FDI- How to reap the real benefit

Foreign Direct Investment has proved out as one the most vibrant contributors towards procurement of funds by Indian entrepreneurs and as a measure for trimming down the Current Account Deficit. Foreign investors have been considering India as a secure and sound investment place. As per the United Nations report, the FDI inflows grew 17 percent in 2013 touching USD 28 billion, which proves that the investors are assured of the competency of Indian enterprises. In the recent past, doors have been opened for the foreign investors in sectors ranging from telecom and stock exchanges to PSU oil refineries and defense with a view to provide the requisite push to the economy.

What FDI aims is resolving multiple concerns at a time. Funds are the pre-requisites for running any business concern, however, domestic funds are unable to meet the demands of the economy, and hence foreign investors are encouraged so as to provide the much-needed stimulus to the industry. Plus, rather than burdening the Indian concerns with the obligations of servicing debt, FDI is a much convenient option, wherein the loss incurred, if any, would not result in severe implications. It is vital to note that India has brought in USD 306.88 billion as foreign investment since 2000. The participants are nations ranging from Singapore, Mauritius and Netherlands to U.K. and Canada.

At the same time, it has to be comprehended that the paybacks from foreign investment do not accrue automatically and uniformly across nations, sectors, and communities. The DIPP and FIPB, along with RBI have been playing a significant role in attracting foreign funds; the need for broad, transparent, and enabling policy environment for investment as well as to build institutional and human capacities for proper implementation is being sensed until today. It has to be realized that the UNCTAD survey projected India as the second most favorable destination for investment after China; however our policy and IP Rights regime have not been able to reap the complete benefit of transnational flow of funds.

Caps imposed on the equity holding of overseas investors in distinct sectors including aviation have to be reconsidered. On the contrary, the mounting participation of foreign players in some sectors too has to be analyzed keeping in view the limitations and potential of our domestic system of flow of funds from financial intermediaries to businesses. A competent and stricter Intellectual Property Rights regime is the need of the hour. This would encourage groundbreaking companies to handover new know-how and business devices to their counter-parts in India, which in turn would boost the overall FDI structure as well as the productivity, development, and employment.

FDI in retail sector has been the most talked about subject matter of foreign inflow of funds. The new government must analyze the pros and cons keeping in view the interests of the consumers and retail traders at large. The potential gainers post the implementation of this module will be the consumers who will profit from competitive prices and superior quality products. The real estate sector too will benefit as vacant spaces in shopping malls would be utilized, which in way will also boost the banking sector. The losers, on the contrary, can be the small scale retailers and manufacturers, along with unqualified workforce. Special privileges to domestic retailers and manufacturers, and training sessions for existing workforce can be of massive help.

The recent variations to the route for foreign funds viz. automatic and approval, have added to the dexterity of the FDI regime; however the delay in clearances from FIPB and other government departments has been an area of concern. Under automatic route, Indian concerns have the expediency to file returns of the funds routed and shares allocated post the completion of activities to RBI; however prior approval from FIPB, sectoral caps, and cumbersome documentations create hassles under the approval route. The Board and the government have been recurrently enhancing the sectoral caps, and adding more and more sectors under the automatic route; real paybacks will be unattainable until proper restructuring is done.

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