FDI in India – Pros and Cons

March 5th, 2021 by dayat Leave a reply »

With the occurrence of globalization, foreign direct investment (FDI) has become a subject of popular interest. FDI has acquired a clearly critical role in the International Economy after the Second World War. They have opened new avenues for National Markets which are now open to International business. Local markets need to explore resources beyond borders to boost the influx of funds and to progressively acquire improved technology, boost their domestic rates and improve their economy. For the underdeveloped and developing nations FDI implies foreign exports and access to international markets and currencies. The advantages of FDI are numerous. FDI brings with it plenty of employment opportunities and technical capability. FDI also enhances the competitiveness of local firms. It ensures flow of money to businesses across the countries that have good growth prospects. It brings with it competitive advantages and diversity. The benefits for both investors and recipients are numerous. It has also been observed that foreign direct investments have revived and supported nations during times of economic strife. The 1997 Asian financial crisis for instance, where other major cash inflows suffered major setbacks, FDI was held steady. Transfer of resources in terms of capital and technical knowledge is another boon. FDI opens up a wide range of opportunities in trading of goods and services, holding good for both imports and exports. It plays a crucial role in improving the productivity of the host nations. The quality of goods and services is also enhanced as an outcome. Income through taxation on FDI also helps increase the revenue for the Recipient nations Government.

While all these factors stand both the Investor and the recipient in good position, FDI has its fair share of cons as well. FDI’s are subject to an outrageous degree of risks leading to changes in the political scenarios of the host country in no time. The investor could thus find his investment in serious danger. Cultural differences between the participating nations could also provoke hordes of disputes which would ultimately lead to a failed business venture. It is also often argued that FDIs generate negative externalities in the labour market of the host economy. This is based on the fact that all parties are viewed as profit maximizing entities. It also has baleful effect in depriving and destructing the local employment market. Some also argue that allowing foreign players would most definitely disrupt the balance of the economy, for instance allowing FDI in India would render millions of retailer’s jobless, closing the small windows of opportunities they have.

India is the largest democracy in the world with innumerable resources. It provides countless opportunities for investments, both domestic and foreign. The Indian Government has plunged into drastic economical reforms since 1991 in terms of the International markets. FDI was liberated tremendously through review of the country’s FDI policies. Liberalizing the stringent regulatory control on industries, simplifying investment policies and promoting FDI in India had supported its cause and stand on the International scene as a powerful player and a preferred investment hub. India has one of the most liberal and transparent policies on FDI among the emerging economies. FDI up to 100 percent is allowed under automatic route in all activities and sectors except few sectors like manufacturing of cigar and cigarettes of tobacco, electronic aerospace and defense equipments, etc.

The Indian government recently announced a range of reforms, including allowing foreign direct investment (FDI) in multi-brand retail up to a level of 51%. Wal-Mart the American retailing Giant has hit headlines since. Foreign players would help in setting up better supply chain and logistical capabilities favoring significant improvements in infrastructure. This has however received a mixed response from opposition leaders and economists. The Indian Government is also currently considering proposals to lift caps on Insurance and pension industries. In a nutshell India Has marked its arrival on the global economic scene and Stands out as a preferred hub for foreign investments and certainly is one for the future.


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