Assessing The Potential And Opportunities For Foreign Direct Investment In India

General Overview of India

The essay brings out the discussion on FDI in India. With the most diversified culture and people, the country promotes FDI through many initiative programs. The essay highlights that how far it has become successful with favourable political conditions that defines that it is quite stable that encourages FDI. It also has discussed the GDP, purchasing power, employment rate, and at what percentage the economy is accelerating. Natural resources are another important factor that encourages FDI and creates competitive advantage to India. The government provides advantages to FDIs by promoting “Make in India.” It provides a favourable system that encourages FDI. This also discusses several social factors that how it leased opportunities that created employment that help in developing the personality of a person (Trading economics, 2018). The report further discusses the importance of fluctuating exchange rates during FDI. The government regime has favourable policy system and business environment that ensures that foreign investment should keep flowing in the country.  

India is a republic and democratic country in South Asia. Geographically, it is seventh largest country in the world. Moreover, it is the second most populated country where most of the population is youth. Therefore, here remains high scope of innovation, creativity, and new business operations. Earlier, the country has almost four religions Hinduism, Jainism, Sikkim, and Buddhism. Now, it is well known as diversified cultural people`s country including Islam, Judaism, Zoroastrianism, and Christianity. The country has 29 recognised states with seven union territory. For now, it is reported that it is among the 10 large economies of the world (Jaklic? and Svetlic?ic?, 2017).   

Apart from the driver of economic growth, FDI (foreign direct investment) has emerged a source of non-debt resource for economic development. MNCs generally invest in India to get the advantage of cheap labour, low wage rate system, special tax exemptions when an investment plan is undertaken. This also led to achieving the technical advancement and generating employment on the same side. Moreover, the Indian government take several initiatives in these current years such as making relaxing FDI norms across borders in different sectors such as PSU (public sector undertaking) oil refineries, power exchanges, stock exchanges, and telecom (Mansoor, 2016).    

Factors affecting the investment decision

(Source: Mishra, 2017)

Indian government is planning to promote full FDI especially in Insurance intermediaries to boost the sector and attract funds. In the beginning of 2018, Indian government has allowed the foreign airlines to invest in Air India. Moreover, the government has approved to focus on the strength the single window clearance system that tracks for fast approval process with an aim to encourage Japanese investment in India (Jha, 2015). The ministry of commerce in India has made it comfortable and has eased the process of approval of the mechanism for FDI. Indian government is a coalition driven government, which is the largest democratic country that reflects that elections has been respected. The culture of political factors encouraged FDI because it contributes and maintains stable political. Moreover, a major concern for an FDI can be corruption as it affects the transparency because of growing public awareness of government initiatives are replacing the challenges. It increases the cost of business regulatory operations (Bhasin, and Jain, 2015).

Factors Attracting FDI in India

As per IMF forecasting based on economics reports that India`s GDP is approximately $ 2.4 trillion that includes it among top ten large economies in the world. It is expected that until financial year 2019, private consumption growth and GDP (Gross domestic product) of 8 percent will drive the country`s economy. Moreover, it is important for the company to consider taxation policy such as current corporate tax rate is 30 percent. It is important to consider that currently corporate taxation system keep changing over the next few years. India has been performing in many industries such as its agricultural products are famous worldwide. Moreover, the operations of garment industry occurs more in India due to cheap availability of labour. The key exported items from India are petroleum products, transportation equipment, readymade garments, and pharmaceutical products. On the other hand, it imports crude oil, electronic products, and precious stones (Bagli, and Adhikary, 2014).

How India attract FDI

(Source: IBEF, 2018)

The customer market is very gigantic in India with a population of 1.2 billion. This huge market provides huge market with variety of sectors, which acts as an opportunity for MNCs. India offers a cheap labour and this, be expected that the number of labour would reach 170 million by 2020 (Kirti, and Prasad, 2016). India celebrates several festivals due to diversified population that increases the demand of people especially for ethnic wear that increases the production of garment industry. Accessibility to labour force have encouraged many MNCs to outsource. India has emerged attractive emerging market for the global partners’ investment. Every sector has been benefited from the FDI opportunities in India. Although, the government tried to increase the opportunities in Mumbai, Kolkata, Pune, and Delhi that have pooled the talent of whole population and attracted them towards these cities to grab the employment opportunities. Apart from labour concerns, employment opportunities have increased the disposable income of people that have encouraged MNCs. India is a multi-cultural, religious and ethical country that earlier never allowed the women to work outside but with the increasing globalisation and liberalisation, the needs have increased that encouraged the people to grab more opportunities (Vyas, 2015). “Make in India” is an important initiative to accelerate the economic growth of the country. Moreover, the life of the unemployed has been affected as it strives to promote that Indian talent that have remained unused due to lack of opportunities. It creates employment opportunities and empower the secondary and tertiary sectors. The program aims to improve India`s rank that provides ease of doing the business index that eliminates unnecessary regulations. The government makes the operations more transparent, accountable, and responsive by making the bureaucratic process easy. The programme focuses to improve mainly 25 sectors including food processing, leather, telecommunication, defence manufacturing, automobile, chemicals, construction, electrical machinery, railway components, thermal power, and several electronic systems (Makeinindia, 2018).      

Importance of Natural Resources in FDI

Encouraging not only MNCs but also small enterprises who has strong technology can enter into the international business operations. There is no wonder that technology giant such as Facebook, Microsoft, and Apple has started investing in India (Khandare, 2016). With the increased use of technology and infrastructure, India is offering high skilled IT workforce with enormous opportunities for the entrepreneurs to undertake technological projects such as e-commerce, mobile apps, software developments, and business solutions. Inviting MNCs and foreign investment inside the country can bring advance technology that they already uses in their local markets to sustain in the industry. This can improve the local marketers as they will start feeling more competitive and will start adopting technology that is more efficient (Sangwan, 2015).    

FDI drives the local businesses to transfer technology, economic growth, and resource rich availability. As far as investment in India is concerned, there always keep progressing the natural resources. India is well acquaint with the natural resources such as wildlife sanctuaries, water bodies, reservoirs, and animals. Although, it has been depleting due to increasing pollution and continuous depletion of natural resources such as loss of biodiversity, diversion of consumer waste into the pure water bodies, and depletion of water and forest resources (Sood, 2015). Availability of natural resources can attract the MNCs as bulk availability can encourage cheap prices that will lead to reduction of business operation (Lu, Liu, Wright, and Filatotchev, 2014). Moreover, sometimes FDI s start exploiting the natural resources that cause spillovers because excessive use of natural resources disturbs the ecology. Generally, companies whose operations are based on the natural resources such as garment establishment that requires raw silk and cotton to make thread and further water is used to waste the manufactured clothes to remove the chemicals used by the machines during fabrication processes. India can encourage FDI. For example- japan is struck by natural disasters very frequently and companies that are established there generally suffers from losses due to ecology (Nabende, 2018).  

The effect of foreign currency market is observed when business interact with overseas market in number of different ways. For example- importing the machinery from Europe or exporting at the same time to china. The exchange rate exposure affect businesses both negatively and positively. Business is exposed to currency risks such as transactional, credit, translational and liquidity risk. Moreover, while paying to a supplier, the exchange rate is exposure makes difference in the business. Due to fluctuating exchange rate, it is obvious that goods in the high risk paying the gas bills and procuring machinery for the new venture. The nature of economy of UK leaves business, which always remain highly sensitive. This same interpretation cannot be said when traders only engage in only trade.

Exchange Rate Influences

The existing level of FDI has been increased by USD 1898 million in 2018. When the investment average is considered, it is approximately USD 1322.17 million over the 25 years (Trading economics, 2018). As an example of increasing existing level of FDI can be seen in every sector. When considering Telecommunication sector, the sector is shaped due to increasing consumer demands, competitive forces, and innovation, which started offering tremendous opportunities to invest. The country has remained second largest subscriber in world with the connection number of 1.06 billion (Malhotra, 2014). The industry has boomed and now it is reported that India has 275 million subscribers of smart-phones that even outpaced US to become one of largest subscriber in the market (Department of Telecommunications, 2016). In order to increase the existing level of FDI, the country has undertaken national programmes such as “Make in India” that is designed to foster innovation protect intellectual property, facilitate investment, and promote best in class manufacturing infrastructure. The objective of this programme is to attract investments from the globe and strengthen the production sector of the country (Department of Telecommunications, 2016).

(Source: India Today, 2013)

The above pictures depicts the liberalising limits of every sector in FDI. Trade policies have been changed accordingly and aimed to undertake the size of market due to firm`s capacity of producing output. The trade policy does not on prescribed system rather it focuses more on implementation, predictability, and transparency (Aggarwal, and Verma, 2014). The seven main PFI questions rely on customs procedures, trade policy uncertainty, trade policies of home country, review related to trade policies, and risk mitigation related to export finances. Government has made efforts to reduce the compliance rules of custom cost and administrative procedures.   

(Source: Jain, 2018)

From the perspective of economic growth, Indian government should undertake more initiative programmes to promote FDI. Apart from promoting trade, FDI should be directed in such a way that it is able to establish a link in the domestic market such as it improves the financial position, encourages R&D activities, reduces the interest and inflation rate. It enhances and develops the living standard of people as it competes with all the brands of the world. As of now, it is important for the country to reduce and focus more on political corruption because it has become a hindrance for the FDIs especially in terms of cost while entering a new country (Deshpande, Gaddi, and Patil, 2014). In addition to this, it is important to take into consideration that FDI has not fully involved in certain in some sectors such as education, infrastructure, healthcare, and retail sector. It is suggested that policy makers design the policies that can enhance savings, exports, and domestic production.   

Existing Trade Policies and Barriers

Conclusion

From the above discussion, it can be said that India has improved its economy to a large extent due to accelerated FDI opportunities to foreigners. Increased investments were obswerved in each sector. It has also liberalised the FDI limits especially in telecommunication sector. From the trading economies, 2018, it is observed that US$1898 million have increased FDI investment in economy in 2018. Moreover, FDI in flow was recorded as negative whereas according to the latest data, FDI in 2018 raised by 3 percent. In order to promote FDI, Government took some crucial steps programmes such as “Make in India “has played an important role in improving the economy of the country. After the implementation of “Make in India,” every sector has shown a substantial growth. Moreover, the initiative programme has shown improvement the national economy.

References 

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