FDI

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Facts:
  • India has received over US $300 billion Foreign Direct Investment (FDI) between April 2000 and September 2016
  • 33% of the FDI came through the Mauritius route. India received US $101.76 billion dollar from Mauritius between April 2000 and September 2016.
  • India’s services sector received maximum 18% of the cumulative equity FDI inflows.
  • FDI in FY17-18 = ~$37 Billion
  • India has attracted US $208.99 billion foreign direct investment (FDI) during April 2014 to December 2017 period.
  • India has fallen out of top 10 destinations for Foreign Direct Investments (FDI) in terms of its attractiveness according to 2018 Kearney FDI Confidence Index, in which it was ranked 11th, down from 8th in 2017 and 9th in 2016.
Why there is a fall in India’s FDI ranking?
  • Fall in India’s rankings may be due to teething troubles in implementation of goods and services tax (GST) and Government’s demonetisation decision in 2016.
  • These policies may have deterred investors in the short term as they have disrupted business activity and weighed on economic growth.
  • In future, potential investors are likely to be cautious as they are monitoring political risks such as China abolishing presidential term limits and upcoming general election in India.
FDI in FY17-18 : Analysis
  • Mauritius was top source of foreign direct investment (FDI) into India in 2017-18 followed by Singapore.
  • FDI into manufacturing sector had witnessed substantial decline.
  • FDI into communication services had increased.
  • The inflows into retail and wholesale trade increased.
  • FDI in financial services too saw rise.
Is increasing flow of FDI always good for economy? Critically examine.
Whether FDI actually contributes to economic growth is dependent on multiple factor such as :
  • Whether FDI is concentrated in export oriented sector or focuses on domestic market instead,
  • Whether it focuses on R&D activity in the host nation,
  • Its impact on net investment income,
  • Whether FDI crowds out or crowds in domestic investment,
  • Its impact on employment.
The following points reflect the true nature of FDI in India.
  1. Share of FDI in export oriented sector in India is only 10% as compared to 55% in China. Hence, India hasn’t been able to exploit the potential of FDI in developing export oriented industries.
  2. Studies have also shown that R&D activity of MNCs is lower than domestic enterprises in India.
  3. Net outflows of investment income have quadrupled between 2008-09 and 20014-15.
  4. There is considerable apprehension regarding threat from FDI in multi brand retail, hence leading to a inward looking FDI policy in this sector.
  5. A considerable amount of FDI cases are of round tipping, used for tax avoidance.
  6. 40% of FDI flows are of short term nature, thus increasing volatility.
  7. There is no well pronounced impact of FDI on employment generation and economic growth in India.
  8. Besides this, FDI is regionally biased with 6 richest states receiving more than 50% of the FDI.
  9. Structure of FDI investments also need to be looked at as many are coming to “Make for India” rather than “Make in India”, which doesn’t bode well for manufacturing
  10. Issues of “technology transfer” where the critical technology has not been transferred. This is seen in Defence sector and procurement of defence technologies
Impact:
  • Lockheed Martin may setup F-16 assembly line in India due to 100% FDI in defence
Related Questions:
  1. Justify the need for FDI for the developments of the Indian economy. Why there is gap between MOUs signed and actual FDIs? Suggest remedial steps to be taken for increasing actual FDIs in India. (UPSC Mains 2016)

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