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FDI flow into India: Pros and Cons Bookmark and Share  
  Author Name : K Ramesh Babu Posted on : November-2-2010 Total Hits: 5964
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The history of Indian FDI goes back to early 1990’s. The BOP position of India was under shambles and a serious crisis was before the Chandrasekhar regime persisted and took charge of the situation and made several announcements, which became history on their own. Few months later in mid 1991 a minority Congress government under Narasimha Rao took the reins and started reform process.


FDI was one of such measures, which believed to be a source of the faster economic growth. Not alone it was brought to serve the purpose of solving BOP problem but also to feed future development. At the beginning few sectors were brought under the purview of FDI. Particularly infrastructure, heavy and capital industries were considered under them.


Slowly the FDI flow was increasing due to subsequent regimes stood strong over and again in favor of that. Reform process never got disturbed even though many differed the way it has been carried over.


However, FDI was not allowed in few sectors like nuclear power and railways as even now lot of sectors even attracts 100% automatic clearance route, to say for example, insurance and other financial services.


The causes for such faster move by the various governments arise many curious questions. First among them is why such countries like India go for unlimited expansions over subjects like FDI? …


The answers are many as well as open enough to be understood easily.


At first it relieves the government burden about collecting various resources for economic development. A growing economy gobbles-up vast budget outlays towards capital intensive investments. FDI investors take care of such investments, which are long term benefactors in nature. For example, infrastructure projects consume not alone money but time factors to fetch returns both to the investors and the society.


Governments could divert the amounts to be spent on them towards some other overheads.


India was under the need of stronger private sector, which can feed employment to the vast unemployed mass. FDI flows proved vital source towards this end where it took higher educated/technical sections through IT revolution in recent years.


Moreover the integration of the Indian economy with the world is eminent to the growth of the country. It should not loss the chance as it had missed many revolutions occurred in the west during the past five centuries.


Apart from these there are many chances for the Indian giant private corporations and traditional knowledge to prove their ability before the world. Already many industrial houses opened up their business at several parts of the world. Traditional industries such as textile comes handy to the export led growth prospects of India.


Beyond them, the new economy of like Bio-Technology, Telecommunications and Automobile and Outsourced services have triggered enormous potential for employment, in particular to address young Indian job seekers search for a dream career.


Correspondingly the growth in management and engineering education proves the vital point that FDI has a great impact in the socio-economic outlook of the Indian public.


At one way the great surge in new economy has made a negative impact on the old economy, to say, over agricultural production and productivity. The large demand for land for IT parks and new factories persuaded farmers to sell their land and earn good amount of fortune. Another way, agriculturists under the pressure to face growing demand for food grains and cash crops borrowed huge amount of money to meet the demand. While there is a failure in crop due to any given reason forced farmers to commit suicide. This along with to prevent fertile lands to be diverted towards industrial usage and regulate land acquisition government is formulating a new policy. However, due to strong protest from opposition it is getting delayed. This is one of the causes for decline in FDI inflow.


A recent report said that “In 2009, India attracted $36.6 billion in FDI funds, equivalent to 2.7% of its gross domestic product. China attracted $95 billion, or 1.9% of GDP. But foreign direct investment flows into India fell by over 24% in the first seven months this year to $12.56 billion, putting pressure on domestic investment to take up the slack.”


With these mixing fortunes India’s experiments with FDI now has an encountering negative trend since the global recession makes more difficult for the corporate to woo investments.


However, the trend may be reverse back as Obama’s visit to India and once global recession goes back. Till then it may be a tough time for India’s balance of payments position.

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