Need for larger FDI

The need for larger FDI exists because India is at a stage where it needs not only US investments, but also technology, and management policies to sustain and enhance its economic growth. . In 2006, Foreign Direct Investment (FDI) in India amounted to US$37 billion, out of which only $5 billion was from the US.

This was not a very encouraging figure in view of the goal of increasing the GDP by 34-36%. Therefore, there is a need for larger FDI.

India still requires an FDI component equal to 4% of the GDP. The US needs to invest more in various sectors of the Indian economy. There is a potential to attract more FDIs in areas like infrastructure, IT hardware, automobiles, leather, textiles, gems, jewellery, and the financial sector. As such, India is rated as the 2nd best economy to invest in, after China. Surprisingly, the US is rated 3rd in this domain!

Focus is on the insurance and banking sector, in context with Foreign Direct Investments. Only 10% of the insurance sector has been tapped for foreign investment. Foreign companies need to persuade the parliament for increasing Foreign Direct Investment capital.

The banking sector is in the process of liberalization which will continue till 2009. The insurance sector is looking forward to increase in the capital as more and more FDIs happen. So the insurance sector is also planning on liberalization, taking a cue from the banking sector.

The need for larger FDI calls for major issues and areas to be taken into consideration, such as:

Market potential and accessibility
Political stability
Market infrastructure
Easy currency conversion

India is the ideal country to make Foreign Direct investments in because of its features like:

Developing economy
Low salaried employees
Low wage workers
Abundant human resources
Big private economy

India is looking forward to a high growth rate of almost 16% – double that of the current 8%. Hence, there is a distinct need for larger FDI.

Further, FDI prospects are expected to be bright if liberalization is initiated in the telecom sector as well. Already, brands like Hutchison, Vodafone, and Singtel are in the Indian market and thanks to these investors, the FDI capital in this sector has been raised to 74%.

There are others necessities which a larger FDI will cater to viz., employment generation, income generation, technology transfer, and economic stability. Hence, the need for larger FDI is a pressing situation these days in India. Foreign countries are well aware of this, and many of them are taking extra initiative to invest in the Indian economy.

Latest News on FDI

Congress party president Sonia Gandhi has fully endorsed the Government’s economic reform decision of including FDI in multi-brand retail and has ruled out any threat to the government. The endorsement came at the first meeting of the Congress Working Committee (CWC) after the Trinamool Congress walked out of the UPA with the party president stating that the government was stable. The meeting also demanded for steps to clear anxieties of people regarding the new economic reform measures at a time when elections are approaching in some states in the next few months.

The United States has termed the Indian government’s decision to allow FDI in multi-brand retail as “watershed” and “courageous”, stating that the new reforms will give out the “right message” to global investors. US said the steps will convince foreign investors that India’s economic environment is favorable. The declaration by the Indian government to open its retail, broadcasting, aviation and power sectors to foreign investment presents a “new optimism” to the country’s growth.