Pizza vs Paratha: Influence of FDIs in India

Dial a number, order a pizza and you have it delivered to your door within minutes. Though not a traditional India cuisine, it has barged into our daily lives as a major churner. The Pizza has given the traditional Paratha a run for its money. Have we ever pondered on how this outsider made into our homes to be a part of our lives? How a nation driven by traditions has accepted this breakthrough? This is a resultant of the foreign companies testing Indian waters. The “Foreign Direct Investment” policy has opened the sluice gates for all the major players across the world to explore India. FDI (Foreign Direct Investment) is a corporate governance mechanism for a company on foreign soil, the resultant of which is a mutual benefit for the company and the economy of the country.

Foreign companies in India have opened a plethora of choices be it consumer goods, jobs, business opportunities etc. Indian Corporates and the Government(s) have benefited from the FDIs. The massive campaign launched by the BJP in 2004, called the “India Shining”, has raised some curious brows but when did India start shining? India after independence in 1947 had adopted a socialistic approach by then government under Jawaharlal Nehru, the policies tended towards protectionism partly influenced by the colonial bullying we have undergone earlier. There were stringent license regulations and import duties/tariffs. The policies shut-down our countries economy to the world around when the term globalization was peaking towards zenith. To serve as an example, the Infosys had to pay multiple visits to the customs department and wait for an agonizing nine months to import a personal computer from other countries. Such was the progress of our economy until it reached the nadir in 1991 when we were bailed out by the IMF of bankruptcy. The 1991 government under then prime minister P.V.Narasimha Rao with the current prime minister Manmohan Singh, being the finance minster, has taken some measures to pave the path for a brighter future. The year 1991 saw the economic liberalization of India, the new policies included international trade and investment, Tax reforms, privatization and inflation control. The international trade and investment has led to the foreign direct investments in India.

As a result of these policies the world was at the doorsteps of India, the total foreign investments grew from a paltry $132 million in 1991-92 to $5.3 billion in 1994-95, The FDIs raised from 1 percent of the countries gross fixed capital formation as in 1991 to 4 percent in 1993, cities like Bangalore (The Silicon Valley of India), Hyderabad, Pune and et al have become the business hubs for major industries. All sectors were pounded with multiple companies; giving scope for more investments, saw the rise of many entrepreneurs, increased the quality of products and services rendered to the consumers. Thus The Pizza hut has made its way into our kitchen, The Samsung/LG/Philips have made their way into our living rooms, The Honda/Fiat/Chevrolet have made their way into our garages, Microsoft, Google and other IT giants have chosen our cities as their working hubs. These industries have given a wide range of job opportunities, scores of consumer goods choices and spurred a major economy spin-off.

As we stand today as the twelfth largest economy in the world we need to introspect and analyse if we are really shining? Have the FDIs protruded to make a significant impact on our economy? We rank 35 in FDIs as of 2007 and countries a fourth in size, population or economy are way ahead of us in FDIs. Companies undertake a sequence of steps before investing in foreign economies:

1. Screening
2. Partnerships
3. Government Approvals
4. Resource Planning and investment

In majority of the cases India fails at the screening level. Are we working ourselves to fight out these casualties? Is the government taking measures to invite more and more FDIs? Is there a major policy change regime expected in the near future? Has the Pizza paved its way to co-exist with the Paratha?

The following are the common reasons for most of the FDI failures:

1. Lack of Infrastructure: A majority of the physical infrastructure like Land, Water and other resources are maintained by the local state governments. The local governments have their own policies and propaganda in making these resources available thus limiting the FDIs to specific regions only. Electricity shortage is another major hurdle for the FDIs to bloom, The Electricity Act of 2003 was sought to make continuous electricity available for businesses at low-cost but only eight states have implemented. Apart from these the highways, ports, railways, sewage etc need to be reworked.
2. Prevailing corruption: The socialistic approach adopted in the initial years after freedom have sown the seeds of corruption in our nation. Due to lack of competition and monopoly in almost all public sector industries have seen the corruption blossom. It has plagued the process at all levels in terms getting the approvals.
3. Bureaucracy: The large bureaucratic structure has become a major ground for corruption. Foreign companies perceived it to be a slow and tedious process to get through all levels for a meager approval. FDIs were being delayed at the whims and fancies of the government agencies.
4. Local Political Friction: Ignorance and urge for leadership has forced the political parties to oppose FDIs for the benefit of some sects of people with the interests of a larger segment being at stake. The communists in Kerala stand an example, They undertake a hardcore socialistic approach to encourage the local investments or local developments ignoring the benefits from the FDIs.

Though the reasons are known, learnt and understood there are less measures being taken to sought them out. India should opened the gates for many products, manufacturing firms and many more sectors; the telecom sector being a good example, A channelized effort has to be made to break the bureaucracy shackles, Increased productivity and population control would invite more FDIs, Corruption could not be uprooted but measures can be taken to at least avoid the FDIs go through this hassle. Apart from these simpler measures the central government should excercise more control over the infrastructure and development measures in all the states rather than the states being hegemonic and adamant about the countries interests. India has the potential but has fallen back on basics and it simply boils down to getting the basics right.

Ikshwak Reddy

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