FDI’S BIG PUSH….

FDI’S BIG PUSH

In the just concluded semester, I had taught “FUNDAMENTALS OF INTERNATIONAL BUSINESS” to BBA-4 Class in a college. We had discussed a topic titled “FDI”.

There has been a lot of  discussion on this topic in the media recently. There was one very good Editorial in the FINANCIAL EXPRESS of 17th July 2013 titled:” FDI’S BIG PUSH” You can read the article by going to the following link :

http://www.financialexpress.com/news/fdi-s-big-push/1142670/0

Having read the article, here is the original letter I had written to the editor:

FDI EQUATION

This refers to your apt editorial ‘FDI ‘S BIG PUSH” (FE 17th July 13) on the subject of FDI. Academicians often discuss this topic in the form of FDI Equation which, as most of your readers will know, goes like this:

National Income Equation Y=C+I+G+(X-M)

where,

Y=the equilibrium level of national income
C=domestic household consumption of goods and services
I=domestic real investment in buildings, equipments, software, and inventories plus foreign investment
G=government spending on goods and services
X=foreign purchase of the country’s exports of goods and services
M=the country’s purchase of import of goods and services from other countries

So, FDI is just one of the important variables on which our country’s income depends. The Government needs to keep in sight all other variables and factors so that the ultimate purpose of this exercise is served to the fullest.

The purpose of bringing in more FDI is to help consumers of final / intermediate goods / services to access a wider variety of options, and to deepen and strengthen the market economy.

The major aim of FDI should not be to allow the country to finance a current account deficit or to help the owners of Indian companies in burying their mistakes in the avalanche of in-flow of foreign money once the gates are opened.

Further, it must also be ensured that existing Indian businessmen do not leverage their permissions and contacts to make windfall gains for themselves.

FDI usually involves participation in management, joint-venture, transfer of technology and expertise. Transparent policies on these issues without any tricky riders will help foreign investors to take fast decisions.

Broadly, Foreign Direct Investment also includes mergers and acquisitions, building new facilities, re-investing profits earned from overseas operations and intra-company loans. These need to be encouraged suitably too.

Let’s hope it augurs well for the present Government to indicate its intentions for continuing with the much needed financial reforms rather than playing to garner more votes to stay in power in the forthcoming elections!

J S BROCA

New Delhi

In today’s FINANCIAL EXPRESS an edited version of my letter has been published as under:

FDI equation

Jul 23 2013

Apropos of the editorial “FDI’s big push” (FE, July 17), foreign direct investment is one of the most important variables on which our country’s income depends. The government needs to keep in sight all other variables and factors so that the ultimate purpose of this exercise is served to the fullest. The purpose of bringing in more FDI is to help consumers of final/intermediate goods/services to access a wider variety of options, and to deepen and strengthen the market economy. The major aim of FDI should not be to allow the country to finance a current account deficit or to help the owners of Indian companies in burying their mistakes in the avalanche of in-flow of foreign money, once the gates are opened. Further, it must also be ensured that existing Indian businessmen do not leverage their positions and contacts to make windfall gains for themselves. Transparent policies on these issues without any tricky riders will help foreign investors to take fast decisions. Broadly, FDI also includes mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra-company loans. These need to be encouraged suitably too. Let’s hope it augurs well for the present government to indicate its intentions for continuing with the much-needed financial reforms rather than playing to the audience to garner more votes to stay in power.

JS Broca

New Delhi

Friends, those of you who wish to directly read my letter on website of the paper, can go to the following link:

http://www.financialexpress.com/news/fdi-equation/1145213/0

 

ALL THE BEST.

J S BROCA

23RD JULY 2013

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