The Upside of FDI

Many of us have wrong notions about FDI (Foreign Direct Investments), it’s like letting someone steal our money. But there are some details that are conveniently ignored.

Firstly, when there is a foreign investment in India; a lot of it goes to the benefit of Indian public. We agree that the profit may be taken back out of India, but the rest of the money is used for those workers (who would otherwise be jobless), contractors (who may not get a tenant otherwise), and also the Indian Government.  So, it doesn't look like a very bad deal after all.

Secondly, there are huge benefits foreign investment adds for Indian Entrepreneurs:

• Follow-on industries: Bangalore became the IT hub of India after a lot of initial progress was already done by the Government, such as setting up Tata Institute, ISRO, HAL etc. When initial investment takes place, a lot of follow-on industries come into picture. This is exactly how foreign investments will help Indian economies.

  
  

• Support industries: When big firms invest in India and start their manufacturing operations, a lot of support industries will be required. For example, a huge metals plant will need a lot of supplies which can induce a lot of local manufacturers to start developing the products.
  

• Technology: Basic economic theory says that competition leads to technological advancements. In India, the car segment was initially dominated by Maruti etc., but better technologies of foreign companies ensured that local companies also start focusing on cost reduction techniques etc. This proved equally helpful for domestic companies.
  

• Developing new markets: Before companies like Unilever came to India, the public was not even aware that cosmetics and beauty products could be such a huge market. When this investment takes place in India, it developed a new market for even the Indian companies. Today, Indian firms like Marico and Patanjali are benefiting from this space.
  

Till now we have been talking about how foreign investment in India can help the manufacturers and job-seekers in India. In addition to this, there is a huge benefit to the Indian consumers. Not only will the consumers have access to better quality and technology, they even have choice which leads to reduced prices. Whenever there is a genuine competition between firms, regardless of who wins - the consumer always gains. And India is a country of consumers. So why not give the companies some incentive to innovate?

Google has agreed to install Wi-Fi facilities in the railway stations of India. Japan has agreed to help India with the bullet train investment. Sometimes, it's not really about Indian or foreign. It's more about experience and expertise. Getting Google to work on the Wi-Fi project is like taking magic classes from Albus Dumbledore.

Since 1991, the regulatory aspects of foreign investment have been eased. India's defence sector now allows consolidated FDI up to 49% under the automatic route. Private sector banks now allow consolidated FDI up to 74, upto 100% FDI under sectors like- Township, shopping complexes & business centres, Construction, operation and maintenance of specified activities of Railway sector. 100% FDI is allowed under automatic route in most of areas of railway like High-speed train, railway electrification, passenger terminal, mass rapid transport systems etc. The FDI liberalization in the sector would help in modernization and expansion of the railway projects. However, FDI will not be allowed in train operations and safety.

Recently India made history when a consignment of six metro coaches built in Baroda was shipped from Mumbai. The metro coaches, built for the Australian government, was the first of its kind India has ever exported. Over the next two-and-a-half years, 450 'Made in India' metro coaches will be exported to Australia.

According to the Financial Times, in 2015 India overtook China and the US as the top destination for the Foreign Direct Investment. In first half of the 2015, India attracted investment of $31 billion compared to $28 billion and $27 billion of China and the US respectively.

Having said all of this, it becomes immaterial to argue whether FDI is a good initiative or not. It is useful for the Government, the consumers, employees and even domestic entrepreneurs.

-Aakanksha Mudgal