The government of P.V. Narshimha rao with finance minister Manmohan singh in 1997 opened the gates of India to the world at large. Since then the FDI (foreign direct investment) rates have been enhanced in our nation. Today the BJP government stands with new reforms in the policies of FDI running in the glare of publicity.
Foreign direct investment is an investment made in a business cycle of a country by an investor of the other country (Foreign nation). This includes expansion, mergers and acquisitions, investments in the home country. FDI flourishes investments in the business cycle which leads to overall increase in opportunities for jobs, expansion, upper hand in technology and research. Also it increases the competitiveness amongst the players in the market which is essential for healthy growth of an economy. Narendra Modi’s government has made remarkable appraisals in the FDI policy which catches the attention of the foreign investors universally.
The new FDI policy of the nation states the changes in the percentage of foreign direct investment in various sectors. From defence to pharmaceuticals, the FDI policy has been altered building up more investment opportunities in the nation. The FDI in defence, airlines, brown field airports, broadcasting carriage, single brand retail has been altered to 100% (Automatic route or approval basis). Private security agencies now have a FDI of 74% (49% automatic). These changes and alterations has grabbed the mind of investors all over the world.
The honorable Prime Minister Narendra modi claims India to be the most eye-catching destination for investors worldwide. But the dilemma we face here is whether FDI is the first-class preference for the growth of the nation.
According to the business report 2016, the FDI in India increased by 39% in 2014-2015 and it stands 130th amongst the 180 nations on ease of doing business list by the World bank. FDI has proven to be a boost in the development history for example China’s flourishing growth and development with regulated FDI anf cheap labour. India has established itself to be a nation fascinated by FDI. The government has injected the right cure to the economic problems the nation is currently facing.
India has been lacking in infrastructure and FDI makes up for this drawback. Investment and expansion in the economy is very important to keep the money flowing for greater good of the nation. India is a highly populated nation and foreign direct investments in the production cycle of the nation doubles the capacity of the activity and increases the total production capacity. In Emerging countries like India the domestic capital is not sufficient to match up the speed of the global growth and hence, opening the gates of FDI is probably the best solution to get the money flowing in major business areas. FDI is a non-debt creating method to raise capital which reduces the pressure of government and also since the revenues increase, the government earnings through tax also shows an upward trend. The increase in an individual’s revenue through job opportunities increases the standard of living on a domestic level. Indian gates are open for the multi brand retailers provided the production takes place in the home country (Wal-Mart), this intake makes the goods and services cheap and efficient for the consumers of the nation. FDI reduces the cost of production and increases efficiency and hence is taken up as the mantra for economic development by the super powers and the emerging nations around the world. Also, the non performing assets (NPA) of Indian banks have been escalating which reduces the credit lending capacity of the banks to the domestic players, hence the call for of FDI arises in the economy.
But with a lot of rewards there are risks attached to the concept of FDI in the practical world. There is always a fear floating in the domestic companies of losing out their ownership and hold over the market. The small and medium enterprises (SME’s) have a risk of not being able to compete with the foreign players as they pour in a lot more money in infrastructure and technology which gives them a upper hand over the product. This is exactly the risk India might be facing in the long run in the sectors like multi brand retail and also in defence. You might hear congress making allegations on the drastic increase in the percentage of FDI in the defence sector claiming that this puts India’s national security to threat. The need for technology and better equipments has been rising and the most possible reliable way of improving the nations defence that could be thought of by the government was FDI. Not only does the defence sector but also the remaining sections of the market show a need for capital inflow for expansion, growth and development. Narendra Modi and his government has used this mantra wisely but nevertheless it has risks attached with the rewards.
Increasing the sweet intake in your body leads to diabetes and similarly letting in more of foreign money might have its side effects too. But as an emerging nation, India needs to use this technique wisely to catch up with the pace of growth in the world.
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