General Awareness

April 04, 2017 @ 01:15 PM

Why FDI is needed in India?

General awareness on current topics is essential as not only you will be getting questions on GK in various MBA entrance exams but it will be useful for Essay writing test and WAT also. 

Today, you will read General Awareness Topic: 
"Why FDI is needed in India?"
 
Foreign direct investment (FDI) has become an integral part of national development strategies for almost all the nations globally. It’s global popularity and positive output in augmenting of domestic capital, productivity and employment; has made it an indispensable tool for initiating economic growth for countries.FDI in India has contributed effectively to the overall growth of the economy in the recent times. FDI inflow has an impact on India's transfer of new technology and innovative ideas; improving infrastructure, thus makes a competitive business environment. 
 
Is FDI so indispensible for a country that we can’t imagine development without it? Perhaps not, if we imagine entire world as a one country, then the word is developing and growing without investment from any other planet. However, if there were some investments from Moon or Venus, the level of development or growth must be different and better.
 
Thus, India can grow without FDI and in fact developed without or with very little FDI till 1980s but pattern and rate of growth is entirely different from the post 1990 years. Since, the GDP growth rate is falling now, export growth and Index of Industrial Production (IIP) abysmally low, need for big push is felt for the economy and if domestic investment is unable to provide that impetus, foreign investment can bridge that gap.FDI provides a win – win situation to the host and the home countries. Both countries are directly interested in inviting FDI, because they benefit a lot from such type of investment.
 
The ‘home’ countries want to take the advantage of the vast markets opened by industrial growth. On the other hand the ‘host’ countries want to acquire technological and managerial skills and supplement domestic savings and foreign exchange. 
 
Moreover, the paucity of all types of resources viz. financial, capital, entrepreneurship, technological know- how, skills and practices, access to markets- abroad- in their economic development, developing nations accepted FDI as a sole visible panacea for all their scarcities. Further, the integration of global financial markets paves ways to this explosive growth of FDI around the globe. 
 
Developing countries like India need substantial foreign inflows to achieve the required investment to accelerate economic growth and development. It can act as a catalyst for domestic industrial development. Further, it helps in speeding up economic activity and brings with it other scarce productive factors such as technical knowhow and managerial experience, which are equally essential or economic development.
 
In 2012-13, the domestic saving rate is expected to be 32.8 percent, 0.5 percent lower than what seen in fiscal year 2011-12. Despite of such a high saving rate, growth rate in 2012-13 is expected to be just 7.5 percent.
 
Domestic saving rate is not able to fuel the required investment to maintain the growth target of Twelfth Five Year Plan (2012-17). Thus the gap between domestic saving rate and required investment rate will be filled by foreign capital coming through FDI. Foreign investment is not meant to replace the domestic investment but to strengthen the domestic investment. 
 
Services, telecommunications, construction, computers (software and hardware), real estate and housing, chemicals, drugs and pharmaceuticals, power, automobiles and metallurgical industries are certain sectors attracting highest FDI inflows across India. 
 
Among these sectors, financial, infrastructure sector including power, telecommunications, petroleum, metallurgy etc are the most vital for the future growth and development of the country. If domestic investment is not coming up in these sectors, gap must be filled by the foreign investment.  
 
Of late, the fallout of growth seen in India is the lopsided growth where it evades the under developed states like Uttar Pradesh, Bihar, Jharkhand, Orissa, Chhattisgarh, Madhya Pradesh etc but are concentrated in Delhi/NCR, Maharashtra, Gujarat etc.
 
A major advantage of foreign investment in India over the domestic investment is that it is coming up in less developed sectors. In 2011-13, Odisha has emerged as the most favourite destination for overseas investors with investment proposals worth Rs 49,527 crore followed by Andhra Pradesh and Gujarat. Moreover, Chhattisgarh and Karnataka ranked fourth and fifth of the top five investment destinations. Thus in the top five investment destinations, two are the underdeveloped states and three are naxal infested. 
 
For the foreign investors, India presents a vast potential for overseas investment and is actively encouraging the entrance of foreign players into the market. No company, of any size, aspiring to be a global player can, for long ignores this country which is expected to become one of the top three emerging economies. 
 
India is competing for foreign investments with other emerging economies and thus FDI is imperative for India as it has transformed the quality, productivity and production in areas it has been allowed and can supplement domestic efforts significantly.      
 
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