There is a certain paradox in the fact that India, since the 1991 reforms, has been trying to attract foreign direct investment for its development when the outward flow of FDI by Indian corporate houses is rising. Elaborate the statement and examine the causes of this paradox. (200 Words)
According the OECD, between 2006 and 2012, FDI outflow from India was $103.30 billion, while inflow was merely double that number. Most of these investments are in the form of mergers and acquisitions. (Tata, Pharma and IT firms)
This is the contradiction with the Make In India scheme the government is so keenly taking ahead. Few major reasons for such outward flow is largely because of the following reasons:
- India being a power hungry nation, needs to secure sources of energy that are easily accessible. This can be seen from the fact that companies like GVK, Lanco, Adani are investing in coal mines of Australia.
- Indian companies feel that they need to acquire foreign competitors in order to learn from their technology thereby saving years of research and development.
- Environment has become more conducive for the Indian companies to invest abroad. Annual investment ceiling for establishing JVs and subsidiaries has been raised from $75,000 to $125000.
- Increase in the acquisition of land especially in the African nations, the agriculture sector is going to see a huge growth in African nations. Even small investors are rushing to these nations.
- The prestige generation for the companies is also a motivator behind such investments abroad. Like the acquisition of range rover and jaguar cars production by TATA.
- After lukewarm domestic industrial environment, in order to overcome the loss incurred here they invest abroad.
Investment by Indian companies abroad is a welcome move, which is required in line with the principle of free movement of capital in the globalized world but realization of Indian investments within India makes huge difference to the Make in India campaign and results in generation of huge employment.