IS FOREIGN DIRECT INVESTMENT GOOD FOR INDIAN ECONOMY?

IS FOREIGN DIRECT INVESTMENT GOOD FOR INDIAN ECONOMY?

The Indian economy is one of the most important markets in the world. Five years ago, it was a part of a brittle five, but the scenario is different in recent times. Since 2014, it has appeared as one of the peaks foreign ports worldwide with a remarkable rise in FDI. 

The expedition of captivating foreign investors started in 1991 with the formation of New Economic Policy, and India has extraordinarily scaled a new peak in the level of FDI during the 2000s. Foreign Direct Investment assumes a lot of importance because it can influence micro and macro variables of a host country. The papers mention the second form of data-based sectorial analysis of FDI inflow in India from 1950 to 2020. This paper also shows the positive sides of the FDI, which has brought development worldwide.

Introduction: –

Foreign direct investment {FDI} is the capital outflow from allying countries through which one can obtain some profit from their investments, while another can intensify the fecundity and search for an excel position throughout the performance. The potency and competency rely upon the investor’s cognizance.

If an outflow of capital lasts for a long time, it benefits the economy, but when the investment is made for a short period with the motive of making a profit, its economic collision may be less noteworthy. The Foreign Direct Investment might also be Iegalized by the government trade barriers and policies developed for foreign investments and can be slighter or more effectual towards benefaction in economics and the GDP of the economy and the information technology sector.

 

Indian software industry achievement has caught the attention of India as well as the world. For a country, captivating an inflow of FDI grows the interrelation to the world trade web and endows its maturing path. Foreign investment plays a remarkable role in the expansion of India’s economy. Incentives provided by numerous countries allured the FDI. 

A foreign direct investor may be categorized in any sector of the economy, and anyone can include – an individual, a group of related individuals, a public company or a private, a government body, or an amalgamation of these. The world economy has seen a rapid change with the rise in FDI for more than the past three and a half decades. The Foreign Direct Investment among the countries has significantly contributed towards the growth of labor and productivity of domestic farms.

HISTORY: –

Ahead of time around 1498 when a Portuguese Vasco da Gama came to Calicut [in Kerala]. He noticed wealthy Indians. He introduced India all over the world. After this, people started visiting India. Portuguese, Dutch, British, and French settled their property in India and started dealing with India and the dynasty people. First British who came as the face of the British emperor was sir Thomas roe, and he is the one who got the authorization for trading from Mughal India. The initial stage of Foreign Direct Investment formation in India was when the “East India Company” was created.

 

After progress in the field of Foreign Direct Investment changes took in the world’s financial structure, and in less time, became too famous as a word such as foreign direct investment and the synonym word called a foreign institutional investor

FOREIGN DIRECT INVESTMENT IN INDIA: —

India is a flourishing country and the chunk of this global village. Its growth rate is exceptionally magnificent since the last decade. The entire globe keeps an eye on the evolving strength of India. Still, many sectors that need huge investments and, in return, they will repay an enormous amount of interest. The Indian government has unleashed its door of markets for the horde of investors in different sectors.

 

Foreign Direct Investment

The world’s substantial sourcing terminus for the IT industry in India, which accounts for roughly 67% of the $124-$130 billion USD market. The initiative recruits about 10 million laborers. More importantly, the industry has steered the economic modification of the country and amended the refinement. 

The high competitiveness in providing IT services in India, which are round about three to four times low-priced than the US, is pursuing to be the linchpin of its unique selling offer {USP} in the worldwide sourcing market. Nonetheless, India is also obtaining eminence in intellectual capital with various worldwide IT firms setting up their upheaval centers in India. Asia was the largest recipient of FDI globally, with $476 billion inflows in 2017. India is a significant recipient in South Asia. 

Significant investments have been made by Major Western countries which attracted them to the Indian IT’s vital skills. In India, the computer software and hardware sector have enthralled aggregated FDI inflows worth $18.17 billion between the middle of April 2000 and September 2015, as per the data ransomed by industrial policy and promotion {DIPP}. 

Assisting nonintervention FDI curtailing is being considered, and policymakers in India, along with external observers, attach top estimate to Foreign Direct Investment. In the censorious phase of the Indian economy, the government of India took the aid of the world bank and Imp, to launch a macroeconomic stabilization and structural adapting plan. Duly, of this development, India has welcomed FDI inflows and endorsed a more flexible foreign policy to reinstate the foreign account’s confidence for the FDI board [foreign investment promotion board] whose principal duty was to summon and assist foreign investment.

In diverse sectors, the government lightens the FDI norms, telecom defense, PSU oil refineries and power exchanges, and a multi-billion retail rand. Numerous companies showed their interest like Ikea [the Netherlands], Wal-Mart [the USA], Vincenzo Domini [Italy], etc.

 

The FDI’s accountable body is the foreign investment promotion board [FIPB], Reserve bank of India. Foreign Direct Investment is the economic driver for India. According to UNCTAD’s World Investment Report 2014, India is the fourth indulged investment place, and in 2014 FDI movement in India increased by 26% to around £23 billion. As India’s government eases FDI limitations, more investment is likely to be in motion.

 

According to UNCTAD’s global investment report, India is the second gainful place after china from FDI. India receives 38%of Foreign Direct Investment from Mauritius radicle because of the tax relaxation treaty with it.

{A few sectors where the Foreign Direct Investment investment are not available are atomic energy, railway, stock, markets, real estate, and coal mining.}

Mauritius is the primary source of FDI, but Singapore, the united kingdoms, and Japan are also the FDI source. The exorbitant Foreign Direct Investment was a record in services, telecommunication, construction activities, and computer hardware and software and hospitality sectors.

Foreign Direct Investment has its pros as well as cons towards the Indian economy.

• Due to Foreign Direct Investment, there is an adequate motion of capital investments, appropriate progress in different sectors, and revenue generation.

• There is development in technology and skills, which help reduce the production cost and develop the working technique’s efficiency.

• It creates an opportunity for a job that ultimately helped people uplift their lifestyle and living with all the facilities and a comfortable life.

• Groundwork and management refinement brought efficiency and responsibility to the nation. FDI brought healthy and fit competition in the market so that in the end, consumers will be in profit.

“As there is a saying, if there are pros, some cons do exist, so the disadvantages are as follows: –

• Domestic industries are on a lookout due to the inexpensive products available in the market, and the single market system which has prevailed in the market has made it difficult for them to survive.

• The major obstacle in the FDI route’s growth is political pressure, which always tries to sway the flow of Foreign Direct Investment to benefit it.

• Due to the lower value of money, the inflation rate is at stake. People have to pay more due to the scarcity of money in the market because it has taken a curve towards the FDI companies.

• Due to the massive flow of investment in FDI, corruption, selfishness, and Red-tapes has increased day by day.

So, if this kind of problem has come up in the economy, then there is always the existence of a solution to make it correct and i.e.

The fair and dominant policy should be created as per every feature of FDI, well balanced with the good and the wrong side. The government has to be dynamic. Supervising throughout every step is necessary, and proper action must be taken. Keeping a daily check on the plan may form good credence, and it puts a possible collision on Foreign Direct Investment related issues.

 

They should proponent some other options like FII, venture capitalists, and Indian innovation, which will inevitably surge the Indian market’s brawn.

 

The translucent system needs for small firms, local industries, farmers, and other affected people.

FDI policy framework in India:- 

The last few decades have seen remarkable petty cash income and policies related to Foreign Direct Investment in India and the evolution of coinage in industrial policy and foreign exchange positions. The early liberalization efforts began in 1980 and have been divided into five phases since then.

 

Phase I {1950-1967}: -Receptive attitude towards it. There was no discrimination regarding FDI. No restriction was there on remittances. Early Indians had their ownership and control.

Phase II {1967-1980}: — limitations towards the FDI policy were introduced. Restriction on FDI without technology. More than 40% were not allowed. FDI was handled by FERA [foreign exchange regulation act].

Phase III {1980-1990}: — pro-business approach was applied: moderate liberalization. Higher FDI was permitted in export-oriented units. For the clearance of FDI, faster channels were introduced.

Phase IV {1990-onwards}: — the open-door policy was welcomed and liberalized policy framework for foreign trade, foreign exchange, and technical collaboration. In the core and infrastructure sectors, FDI was allowed. FERA was restored by FEMA {foreign exchange management act}. Still, it was not necessary that FDI would be accompanied by technology. It was approached by non-banking financial institutions, the insurance company, etc.

Phase V {2014-onwards}: — open door policy and promotion of selective sectors of National interest. FDI was promoted selectively in several sectors. Foreign Direct Investment was mainly focused on job creation and domestic manufacturing. FDI was raised from 26% to 49 in the defense sector. Full Indian management and control through the FIPB route. The intuitive way was used for FDI in manufacturing. Manufactures were sold through retail, including e-commerce platforms. Under the automatic route, overseas investment up to $10 million is allowed.

49% in the insurance and pension sector. Rise of FDI from 26% to 49% in the insurance sector and increased FDI from 74% to 100% in civil aviation. FII/FPI was allowed through the primary market to invest in power exchanges in asset reconstruction and construction development. 100% Foreign Direct Investment was eligible through an automatic route. Limitation for foreign entities for investment in Indian stock exchanges was boosted from 5% to 15%. The limitation was introduced for foreign portfolio investors {FPI} in the central public sector firm, other than banks, listed in stock exchanges raised from 24% to 49%.

Changes occurred all over these years: –

  • FDI played a vital role in raising FDI investments.
  • FDI influx in 2011-12 was worth $35.12 billion. The government took several policy decisions during those times to attract more foreign investments.
  • Then in 2012-13 Foreign Direct Investment influx was included services [$4.83 billion], hotel and tourism [$USD 3.25 billion], metallurgical [$1.46 billion], construction [$1.33 billion], automobiles [$1.12 billion] and the pharmaceuticals [$1.3 billion] were added to FDI.
  • There was the introduction of two routes, i.e., an automatic route and a government route. There were no limitations on movement in the automatic route, but prior permission was needed from the center under the government route.
  • In 2013 some policy was summarized, and in 2014 it was stated which is described in phase V above. 2013-14 rises in FDI by 8%.
  • In the 2015-16 FDI raised by 27%.
  • India replaced its position with China and became the top place for FDI by captivating $63 billion worth of FDI projects in 2015.
  • In 2016-17. FDI grew by 8.67 %.
  • In 2017-18, it was recorded a five-year low of 3% at USD44.58 billion.
  • In 2018-19, there was a decline in FDI by 7% to $33.49 billion during APRIL-DECEMBER, then in 2019-20, the influx of FDI increased by 13% to $49.97.

And to check up on the recent time development check:Link

Conclusion: –

So far, according to the facts, my opinion is, India has become one of the most captivating appearing markets all over the world. FDI has brought a different page for the economic structure. While studying this, there is no doubt that FDI has to bring so much innovation in technology, infrastructure, and even job opportunities.

A fundamental question arises now: after this epidemic situation gets over, what will be the FDI percent market position?

So, after the launch of the “MAKE IN INDIA” scheme, the market will flourish and reach a great height in the future if the government uses this correctly. More development will be seen in the coming future.

 

Author

Rashi Jain

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