Foreign Direct Investment in India is a debatable topic. Though there are many success stories of FDI in sunrise sectors but there were some debacle with investment that has smeared black on the Government’s face. Above all, India is now been called as emerging market and thus attracting a lot of FDI in almost all the sectors.
Introduction:
Foreign Direct Investment (FDI) refers to the net inflow of investment to acquire management interest in any organization which is operating in the economy other than that of Investor’s. FDI is the key ingredient for development of the economy and business. To grow more economies have to go beyond simple financing and turn to FDI for rapid growth though effective foreign investments. FDI is one of the most important instrument for growth even in the troubled times. It has proved time and again that FDI can be instrumental for bailing out an economy from global financial crisis. FDI helps host countries to turn to growth with healthy investment because of vigorous investment policies of the host countries.
FDI in India:
One of the fastest growing economies of the world is India. India offers amazing sector wise investment opportunities to foreign investors. Investors in United States, United Kingdom and other developed countries are turning towards fast growing India for business growth. India offers promising growth opportunity in rapidly growing sectors like Information Technology (IT), Retail, Automobiles, Consumer Electronics, Travel and Tourism etc. Like China, India is riding towards economic success on certain fast growing sectors, Information Technology is one of them. FDI is coming to India because of few positives. One of the most important reasons for FDI in retail as because of growing spending abilities of youth and burgeoning middle class, retail is the shining sector which promises rigorous consumption of products in years to come. Global Giants in retail like Walmart, Carrefore, Tesco etc are turning towards India to catch up with this phenomenon of growth that is unfolding in India.
Another reason for FDI to move towards India is availability of skilled work force. With education boom, India is producing millions of highly educated youth every year who are ready to perform a stint in the business sector. A ready, highly skilled work force at a very low expense, promises a great growth opportunity for global companies to explore.
One more reason India offers to the Multi National corporations is the unexplored market. Out of the gigantic Indian population, almost 80% is still uninsured. This data offered great opportunities to the Insurance companies’ world over. Today, many multinational Insurance giants are present in India and are providing their services profitably to the population.
FDI though is not a new concept for India. In early 80s one of the growing automobile manufacturers Maruti tied up hands with Japanese automobile giant Suzuki Corporation. They together made one of the most successful automobile ventures of the country.
Government and FDI:
Government of India is taking all the measures to insure rise in FDI in all the sunrise sectors of its economy. Though Government has not allowed 100% FDI in any of its major economic sectors like Retail or manufacturing, but has made it very attractive for foreign investors to come and invest in India. One such biggest case we have seen recently where Walmart arrived in India and executed a joint venture with Bharti where Walmart has 51% stake in the joint venture. Though its favorable policies, Government of India reduced investor costs and perceived risks associated with investing. Also Government made it easy for investors to invest in India by optimizing the investment processes and thus extending benefits to the foreign investors. Apart from this, Government also offered social and physical infrastructure to promote FDI, which includes quality of communication, easy availability of basic resources like road and energy. Government also enhanced many educational institutions to train labor force, thus ensured availability of skilled labor force in ample amount. Government also designed effective policies and created a strong regulatory framework to ensure mutual benefits for Investor and the companies they are investing in.
Another advantage the Government tried to provide FDI is the stable political and macroeconomic facilities. Stable Government is the pre-requisite of any investment, Indian Government consciously provided all that was required for FDI to arrive and thrive in India.
Regional Integration and FDI:
There are many successful examples of Regional Integration in the world. We have NAFTA in Americas, European Union in Europe. ASEAN in Asia, but India is not a part of it. India must choose to be a part of such integration. It has many advantages, few are discussed here. First of all it has few trade gains, in which sufficiency of goods cause prices to come down. Also in small markets there might be less competition but in after regional integration, market size increases and hence competition increases along with increase in returns. Finally Regional integration has a great advantage in attracting FDI. FDI could come from two ways, one is from totally foreign area and another is from Regional Integration Arrangement. Here FDI gets attracted because of enhanced market size and thus promise of enhanced investments.
Along with Advantages, there are certain disadvantages to Regional Integration also, one major issue with Integration is membership overlapping issue, where with the evolving and growing personal agendas of countries integration advantages takes back seat. Another disadvantage with Regional Integration is that the Regional Integration Organizations have limited Institutional Capacities for regional integration and international relations.
Policy design is one major issue with Regional Integration where the agencies are suffering with ambiguous integration agendas and thus are not performing optimally. Risk of polarization is one another problem with Integration which arises out of composition of sub region amongst it.
There are many advantages of Regional integration and many disadvantages also. For FDI it is great to deal with Regional Integration agencies as at one place they can get a change to invest with multiple countries. But with this there is risk of being involved with not so advantageous countries.
Conclusion:
Foreign Direct Investment is pre-requisite for any growing economy. A properly structured plan to attract Foreign Direct Investment is what Government is aiming to achieve and are successful with many sectors. Attracting Investment is easy for sunrise sectors like Information Technology and Retail, but it is also very important for India to attract investment in other not so booming sectors like manufacturing. Here Government needs to plan and attract investors to invest in sectors that provide jobs to burgeoning labor force, which otherwise will remain unemployed. Thus FDI is not just a tool to enhance economic structure but also strengthens social structure of a country as well.
References:
1. Working Paper Series, Volume 7 (2010). Summit Level Group of Developing Countries Group of Fifteen. Retrieved from web. http://www.g15.org/workingpaper7.pdf
2. Guruswamy M., Sharma K., Mohanty J. & Korah T. (2006). FDI in India’s Retail Sector. Retrieved from web. http://www.indiafdiwatch.org/fileadmin/India_site/10-FDI-Retail-more-bad.pdf
3. Economy Watch (2007). Foreign Direct Investment in India. 30 June 2010. Retrieved from web. http://www.economywatch.com/foreign-direct-investment/fdi-india/
4. India at a Glance (2012). Foreign Direct Investment. 10 January 2012. Retrieved from web. http://www.ibef.org/india/economy/fdi.aspx
