FDI Uncrunched 
Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) are the two main sources that any nation gets overseas money.  FII is portfolio investment into the country’s stock markets. This money is termed as “hot money” – it can flee as fast as it came in, or even faster. FDI is investment in productive assets like buildings, factories, business, infrastructure etc. It is “real” investment, which stays on and is almost permanent. In this lesson we shall discuss various aspects of FDI and to get a fix on the subject we will use FDI in retail as a case study.
by Tarun Mitra
1 year, 6 months ago
FDI is one of the key economic growth engines that helps in fixing some of the core growth issues facing nations. Lets look at some benefits:
  • FDI is perhaps the key source that can mitigate any developing nations’ current account deficit, inflation and currency valuations.
  • FDI creates jobs: Half of our population is under the age of 25, and 60 per cent is under the age of 30. Where are they going to work, if you don't set up manufacturing units? A total of 255,416 new Indian jobs ware created in 2011 alone by FDI.
  • It transforms the local economy into an export led zero capital cost. FDI also brings with it expertise which is as much important as the capital itself. Since, it is the multinationals, which are at the leading edge of the FDI lead exports, they ensure free access to global markets.
  • For example Suzuki Motors FDI not only a thriving domestic auto industry in India; it also created a whole eco system of SME ancillary auto component manufacturers. India’s auto component exports stands at over $4.5 billion today. In addition the MNC auto makes exported close to 3 million finished vehicles in FY 2011-12. What stated with a single FDI made India a global auto hub.
  • As the exports grow, the nations brand popularity grows. The consumer nations start to trust the quality and reliability of the supply. This gives continuity to the economic growth by attracting newer players.

For more on FDI in India and it's impact; please refer Ernst & Young's India Attractiveness Survey & Fact Sheet on FDI

"Retail Realities" - Watch video from min 2.45 onwards.
Starting today through the month of January we will learn how the retail sector operates ...
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The points discussed in section makes a strong case for FDI. However, if not dealt carefully, FDI can have the western economic imperialism/colonialism effects of pre independence time. This is perhaps the main opposition against FDI. The modernizations led by FDI can effects jobs. Therefore a holistic approach will have to be taken at the policy level to protect the nation from down side of FDI.

The critics should also keep a broader picture in mind. Yes it’s true that with FDI in retail, the middle man and mom & pop stores will lose jobs; but on the other side hundreds of thousands of new jobs will be created in other places. The consumers will benefit from lower prices through economies of scale and farmers will get better prices as the middle man gets eliminated. The problem of a small section getting unemployed can be addressed by training and re-skilling.

Issue is FDI done right. Check this video for fine print of our Retail FDI Policy

And continue the debate on the attached resource
Starting today through the month of January we will learn how the retail sector operates ...
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China opened itself to FDI in 1979 about 12 years ahead of India. China’s openness to FDI has made significant contribution to its exceptional growth and dramatic economic transformation. Here are a few highlights:
  • Chinese foreign invested enterprises account for over half of China's exports and imports; they provide for 30% of Chinese industrial output, and generate 22% of industrial profits while employing only 10% of labor – because of their high productivity.
  • China continuously evolved its FDI policy in line with the economic growth. Initially it allowed FDI only in costal cities or Special Economic Zones with clear focus on manufacturing led export growth. Subsequently in the process on ongoing reforms it withdrew geographic restrictions and opened up the services sector to FDI. This gradual approach allowed China to synchronize FDI with development of institutional and regulatory capacity.
  • China strictly follows a policy to maximize its own national interest by accepting beneficial inputs, while restricting those, which may have an unfavorable impact; like resulting in the monopolization of the market or obstructions to the development of national industry.
  • GDP Growth of over 10% for last two decades, over 200 million people pulled out of poverty and huge investment in infrastructure are things impacted by FDI in China.   
For on refer The China Case and Exports in China
Comparison of FDI in China vs India. Reasons of India having low FDI and recommendations.
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India already has the benefit of being the third most favored destination for FDI. All political parties must agree on the importance of FDI. This needs to be followed by preparation of a holistic FDI policy that is conducive for growing exports, better infrastructure and driving forward an inclusive growth. India needs to fast forward reforms in areas of labor laws, judiciary and next generation financial policies. India needs and can absorb in excess of USD 25B of FDI every year for the next decade or so. For that to happen, India needs a plan rather than a political debate.
On a day when the Opposition has managed to get the government to holdback FDI ...
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1. Why do we need FDI?
2. Is there any bad consequences of FDI?
3. FDI in China
4. Conclusion
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