fdi in india - opportunities and options.doc

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Third concept, Sept 2011, pp39-43.

FDI in India: Opportunities andOptions

Prof. R.K.Srivastava*

Econoic paraeters c!ear!" indicate that the #!o$a! econo" is on recover" ode.%o&ever, soe econoic stresses e'ist in e(ro )one co(ntries. t is &ide!" conceived thatE(ropean crisis is not #oin# to have as adverse an effect to other co(ntries !i+e the 200-09 crisis. !o$a! financia! e!tdo&n in 200 had hi#h!i#hted the &ea+nesses of #ro&th

ode! of the deve!oped &or!d. s &e!! it (nder!ined the iportance of eer#in# ar+etsin the &or!d deve!opent atri'. nd ndia has #ot a (ni/(e position in this $and&a#on.t inc!(des the opport(nities to attract forei#n direct investent into ndia in a $i#&a". t is d(e to the fact that (!tinationa! corporations 56s have $een re-&ritin#their strate#ic p!annin# and eer#in# ar+ets are on their radar. ndia can $e their preferred destination. The !o#ic !oo+s convincin# $(t there are a !ot of road$!oc+s e'ists&hich can haper ndia7s proisin# #ro&th stor". Therefore, efforts sho(!d and (st $edirected to p!(# these ho!es $eca(se it &i!! chan#e the destin" of ndia &hich is set to $ecoe econoic po&er in near f(t(re.

The present state of &or!d econo" is on recover" path $(t the recover" is fra#i!e. Even

tho(#h the consens(s is that recover" in the 8S and E(rope &i!! $e s!o& and #rad(a!. nE(rope there are soe co(ntries !i+e reece, Port(#a!, Spain and ta!" &hich have !ar#ede$t $(rdens are e'periencin# soe stress. n certain /(arters it is $e!ieved that there areris+s in deve!oped &or!d too s!ippin# into a second recession. %ed#e f(nd ana#er aes6hinos has the vie&s that 6hina7s propert" ar+et is a $($$!e that a" $(rst in !ate 2010or 2011. This is the econoic environent (nder &hich &or!d econo" is crossin#.

The sit(ation in ndia is entire!" different. The ndian econo" is the e!eventh !ar#estecono" in the &or!d $" the noina! va!(e1 and the fo(rth !ar#est $" p(rchasin# po&er parit" PPP.2 n the 1990s, fo!!o&in# econoic refor fro the socia!ist-inspiredecono" of post-independence ndia, the co(ntr" $e#an to e'perience rapid econoic

#ro&th, as ar+ets opened for internationa! copetition and investent. n the 21st

cent(r", ndia is an eer#in# econoic po&er &ith vast h(an and nat(ra! reso(rces,and a h(#e +no&!ed#e $ase. Econoists predict that $" 2020 3 ndia &i!! $e aon# the!eadin# econoies of the &or!d. :(t it re/(ires h(#e reso(rces to attain it deve!openta$ition. or instance, ndia7s needs ;1 tri!!ion infrastr(ct(re spendin# d(rin# the 12 th

P!an 2012-1<, accordin# to the P!annin# 6oission. Even tho(#h it7s doestic savin#rate is estiated to 34= in 2009-10 and to reach 3>= $" 2011-12. :(t d(e to its assive

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deve!opent needs, the ro!e of in the faster deve!opent of the econo" cannot $eover!oo+ed. The a?or advanta#es of in ndia have $een in ters of@ 4

* eptt. Af Econoics, %5: arh&a! 8niversit", :adshahitha(! 6ap(s,Tehriarh&a! 8ttara+hand.

E-ai!@ prof.sri2009B#.ai!.co

ncreased capita! f!o& proved techno!o#" ana#eent e'pertise ccess to internationa! ar+ets

in ndia has increased over the "ears d(e to the efforts that have $een ade $" thendian #overnent. The increased f!o& of into ndia has #iven a a?or $oost to theco(ntr"7s econo" and so eas(res (st $e ta+en in order to ens(re that the f!o& of into ndia contin(es to #ro&. The a?or sectors of the ndian econo" that have $enefitedfro into ndia are@

inancia! sector $an+in# and non-$an+in# ns(rance

Te!eco(nication

%ospita!it" and to(ris

Pharace(tica!s

Soft&are and nforation Techno!o#"

The e'perience of 6hina in attractin# in a !ar#e sca!e is &e!! doc(ented ho& it hasachieved near do($!e di#it #ro&th. ts increasin# openness to has contri$(ted to its#ro&th perforance. ost of the factors e'p!ainin# 6hina7s s(ccess have a!so $eeniportant in attractin# to other co(ntries@ ar+et si)e, !a$o(r costs, /(a!it" of infrastr(ct(re and #ovt. po!icies.C or instance, inf!o&s into 6hina reached a record;92.4 $i!!ion in 200, &hereas inf!o&s into ndia is estiated to ;2C.9 $i!!ion in2009-10. The s(dden chan#e in the e'terna! environent that started aro(nd id-Septe$er 200 !ed to an adverse sit(ation characteri)ed $" #!o$a! !i/(idit" s/(ee)e andincreased ris+ aversion on the part of internationa! investors. n ndia, there &ere !ar#ecapita! o(tf!o&s $" portfo!io investors in the third /(arter of 200-09. Dhi!e f!o&se'hi$ited resi!ience, access to E6:s and trade credits &ere rendered soe&hat diffic(!t.>

8nder this sit(ation, the ain o$?ective of the artic!e is to e'aine the opport(nities and po!ic" options &hich ndia can ta+e to attract in a !ar#e sca!e in the c(rrent #!o$a!econoic environent.

Trends

ndia has $een a +e" $eneficiar" of the iproveents in sentients to&ards eer#in#ar+ets and this is ref!ected in !ar#e inf!o&s into ndia. The trends are@

1. Year-wise@ inf!o&s into ndia s(r#ed fro ; 9 $i!!ion in 200C-0> to ;2< $i!!ion in200-09 and 2> $i!!ion in 2009-10. inf!o&s ar#ina!!" !o&ered in 2009-10 d(e to theipact of financia! crisis. 6((!ative ao(nt of inf!o&s into ndia d(rin# 1991-

2

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mailto:[email protected]



2009 is estiated to ;12<4>0 $i!!ion. Ta$!e #ives a pict(re of ndia7s perforance inattractin# .

Ta$!e@ inf!o&s into ndia

ear o(nt;$i!!ion

2003-4 4.32

2004-0C >.0C

200C-0> .9>

200>-0< 22.3

200<-0 34.3>

200-09 2<.30

2009-10 2C.9

So(rce@ epartent of nd(stria! Po!ic" and Prootion

inf!o&s have s(r#ed in ndia despite the #!o$a! e!tdo&n and their edi( to !on#-ter prospects reain proisin#.< 56s in an" an(fact(rin# and service ind(stries,ran#in# fro stee! and a(tootives to retai!, have speeded (p their ar+ets entr" ande'pansion in ndia. The overa!! trend in sian co(ntries !i+e ndia a$o!ishin# e'istin# cei!in# or raisin# soe of the to chan#e po!icies and !e#is!ation to $ecoe orefavo(ra$!e to !ed to f(rther openin# of the ar+ets. !o$a! inf!o&s are e'pectedto fa!! fro ;1.< tri!!ion to $e!o& ; 1.2 tri!!ion in 2009, accordin# to the Dor!dnvestent Report. t said a recoverin# (p to the !eve! of ;1.4 tri!!ion co(!d $e ade in2010, &hich &o(!d then #ain oent( in 2011 to reach the ; 1. tri!!ion !eve!s. The8S, a!on# &ith ndia, 6hina, :ra)i! and R(ssia are !i+e!" to !ead the f(t(re recover".

2. Country-wise@ 6((!ative inf!o&s into ndia pri! 2000 to ece$er 2009, theost iportant co(ntries are a(riti(s 44=, fo!!o&ed $" Sin#apore 9= and 8S=. The iportance of a(riti(s as a so(rce of is near!" ha!f of in ndia. Thespecia! ro!e of a(riti(s is !i+e!" to $e the conse/(ences of the specia! ta' treatentaccorded in ndia to investents.

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3. Sector-wise: The !ar#est portion of is destined for service sector &hich too+ (p22= of tota! inf!o&s into ndia. 5e't is 6op(ter soft&are and hard&are at 9=,fo!!o&ed $" Te!eco(nication at =. This s(##ests that the ain attraction of 56S isin doestic-!ed #ro&th sectors.

4. Georap!ica"-distri#ution: pattern in ndia sho&s a #reat disparit" aon#re#ions. Destern re#ion aharashtra, adra and 5a#ar %ave!i, aan and i( too+ (pnear!" 3>= of to ndia, &hi!e 5orthern re#ion e!hi, part of 8P and %ara"ana too+ (p 19= and Karnata+a attracted near!" >=.

Opportunities

n the past ndia7s perforance in attractin# &as !ac+!(sterF disa!. :(t the sit(ationhas $een chan#in#. n($er of opport(nities &ithin and o(tside the ndian econo"have eer#ed as &e!! as #!o$a! econoic environent has $een chan#in# in ndia7sfavo(r. The reasons are@

1. De$orap!ic %a&our: ndia is a "o(n# co(ntr", &herein C0= of pop(!ation is $e!o&the a#e of 2C "ears. t &i!! a!so en?o" a ver" favo(ra$!e deo#raphic oent( for another three decades. This &i!! ipact not on!" its econoic #ro&th prospects, $(t a!sosavin#s and investent $ehavio(r, accordin# to e(tsch :an+ research. !so 8.5. report(nder!ines the dividend &hich ndia &i!! #et fro its deo#raph". t states that the&or+in#-a#e pop(!ation in ndia &o(!d shoot (p $" 240 i!!ion over the ne't t&odecades, e/(iva!ent to fo(r ties the tota! pop(!ation of the 8K. The deo#raphicdeve!opents in the :R6 :ra)i!, R(ssia, ndia and 6hina over the ne't 10, 20, 30"ears &i!! var" #reat!". t added that in ters of deo#raphic transition ode!. ndia is atthe $e#innin# of sta#e three dec!inin# ferti!it", pop(!ation #ro&th :ra)i! and 6hina areat sta#e fo(r !o& orta!it" and ferti!it", pop(!ation trendin# to&ards sta$i!it", &hi!eR(ssia is a!read" at sta#e five s($-rep!aceent rate ferti!it", dec!inin# pop(!ation.

n addition, ndia7s doestic savin#s rate is far hi#her copared to internationa!standards. ts savin# rate has oved (p fro 24= to 3>= in the span of C-> "ears. Sondia can find its investents thro(#h doestic so(rces. ts investent stands at near!"3= of P, &hich is in t(rn drivin# it, #ro&th. 8n!i+e 8S, &hich f(nds its #ro&th fro $orro&in#s, ndia7s #ro&th is a res(!t of savin#s !ed investent.

2. 'i $ar(et@ ndia is e'pected to #ro& $" .<C= in 2010 and .C= in 2011, driven $"a stron# doestic deand. The deand &i!! stren#then as the !a$o(r-ar+et iproves,and investent is e'pected to $e $oosted $" stron# profita$i!it", risin# $(sinessconfidence and favo(ra$!e financin# conditions.9 !ar#e doestic ar+et &ith !o&ar+et penetration !eve!s across ind(str" se#ents !oo+s (ch attractive and convincin#to 56s. The (se and sa!e of ites ran#in# fro cons(er d(ra$!es and 6 prod(cts to a(too$i!es are on the rise. There is a s(fficient!" !ar#e space, partic(!ar!" inthe r(ra! and sei-(r$an ar+ets that is sti!! vacant and is &aitin# to $e tapped. t is racea#ainst tie &hen it coes to the ndian ar+et for an" 56s as the" #o a$o(t!a(nchin# ne& prod(cts tai!ored to s(it the specific re/(ireents of the ndian cons(er.Ta+e the a(to ind(str" as an e'ap!e. eve!opin# a copact car specifica!!" for the

4



ndian ar+et is a pro?ect that has en#a#ed soe of the !ar#est #!o$a! a(to p!a"ers. S(chinvestents in Gade for ndia7 prod(cts &i!! rise in the f(t(re.10

3. )ea" and de$ocratic syste$: ndia is a !ar#est deocratic co(ntr" in the &or!d andits transparent and honest e!ection process is on par &ith an" deocratic co(ntr" of the&or!d. %o&ever, ndian deocrac" has h(#e fa(!t !ines@ caste po!itics, deand for ore

States, a#itation for re#iona! ep!o"ent, tri$a! (prisin# and so on.11

s far as its !e#a!s"ste is concerned, it is independent and an" disp(tes can $e so!ved in the 6o(rt of Ha&. t a!!o&s for e/(a! treatent of forei#n copanies at par &ith ndian copanies.There is no discriination a#ainst forei#n copanies once the" re#ister in ndia. ndiaa!so has fair!" standard acco(ntin# proced(res that are in !ine &ith the internationa!!"accepted nors. t a!so ens(res investors7 ri#hts inc!(din# protection of an" for of inte!!ect(a! propert" ri#hts PRs.12

4. *o"icy en&iron$ent: ndia7s po!ic" re#ie is no& #eared to f!e'i$!e and ar+et-friend!". overnent s&ift!" acts accordin# to the needs of econo" and &or!deconoic environent. or instance, #overnent is serio(s!" considerin# to open the

retai! sector in (!ti-$rands for and to increase the !iit for in defense prod(ction.

+urd"es

The fo(r a?or constraints &hich appear to p!a" a proinent ro!e in inf!(encin# inf!o&s into ndia are@ 13, 14

Hac+ of po!ic" initiatives

nade/(ate infrastr(ct(re

Ri#idities in !a$o(r !a&s

%i#h fisca! deficit

*o"icy options

Even tho(#h inf!o&s into ndia have pic+ed (p stea, ndia is sti!! not in the $i#!ea#(e. t needs to ta+e soe po!ic" initiatives to strea!ine re#ie to a+e it easi!"coprehensive to forei#n investors.1C These are@

• acro econoic corporate #overnance has a si#nificant effect on in&ard

f!o&s. t s(##ests that ndia sho(!d shape its po!ic" in this area to a'ii)e s(chf!o&s.

• The po!ic" frae&or+ needs to $e sip!ified and defined for the edi( to !on#ter, rather than have a sit(ation &here the #ovt. oves $ac+ and forth ondecisions. nconsistenc" in interpretation of r(!es and re#(!ations $" differenta(thorities needs to $e addressed.1> or instance, the #ovt. needs to c!ear theconf(sion that &as created $" the press notes 2, 3 and 4 iss(ed in e$.709. Sectora! caps and other restrictions needs to $e eased &here #reater !i$era!i)ation &i!!not threaten nationa! sec(rit" $(t &i!! $enefit the co(ntr" in ters of ore ?o$s,ore capacit" and red(ced dependence.

C



ccordin# to I(i#!e" i, the fo!!o&in# eas(res can $oost inf!o&s into ndia@ 1<

• 6ontin(e the process of !i$era!i)in# the investent nors into sectors that are sti!!

c!osed to , s(ch as retai! and ins(rance.

• Enco(ra#e even #reater trade openness, &hich is iportant to iprove a$sorption

of capita! inf!o&s in the short r(n and to deve!op fore' earnin#s capacit" that&hi!e ena$!e an appropriate ret(rn on invested capita!.

• ove to&ard converti$i!it" of co(ntr"7s capita! acco(nt to faci!itate soother

f!o& of forei#n capita! into and o(t of the co(ntr".

• P(sh ahead &ith financia! sector refors a!read" (nder &a" to enhance ndia7s

ro!e as a a?or h($ for #!o$a! finance.

• Refor !and and !a$o(r po!icies to ena$!e ind(stria! deve!opent.

• Speed" refor in ed(cation sector to provide access for s+i!! deve!opent to

$roaden the participation in ndia7s #ro&th.

• E$race innovate techno!o#ies and stren#then inte!!ect(a! propert" protection in

ndia thro(#h conver#ence &ith internationa! standards.

Conc"usions

t appears that &or!d econo" is on the road of recover" $(t the #ro&th is (neven. Thecrisis has hi#h!i#hted the &ea+nesses of deve!oped &or!d and eer#in# econoies.Therefore, the e'cessive dependence of the deve!opin# econoies on the 8S is $ein#shortened $" a n($er of eas(res inc!(din#, for instance, forei#n 6entra! :an+s acrossthe #!o$e have $een diversif"in# their forei#n e'chan#e reserve a&a" fro the do!!ar.The 8S edera! Reserve :oard indicates that forei#n officia! ho!din#s Jessentia!!",6entra! :an+ ho!din#s in 8S treas(r" $onds have dipped ;C $i!!ion to ;2><4 $i!!ion ine$.2010 fro ;2<32 $i!!ion in 5ov.2009.The &or!d econoic crisis has a!so hi#h!i#htedthe stren#th of the ndian econo" &hich eer#ed as second fasted econo" in the&or!d. t has provided to ndia a n($er of opport(nities inc!(din# to attract in a!ar#e proportion. 6!ear!", 56s are searchin# ne& #reen past(res and ndia is ver" &e!!in their radar. The" cannot i#nore ndia7s potentia! as investent destination, ar+et, etc.Therefore, inf!o&s into ndia has $een pic+in# (p in recent "ears. n the eantie&e sho(!d not for#et issin# !in+s in this ission. ccordin#!", po!ic" options, &hich areneeded to ta+e, have $een !isted. ,e%erences

1. ndia t&e!fth &ea!thiest $oss in 200C@ Dor!d :an+L The Econoic Ties. http@FFeconoic ties.indiaties.coF R(pee p(!!s ndia into 1 tri!!ion P#oin#Fartic!e sho& F19CMC20 cs. Retrieved 200>-0<-0.

2. 6NThe Dor!d act $oo+NRan+ order J P P(rchasin# Po&er Parit"L6 #ov.2009-03-0C. htt@FF&&&.cia #ovt.F!i$rar"Fp($!icationsFthe &or!d-fact $oo+Fran+ orderF2001 ran+. %t!. Retrieved 2009-03-13.

>



3. ndia vision 2020P. http@FFp!annin# coission. ov. in FreportsF#enrepFp!vsn2020.pdf.Retrieved 2009-12-12.

4. in ndiaL.http@FFap'!.co.C. Danda, Tsen# and %ar Oe$re#s orei#n irect nvestent in 6hina@ Soe

Hessons for other co(ntriesL Po!ic" isc(ssion Paper 2002.

>. opinath, Sh"aa!a inancia! 6risis and :e"ondL ina(#(ra! speech at the 3 rd

ndia-6hina inance 6onference, 5ove$er 10, 2009, ($ai.

<. Dor!d nvestent report 2009.

. ndia@ 5e& havens for investorsL The Econoic Ties, 5e& e!hi, 11.2.2010.

9. Dor!d Econoic A(t!oo+, 2010.

10. itra, it inf!o&s@ &i!! the pace to $e +eptL The Econoic Ties, 5e&e!hi, 1C.9.2009.

11. opa!a+rishnan, R. ndia7s $est 1C "ears aheadL The Econoic Ties, 5e&e!hi, 1.3.2010.

12. itra, it, op. cit.

13. Srivastava, R.K 6hinese S(ccess &ith @ Hessons for ndiaL 6hina@ nnternationa! o(rna!, Septe$er 200.pp31>-329.

14. Srivastava, R.K. nf!o&s into ndia@ Pitfa!!s and o(t!oo+L So(thernEconoist, (#(st 1C, 200C, pp<-9.

1C. 8nion :(d#et, 2010-11.

1>. Eas" does it !on#-ter po!ic" neededL The Econoic Ties, 2C.C.2009.

1<. I(i#!e", i 6ross-$order capita! f!o&s and the ascendanc" of ndiaL TheEconoic Ties, 1>.11.2009.

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