Inviting foreign investments into India

Attracting FDI, or foreign direct investment, was one of the key promises made by the now one-year-old Narendra Modi–led government. Has the government kept its promise? Prime Minister Narendra Modi’s international trips to 18 different countries in the last one year have managed to trigger an amazingly large FDI equity inflow of $22,275.91 million. 

This is according to the information provided by the Ministry of Commerce and Industry. Curiously enough, developed nations did not top the chart of investors. Instead, the largest five contributors to FDI are — Mauritius, followed by Singapore, Japan, USA and Germany. According to Minister of State (Independent Charge) for Commerce and Industry Nirmala Sitharaman, there has been 47.20% increase in FDI inflow equity from eighteen countries which the PM has visited in one year. 

There has been a considerable increase in FDI coming from those countries. This is indeed an active development. India regained its position in the list of top 10 destinations for foreign direct investments (FDI) in 2014. This was after India failed to make it to the list a year ago, according to the World Investment Report 2015 released by the United Nations Conference on Trade and Development (Unctad). India is ranked ninth in the latest report; it was 15th last year. During 2014, FDI inflows into India jumped 22% to $34 billion at a time when global FDI fell by 16% to $1.23 trillion. UNCTAD projected global FDI flows to rise 11% to $1.4 trillion in 2015. India’s rank as a top prospective host country for FDI also rose to third place from fourth place in an Unctad survey for the period 2015-17. The ministry’s assertion that FDI equity inflow from Mauritius amounted to  $9030.15 million, followed by Singapore which provided an FDI equity of  $6742.28 million, then Japan with  $2084.23 million and then USA with $1823.6 million points towards foreign investors warming up to the Indian economy as a lucrative investment destination. 

India is one of the fastest growing economies in the world. There are measures that India can implement, but for that the industry has to give some concrete empirical data.  Measured safeguards were initiated by the World Trade Organisation (WTO) to stop imports; similarly there can be import duties levied to curb dumping from Chinese products. However, all of these are small concessions for the ease of doing business remains a dodgy issue. Foreigners can set up multiple firms here to sell their products, this ultimately invites predatory pricing that can completely tank local retailers even if they happen to be cost competitive. Foreign manufacturers can also sell poorly-made Indian brands to Indians. A pertinent example of this is an upstart phone brand from China whose phones exploded after two-three days of use. The probable aim of Modi’s efforts is to bolster ‘Make in India’ by luring foreign manufacturers. There is still some confusion over some FDI related issues. Why isn’t the government openly owning up to these policy decisions. It’s liberalising the FDI policy piecemeal, which won’t bring foreign investment. Why aren’t rules tying up foreign investors being discarded entirely? Now, presumably, foreign companies are going to the commerce ministry and saying if we cannot sell freely in India the products you are inviting us to come and make there, it would be imprudent of us to invest in your country. 

They are being told: come and make any number of products, we will let you set up any number of companies to sell them. That is no less bureaucratic than the previous policy. No multi-product company would set up dozens of subsidiaries to sell different products just because the Government of India says so. The sensible thing to do would be to remove the relevant restrictions. Perhaps the commerce ministry should remove these restrictions as well before investors get dissuaded.