the host country.

But with effective regulations, we can arrest these drawbacks and attain synergy.

Official Note

The Department and the Ministry in the official note said that such an increase has been the result of the Government’s facilitation policy to liberalize and simplify the FDI policy to provide a conducive atmosphere for doing business.

There have been multiple global capital infusions into the business similar to investments into Jio life of Reliance. Investments committed under the production-linked incentive (PLI) scheme for electronics manufacturing, from players such as Apple Inc.’s suppliers, will begin to flow once approvals come in. Investments in the real estate sector also surged.

“Doing Business Report”, an annual publication of World Bank since 2004, ranks the countries of the world on the basis of their regulations that enhance business activity and those they constraint it on an 11 parameter yardstick including legal procedures, infrastructure availability, credit, and tax, etc. The report is popularly known as ‘.ease of doing business report’

India ranks 63rd in the ‘ease of doing business report’ of 2020 among 190 countries. India’s position was 142nd in 2014 and 77 in 2018.  

Aatmanirbhar Bharath and FDI

The two terms self-reliance and Foreign Direct Investment in their literary sense doesn’t go along In the economic logic it does as Government assess.

FDI doesn’t mean the import of goods and services which make our economy dependent over another for such goods or services, instead, the production should be done using available resources in India both men and material. It will have more independence to a Nation and more opportunities are created with enhanced efficiency and management.

FDI organization has to operate and comply under the Law of the land. If anything deaerating Indian interests happens or may happen the Government can intervene. Heralding a blanket ban on Chinese FDI after the Dragon shown it’s expansionist face over Himalayan borders is a great example. Chinese investing corporations may try to hostile takeover our business organizations since the Indian economy can be severed due to the pandemic. Omens were shown by the Chinese themselves by raising the holdings of shares in all sectors mainly banking.

The US has invited India to join the Blue Dot Network with Australia, Japan, and U.S as its members. Formed as an equal corridor against China’s one belt one road, if India takes the initiative policy to join the network it would be beneficial for FDI ranks of India at the meantime the Government should not make itself a Pawn for geopolitical powers in their game with the Dragon. India should be an equal partner in the network in all respects.

Inflows from foreign source widen the scope of business and tend to increase efficiency and productivity by shared knowledge and technical know-how.

Without being updated in technology and acting on par with global management and trade standards self-reliance or atma nirbharata could not be reaped for this FDI as an assisting aid, not a dependency simulator.

About the Author:

Vinod Narayanan is a Civil Service Aspirant, a former IT Professional, and a law graduate who conducts freelance research in the subject ‘National Movements’. He has received Gujarat Sahithya Academy award ‘Certificate of Appreciation’ for his works.

3 Comments

  1. Jai Shankar

    Thanking Indian Periodical for making me understand the concept of FDI and it’s impact in our society. I read in newspapers and medias about FDI but was not clear about the concept and was ignorant about the whole thing.

  2. Ajith Kumar S

    Nice narration and logical findings.

  3. Very much informative. I agree with the author that even though the points of disparity for FDI is present, in long term benefits which can be reaped is far more worth and as the article assumes Government can take schemes to check the disparities from time to time.

Leave a Comment

Your email address will not be published. Required fields are marked *

*