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Views on Foreign Direct Investment

Recently the issue of Foreign Direct Investment (FDI) is dominating the Medias with the clamorous protests and supports from all over India each state, each political party and even each individual is having their own views on the FDI. Foreign Direct Investment alias FDI is the investment by a foreign country in the production of another country either by expansion of the operations or by purchasing companies in the country.

As a country investing in other countries has eye on the cheap labour and resources in the target country or tariff free access to the market of the country. Whereas, the host country receives foreign funds for its development, new technologies, experience, expertise and new job opportunities. The FDI is opposite to the portfolio investment where is investor is least bothered in the management. The Foreign direct investor may acquire the voting power in the enterprise. He can acquire the company or its wholly owned subsidiary, acquire shares of an associated enterprise, and merge an unrelated enterprise and can participate in the equity joint venture.

Considering the FDI in global scenario, the United States of America is the largest recipient of FDI of $194 billion, followed by China with $85 billion, in 2010.In India FDI started in 1990 with less than $1 billion investment. In 2010-12 the sectors such as services , telecommunication, construction activities and computer software and hardware attracted unprecedented in flow of FDI to India making it the most sought destination after China. From $44.8 billion investment in 2010, there was an eight fold increase in March 2012.On September 2012, by FEMA (Foreign Exchange Management Act), government of India announced permission FDI in aviation up to 49%, in the broadcast sector up to 74%, in multi-brand retail up to 51% and in single-brand retail up to 100%.The choice of allowing FDI in multi-brand retail up to 51% has been left to each state. It is this decision for allowing FDI in retail sector that triggered wide spread agitations in India.

It is undisputed fact that the foreign investments has booted up the Indian economy in recent decades that even a lay man can realise by comparing the economic situation of the citizens over the decades. Indian streets are characterised by small retail shops and a good proportion of population finding their living hoods in retail sector. The perspective on FDI changes as from which level of the society we are viewing it. For a retailer, he fears his business when rivals enormous potential is going to compete with him. As a purchaser, he will be happy to be exposed to select from the wide variety choices and he will get a satisfaction of purchase of his will and also at reasonable costs. The economists view the FDI in terms of the money flow into the economy and its impacts. Similar apprehensions happened when the indigenous retail marketing giants were introduced. People are attracted to the retails shops because of the benefits they are able to avail at reasonable costs. And despite the fears the petty retails shops also surviving, thanks to the Indian demographic features. The retail market in India is highly unorganised with some people holding monopoly of procuring products from the farmers, so that the farmers are the least benefitted group in the supply chain. The FDI in the retail sector can help in goods procurement at reasonable rates as the information on market demand; prices etc become easily available thus eliminating the middle man from the supply chain.

India has prohibited FDI in sectors such as Business of chit fund, nidhi company, agricultural or plantation activities, real estate business, or construction of farm houses, or trading in transferable development, lottery business including government /private lottery, online lotteries, etc, gambling and betting including casinos etc, manufacturing of cigars, cheroots, cigarillos and cigarettes, activities / sectors not open to private sector investment e.g. Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems) for protecting better interests of the country. Opening of above said sectors to FDI should be prevented in the coming years also.

The disadvantage from FDI arises when the economically powerful investor can control the competitive enterprises in the market which can lead to the monopoly in pricing and due exploitation of the market. Proper policies and regulations should be adopted for avoiding this trend. The sovereignty of the country should not be surrendered to the foreign hands at any costs or means.

The Indian labour laws, complicated legal procedures and wide spread corruption are causing investors to shy away from investing in India. India was ranked far below, lower than Pakistan, Bangladesh and Srilanka, in the ease of business index released by the International finance Corporation (IFC) the private sector arm of the World Bank has ranked India 116 out of the 155 countries surveyed. In this contest even if government is attracting investments via tax holidays, low tax rates, SEZ(special economic zones) etc, it will be difficult to attract foreign money. Steps should be taken to make labour laws more flexible, reduce intricacies in legal formalities and increase the morale of the country for economic reforms to be effective, otherwise steep decrease in investment growth can be foreseen.