1. FDI, the pain-killer: Additional capital infused into the economy promotes volume of transactions not happening because of domestic capital blocked by an archaic financial system. The same development can be brought about by administering an equally efficient investments procedure for internal/domestic investment proposals. Taxes should be brought down to promote volumes of transactions.
2. Discourage foreign ownership. Engage SEBI and corporate chambers of commerce to suggest guidelines for framing policies on more lucrative exit-options for FDI. The aim should be to de-link ownership and investment for returns, both in equity and in debt-instruments. The long-term economic benefits are higher since the earnings feed into the internal multiplier (which is higher for domestic investments), rather than remitted to original foreign source.
Central Bank should introduce full convertibility of Rupee. This would enable direct investments by investors themeselves rather it being routed through FIIs funds that are investing money for unknown individuals or organisation. SEBI allows various modes of FII investing including Participatory Notes. The main problem with FII investment is the source of funds and their beneficiaries can never be determined. Today India is ready for full convertbility on financial and economic fundamentals. Therefore, now that there is a requirement of more than USD 70 billion for financing infrastructure and for other channels of business ventures in the next five years, it is appropriate that Rupee be a global currency which can be purchased at various markets for routing to India.
Its one of the best article i have read on the issue of FDI. Whatever, Mr. Kampani said i truly agreed with that. Its a good comparison with china. China is having FDI, while India having FII. India is no.1 choice of the foreign institutional investor. Indian secondary market providing 74% return on their investment which is much more than any of the asian country. So,at the moment india is the kingmaker of FII.
Mainland China may "not have stock markets like those in India", but Hong Kong, a major fiancial capital, has one of the biggest stock market in the world, and Hong Kong IS still part of China. If and when Taiwan rejoins China, then China's economy and her stock markets will be the largest in the world, by far, maybe larger than the US and Indian economies combined. And I do disagree: India could do with FDI in infrastructure financing, if not ownership. What's urgently needed is rural development, which would require a complete overhaul of the agriculture and labour policies, in order to create the massive employment necessary to lift the rural populations out of their perennial poverty.
FDI is required not just to fill in the gaps in our own economy in order to reach high growth rates, but to bring in international best practices in a host of activities such as design, manufacturing and services. Just to give an example, it requires Hyundai and Ford to bring in FDI and along with it their products and services so that Indian companies like the Tatas can learn what a good car looks and feels like. If not for FDI the Indica would never have improved and Indians would have believed the Indica to be among the best cars on the planet. It is only when we see better products and services that we realise where we are. Blocking or even talking of reducing FDI would be the proverbial frog in the well which we very well were for 50 years till Narasimha Rao pulled us out of it!
RE:I totally disagree
by Apurv Agarwal on Apr 21, 2006 12:36 PM Permalink
I admire your recognition of Narasimha Rao's contribution and the words " pulled us out of it. " I remember him as the greatest prime-minister india has had after nehru. He did in 5 years what wasn't done in earlier 45 years. What I resent even more is the fact that Sonia Gandhi didn't attend his funeral personally.
