Millennium Post

What ails the Indian economy

The foreign direct investment in India has yet to be debated properly. Corporates are divided on it, and the government has only allowed FDI in certain sectors up to a limited amount.

The private sector in India is not too enthused about it, in spite of the government’s whole hearted encouragement to the policy. This does not seem to be the right course to follow. The restricted FDI that has been inducted into the Indian economy has not been properly utilised. Even the aviation sector is in the doldrums despite the limited introduction of FDI in the sector.

The Reserve Bank of India does not know how to cope with the situation. The reserves with it are at a risk of depleting fast. Foreign investments are no panecea for depleting foreign exchange reserves.

The economy cannot cope with the shock of FDI at a time of depleting reserves.

The FDI policy is not clear cut. The government has not outlined to the domestic industry or to the foreign investors where its priorities lie.

Foreign Direct Investment has so far been allowed to small sector industries. Bigger sectors such as aviation have been neglected.

This can be one reason of the financial turbulence in this sector, though the collapse of the market in India for aviation products is not entirely linked to the FDI policy of the government.

Some of the market players have overdone their credit ratings. The inflation in their bills is also not entirely due to the aviation policy of the government. There is no accounting for the rise in the costs of aviation unless the outflow of foreign investment from India to other countries has something to do with it. The goverment has not been able to stem the outflow of foreign investment from India which has not only affected the aviation sector but also other sectors like steel.

The policy of the government of India with regard to these other sectors is as biased as it can be towards the domestic players it favours and does not encourage others. As a result it has failed to channelise foreign direct investments into the requisite sectors.
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