FDI IN INDIA

INTRODUCTION

The quick and increasingly growing economy of India in most of its sectors, has made India one of the most well-known and accepted destinations in the world, for Foreign Direct Investment. India has expanding market trends and the immense development in technology and telecommunication, have further collectively made India, the apple of investors' eye, for most productive, profitable, and secure foreign investment. India has noticeably emerged out as the second most popular and preferable destination in the world, after China, for highly profitable FDI. Be it sectors like infrastructure, technology, telecom or hospitality an array of foreign investors have made direct investment in India.

WHAT IS THIS FDI?

FDI is allowing overseas markets for booming consumer in many forms. Broadly, it includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company loans". FDI means investment done by a foreign company in another country. This relationship, consists of a parent enterprise and a foreign affiliate which together form a Trans-National Corporation. The major reasons for FDI is to take the benefit of growth opportunities and advantages of cheaper wages, tax exemptions in that country. Usually there are 2 methods of FDI - First, by buying a company located in that country either completely buying it out and making the company its wholly owned subsidiary or by starting a joint venture with the existing company. Second, by opening a branch for expanding its own existing business in that particular country.

FDI AND ITS FORMS

FDI is said to be Horizontal when a firm duplicates its home country-based activities at the same value chain stage in a host country. Platform FDI arises from a source country into a destination country for the purpose of exporting to a third country. Vertical FDI takes place when firms perform value-adding activities stage by stage in a vertical fashion in a host country. Horizontal FDI decreases international trade as the product of them is usually aimed at host country; the two other types generally act as a stimulus for it.

IMPACTS

The entrance of foreign retail chains has various impacts on India. Investors build supply chains and logistical capabilities, spurring significant improvements in the infrastructure needed to source, ship, store and deliver products. On the other hand their entry growth persuades domestic competitors to invest in infrastructure and logistics, as well as greatly speed up the emergence of product standards. The FDI in Indian business sectors, can easily be made in a variety of ways, through the Governmental and Automatic Routes. However, the Joint Ventures are the most popular and preferred forms of making investment in Indian industry.

EFFORTS FOR INDIAN ECONOMIC GROWTH

India's relaxation of foreign investment rules, aimed at drawing funds needed to turn around slowing economic growth and support a crumbling rupee. Prime Minister Manmohan Singh eased FDI rules for several industries, including insurance and telecoms. The long-pending move to increase the FDI cap in insurance from 26 to 49 per cent, still needs approval from parliament. The measures came a day after the central bank mounted a defence of the rupee by tightening liquidity and lifting short-term interest rates, in order to make speculation against the currency more difficult. Those moves helped to slightly steady a currency that has lost 9 per cent against the dollar since the start of May, making it the worst performer among emerging Asian currencies.

Among the latest steps announced, the foreign investment cap in telecoms, which stood at 74 per cent, was removed. But the measure was not expected to draw fresh entrants as the cut-throat industry is already crowded, and plagued by regulatory uncertainty. A move last September to allow FDI in supermarkets has not attracted a single proposal, as rules continue to be ironed out.

Liberalization of the aviation sector, on the other hand, has yielded investment plans from Malaysia's AirAsia and Etihad of Abu Dhabi. Etihad's planned investment in Jet Airways has been bogged down by the concerns of Indian regulators over specifics of the deal. India has further opened its economy to FDI in the latest attempt to boost sluggish economic growth and strengthen the ailing rupee.

In sectors like Oil refining, commodity exchanges and “single-brand” retailing, the cap on foreign investment will remain unchanged, but a larger proportion will be allowed under the “automatic route” rather than requiring official approval. These moves could allow some foreign companies with minority domestic partners, including Britain’s Vodafone and Norway’s Telenor, to take 100 per cent control of their Indian operations.

The governmentrcently announced FDI cap in defence at 26 per cent, even while stating that higher foreign investment in ‘state-of-the-art’ technology manufacturing will be considered by the Cabinet Committee on Security on a case-to-case basis.

WELCOME NOTE TO THE INVESTORS..

India, post liberalization, has not only opened it's doors to foreign investors but also made investing easier for them by implementing the following measures:

·         Foreign exchange controls have been eased on the account of trade.

·         Companies can raise funds from overseas securities markets and now have considerable freedom to invest abroad for expanding global operations.

·         Foreign investors can remit earnings from Indian operations.

·         Foreign trade is largely free from regulations, and tariff levels have come down sharply in the last two years.

·         While most Foreign Investments in India are allowed in most industries, foreign equity up to 100 % is encouraged in export-oriented units, depending on the merit of the proposal. In certain specified industries reserved for the small scale sector, foreign equity up to 24 % is being permitted now.

·         Complete tax exemptions.

·         Investment incentives are offered by both the Central Government and the Government of the State in which the unit is located.

·         India has tax treaties with 40 countries.

Now the other question that arise is Why FDI is necessary for the nations economy  ?

FDI inflow speeds the growth of GDP in the invested country as huge foreign investment injects huge cash in the nation's economy which ultimately give a strong boost to the GDP growth rate. Foreign Investment brings the foreign currency to that particular country in which investment is done and we all know how much valuable Foreign currency is ? especially for a country like India which spends more than 65% of its foreign currency in importing oil. FDI increases the employment and decreases the expenditure of Government as foreign companies with huge cash reserves, themselves invest in the backend infrastructure of that country in order to improve it according to their business needs. When Foreign companies comes to do business in a particular country than along with their huge cash, they also brings their highly developed technology and R&D which they share with the companies located in that country ultimately boosting the productivity of the industrial sector.

CONCLUSION

As the industry progresses, opportunities abound in India, which has the world's largest middle class population of over 300 million, is attracting foreign investors by assuring them good returns. The scope for foreign investment in India is unlimited. Investor confidence approach is very robust in India. It is expected to see 15 per cent increase in FDI in 2013," said Nagesh Kumar, Chief Economist, UN-ESCAP, while releasing the World Investment Report 2013. However, FDI inflows to India dropped by 29 per cent to $26 billion in 2012, as per the report ''Global Value Chains: Investment and Trade for Development''. India experienced its slowest growth in a decade in 2012 and also struggled with risks related to high inflation. As a result, investor confidence was affected, and FDI inflows to India declined significantly. But the country's FDI prospects are improving. Inflows to the services sector are likely to grow and flows to manufacturing are expected to increase as a number of countries, including Japan and Korea establish country and industry specific industrial zones in the Delhi-Mumbai industrial corridor. 

Indian Economy- Challenges of Sustaining Trillion Dollars Economy...

INTRODUCTION

It was the glorious day of 15^th Aug 1947, which not only brought us independence but also marked the beginning of a new financial era. We started our economy with a zero external debt and our Rupee stood strong enough at par with the US$. On April 2007 we joined as the 12^th nation in the Trillion Dollar Club with other countries namely, the US, UK, Japan, Germany, China, France, Italy, Spain, Canada, Brazil and Russia. But due to decaying political scenario and brazenly rising inflation the ailing rupee has severely tumbled down and facing its lowest on 64.55 INR per US$ today and a per capita debt of Rs.33000 on every Indian. 28 paise in a rupee of budget source is from borrowing and 18 paise in a rupee spent is towards interest payment. In this situation definitely a question comes in the mind can we sustain our trillion dollar economy ?

MEANING OF TRILLION DOLLARS ECONOMY

What is the meaning of this Trillion dollar economy ? It is the value of the Gross Domestic Product or to say the sum total of our GDP crossed one trillion dollar. India achieved this land mark when one US$ was Rs.41, means our GDP on that day exceeded 41 trillion rupees.

Over the period 1960 to the late 1980s, India’s GDP in US dollar terms doubled every nine years on an average and then, improved to around 5 years, resulting from structural reforms. Now the GDP is 1.84 trillion and is expected to cross 3.4 trillion mark by 2015-16, within the span of the current Five Year Plan. Therefore, we should think about exploiting the opportunities and preparing ourselves for the challenges of managing a multi-trillion dollar economy.

WHY SHOULD WE DOUBT THE SUSTAINABILITY?

Along with the lower growth of rate of GDP of 4.8% and higher interest for the borrowed capital, the main reason for which now fear is generated is the fall in value of INR with respect to US$. As it is increasing our total external debt, cost for imports and interest payable in term of INR our heart beat is increasing.

Challenges, opportunity and remedies

The main challenges are the poverty, unemployment, shortage of skilled personel, illiteracy, urbanization problem, infrastructure deficit, Capital deficiency and good governance which are to be given importance for sustaining this Trillion Dollar economy.

At the grassroots level, India continues to be a poor and less developed. No goal can be achieved in the absence of poverty alleviation. Extreme poverty and deprivation discourages to participate in programs not providing immediate support to livelihood. Due to high population growth rate, large workforce still dependent on agriculture. Heavy dependence on agriculture is a symptom of poverty- Indian Agriculture contributes 15% of the GDP and employs 55% of the population creating disguised unemployment. We have to get people out of it, and provide them other employment. Industrialization will help to create middle level job and migration.

We need to recognize that the knowledge, skills and productivity of our growing young and dynamic work force forms the backbone of our economy. We need to strengthen ITI and vocational education system. Expenditure on education, research and development is to be increased. Despite the increasingly higher numbers of engineering graduates produced by the technical institutes in India, almost 30% are remaining unemployed or employed in other non technical jobs. In 2005, a study indicated that only a quarter of India’s technical graduates and 10-15 per cent of general college graduates are of employable quality. The research also showed that doctorate degrees were less than 1 per cent of graduate engineers, very less in comparison to other developed countries. In 2009, World Bank expressed the view that acute shortage of skills especially in the area of civil engineering shadows the growth prospects of the Indian economy. So quality engineers are to be produced with an affordable cost.

In India in 1991, there was 26% urbanization now it is 37%. Still it has to go a long way. The problems that we talk about urbanization, are our managerial problems, we need to get rid of them. Urbanization is inevitable for a growing economy.

We do not have enough infrastructure in the economy to sustain a trillion dollar investment in next five years. The infrastructure sector was one of the thrust areas in the Union Budget 2012-13 and 13-14. Anyway India has witnessed considerable development in physical infrastructure in the past decade. Both the government and the private sector need to work towards overall infrastructure so that it can sustain 8-9% annual GDP growth. Even though private public partnership is relatively new to India, it has shown decent results and has a potential to grow. 30% share of Private sector in Transportation and a 34% share in power sector is a good sign for our economy. The development of airports and roads is a classic example of the potential of PPP in India. But there are still some regulatory issues that need to be looked at and changed. Agricultural infrastructure to be strengthens to reduce the prices of essential food items.

India, post liberalization, has not only opened it's doors to foreign investors but also made investing easier. Opportunities abound in India, which has the world's largest middle class population of over 300 million, attracting foreign investors by assuring them good returns. Investor confidence approach is very robust expecting to see 15% increase in FDI in 2013, Now, the question is no longer of scarcity of capital but the rate of return that we can pay on this capital.

In my opinion there are three mantras-

1.    Reduce the interest burden by reducing the debt and increasing the equity through FDI.

2.    Promote export- explore new market

3.    Find substitute for import – focus more on renewable energy, be self dependant on Food grain, try to utilize own resources.

CONCLUSION

Actually, we lack confidence. Existential crisis is our national disease. Our biggest myth as a nation is that we believe that the government runs the economy, not people. It is difficult for us to see that what we do, at schools, colleges, offices, factories adds up and decides the fate of our nation. It is truly said 'Agar apa sab sirf apna kaam hi theek se kar le toh desh eisehi aage badh jaayega'. And imagine what we could do with the vast knowledge we have. Let us think two minutes to that imagination.