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FDI Foreign Direct Investment and Dollars

Updated on December 24, 2012

Understand it with similes

FDI is a ghost. Only pundits may communicate with it. It is an alien. Only astronomers know where from it has fallen. It is an illegal child of cheap politics and vulnerable economic conditions. It is indecent to talk openly of such offspring. Let us not talk of what has lately (or presently if you like it so) appeared. But we may respectfully discuss the theories and contexts involved in this matter.

FDI is very bold step for India

In a global scenario where world economy is ready to exchange and interact freely FDI is not only a welcome development, it is a necessity. But in times when New York bans certain world trade agencies to operate in the heart of so called free economy and where every nation and region is apprehensive of its neighbor's trade- policy moves FDI is too bold a step for a nation like India where commercial policies and practices are not well defined and commercial laws form a mess of colonial baggage.

True meaning of FDI:

FDI means any foreign individual is free to invest, own and manage a trade concern in India. Whatever profits he earns through this activity he is entitled to carry it home.

This means that at the time he wants to invest in India he brings dollars to the coffer of Reserve Bank and that is the major reason Government wants it now. But as years pass and he earns (and it is sure he is going to earn a big profit) and wants to send his earning home the Reserve Bank is entitled to provide him Dollars at an officially declared exchange rate.

Compare this scenario with what otherwise the Government would have to do to acquire dollars in its coffers. It would have to encourage exports of Indian goods which might have caused shortage of necessary goods in Indian Markets and worsen the already existing inflationary trends. It might have borrowed from other nations and /or international agencies in which case it would have to pay interest to the lenders. Be sure what India would have to pay as interest would be much less than what it would have to allow the foreign concerns to send their profits home. The difference is that the interest payments would have to be made out of governmental budgets while these big profits would have been collected by the foreign concerns from Indian consumers' pockets.

Indian retailers cheer new FDI norms

Good and Bad Consequences

The Government might have calculated that in prosperous business atmosphere further investments from abroad would rise and in comparison these profit allowances would be very small. But what if these foreign concerns want to disinvest, which they are free to do as and when they wish. It would mean to pay back a 'borrowed' investment. Neither ministers nor officials worry about such unholy imaginations! To them whenever such situation comes there would be some other economic tools or political strategies to deal with them. Neither these ministers nor these officials could be summoned to court to answer or explain such situations.

It is obvious that in the present situations government is visualizing, or at least maintaining so, that FDI would discover new economic vistas and would open for the Indian investor new opportunities of trade and commerce. If it happens so FDI is welcome.

Another benefit one may expect is globalization of trade practices and an atmosphere of stricter discipline from all the three sides: trade community, consumers and the bureaucracy. Perhaps Anna's mission be accomplished through this move. Let us hope for the best.



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