Recent Trends in Indian Economy: Role of Foreign Capital, FDI:for RAS/RTS Mains

FDI refers to capital inflows from abroad that are invested in or to enhance the production capacity of the economy. Despite globalization, the essential role of foreign direct investment (FDI) in economic development has not changed.

Foreign Direct Investment (FDI) plays an important role in global business. It can provide a firm with new marketing channels, cheaper production facilities, access to technology transfer, product, skills and financing. With the advent of globalization and strong governmental support, foreign investment has helped the Indian economy grow tremendously. India has continuously sought to attract investment from the world’s major investors. In 1998 and 1999, the Government of India announced a number of reforms designed to encourage and promote a favorable business environment for investors. Foreign investments in the country can take in the form of investments in listed companies i.e., Foreign Institutional Investors’(FIIs) investments, investments in listed/unlisted companies other than through stock exchanges i.e., through the foreign direct investment or private equity/foreign venture capital investment route, investments through American Depository Receipts (ADR), Global Depository Receipts (GDR), or investments by Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) in various forms.

ROUTES OF FOREIGN INVESTMENT INFLOW
DIRECT INVESTMENT
I) Equity
(a) Government (SIA/FIPB)
(b) RBI
(c) NRI
(d) Acquisition of shares
(e) Equity capital of
(f) Unincorporated bodies
II) Re-invest Dearing
III) Other capital
INDRECT INVESTMENT
(I) GDRs/ADRs
(II) FIIs
(III) off-shore funds and others

Main advantages of FDI are:-
1. Inflow of Foreign Capital. Capital base of domestic country increases.
2. Increase in tax revenue.
3. Boost economy by GDP growth.
4. Increase competition, productivity and efficiency.
5. Large employment opportunities -FDI in retail will create lakhs of jobs.
6. Inflow of technology, expertise and know how.
7. Infrastructure facilities improve and it will bring growth and prosperity.
8. Reduce cost of production. Prices of products will come down. This will tame inflationary pressure in the economy.
9. Increase in international trade.
10. High quality products that will help them develop local businesses and industries.
11. Decrease in food wastage: Today a major chunk of the food that is almost 30%, 40% of the produce is wasted in transportation. A lot of grains are also wasted in the government storage and go-downs. The government has made it compulsory to invest 50% of the investment in the development of infrastructure in logistics. Thus it will become critical to save a lot in storage and logistics. More investments in the end to end supply chain and world class cold storage facilities.
12. Benefits to the farmers: Farmers were long been left behind and squeezed between the price raise. Worldwide the big retail giants buy the produce directly from the farmers eliminating the middle men and offering them at least 15% – 20% higher prices then they get.
13. Increase in Forex reserves: As per Government’s proposal in increasing the FDI in retail the each retail giant is supposed to invest a minimum of 100 million dollars. Each retail giant is expected to open atleast 15 stores across India and to open each
14. Better consumer choice: Since most of the retail giants work on a large scale, they have large number product varieties which generally the kirana stores in your neighbourhood are not able to store. Better options and offers to the consumer.
15. Reduction in food inflation: The increase in FDI will create stronger competition among the retailers and will eliminate the middle man, which will eventually help in reducing food prices and the stocks will help in reducing the supply constraint.
16. Increase in economic growth by dealing in various international products.
17. Billion dollars will be invested in Indian retail market.
18. FDI in defence sector will reduce imports; improve country’s capacity to produce defence equipment locally and save foreign money. Definitely, it will create employment opportunities. It will give them a hope that Indian defence equipment will become globally competitive. High technology and expertise will flow to the country.