Foreign Direct Investment (FDI) – A Necessity in India !!

There are arguments and counter-arguments on FDI or Foreign Direct Investment in India in the Parliament, in election rallies, in TV-debates, in newspaper articles, in general strikes in the country or Bharat Bandhs… There are obvious fears by the farmers, retailers, small-scale manufacturers, and the common man on the effect of FDI in India. Some say that FDI in India will bring major Multi National Companies (MNCs) in India which will abolish small-scale retailers and businessman. There are arguments saying that the MNCs will have a monopoly in the market resulting in a sharp rise in price of items in India. Further, there is also a fear that the country’s security – both internal and external, will be at stake due to the involvement of MNCs in Telecom, Internet, Aviation, Infrastructure, Retail, Healthcare, Insurance, etc.

Not that all the above arguments against FDI are invalid. However, with a positive mindset, we can certainly overcome such apprehensions. This can certainly be done by bringing reforms in our Judicial system, and by resetting a stronger regulator like the Competition Commission in the line of Election Commission of India or Auditor General of India. Moreover, Vigilance Commission has to be more responsive and aggressive in its activities. Along with these, the concept of Lokpal needs to be operational in India and the nature of functioning of the Central Bureau of Investigation (CBI) needs to be completely autonomous in this regard. And of course, the public (consumers) must be aware, prompt and pursuant with regard to issues and their solutions ! With a proper check-and-balance policy implemented, we can  certainly reap benefits from FDI in India. In the current economic scenario – stiff rise in corruption, lack of accountability and transparency – FDI seems to be the right answer and is a dire necessity in India.

Here are some reasons favouring FDI in India…

It is really surprising to know that only 2-3% Indians pay Income tax. Does this figure say that the income of 97-98% Indians are less than the taxable limit (INR 2 Lakh/year) ?? A serious doubt. There are many reasons to it. The first and foremost is the lack of transparency and lack of accountability in our financial transactions – be it in income or expenditure. People prefer cash transaction over card or cheque while buying any item in India. Starting from a kirana shop (local general store) to a jewellery shop, everybody prefers cash transaction and giving and taking a bill /receipt is mostly discouraged. Some feel it is a taboo to ask for a bill, and some think ‘why to pay tax and take a bill’ ? But have you ever wondered that in not asking for a bill /receipt, who is getting benefited – the customers or the aamjunta ?!? ‘No’ – they are the losers only !!!

With direct and organized marketing which will mainly result out of FDI, the financial transactions will be mostly transparent and will be accounted for. Payments will be mostly in online mode. This will not only improve the tax scenario in India but also curtail huge corruption in India. Poor customers will not be cheated… and even if they are cheated, with a valid bill /receipt, necessary complaints can be conveniently filed in the Consumer Court. The investigation process will also become  easy and quick as everything would be duly accounted.

In India, we have the wide concept of “Middle-Man” or “Agent” or “Broker”, who always demands his/her share in every deal; sometimes even more than the actual cost of the product or service, without actually doing any thing or adding any value to it. The concept of direct marketing is hardly available in India, especially in Agriculture, Medicine, Grocery and Household items, etc. Surprisingly, there are many middle-men involved in the process – from the farmer to the consumer, from the factory-worker to the customer, from the laboratory-technician to the patient, and from the poor manufacturer (workmen) to the average consumers. This not only increases the price of the items but also encourages hoarding, corruption, unethical practices in business, unfair trade dealings, and above all the big bug i.e. inflation.

As per a study commissioned by the World Bank, farmers in India hardly get anything more than 12-15% of the price consumers pay at the retail outlet for Agricultural products. The reasons being –  (i) lack of education or awareness (ii) poor infrastructure (machinery) (iii) poor storage system (more than 25% food-grains are wasted in India today due to poor storage system) (iv) poor transport (e.g. non-urbanized roads leading from the agricultural fields to the towns) (v) middle-man (market-domination). With direct marketing as expected because of FDI in agriculture, the involvement of middle-man will be minimized in the process. Both the farmer and the consumer will be benefited largely – quantitatively and qualitatively. Direct sell by the farmers to organized retailers can render them a profit about 60% higher than that via ‘mandi‘ (a big un-organized wholesale /retail market in India) or the middle-man ! This will also check inflation of food items. Moreover, FDI will also ensure adequate storage facilities for food items, improve infrastructure scientifically and transportation facilities.

Like Agriculture, Retailing in India also requires FDI and organized marketing. The quality of the products will be improved and at the same time the price of the retail items will reduce severely. Moreover, it will also generate employment in India. With India’s traditional family system, culture, population and needs, the small retailers will also remain fully functional… but with enhanced accountability – in services and products. It will create a healthy atmosphere for a sustained competitive market.

Other than Agriculture and Retail, FDI will also benefit India to improve its Telecom penetration, Internet affordability, etc. At present, Broadband Services are mainly available in cities only. With better infrastructure and technology, it can be expanded to villages or rural areas at a lesser cost. Growth of Telecom and Internet in India will lead to better Governance, Healthcare, Insurance, Education, etc. This will ensure more and more participation of the common man in day-to-day services or the Public Services of the government. All services can be improved and a better lifestyle can be provided to the common man.

With FDI in Healthcare and Insurance, better care facilities can be provided at a lesser cost in the villages and expert advices can also be effectively delivered through e-health programs. Cost of Medicines will also come down drastically, if the system of generic medicines is adopted in India. In any case, with no middle-man involved, the prices of medicines can be brought down at least by 15-20%. Awareness for insurance schemes – be it life insurance or crop insurance or health insurance – will also greatly benefit the people in general.

What we need is very simple – accountable and transparent services at a better price with growth-oriented policies; create more jobs and provide better services. Political parties – ruling or opposition – must explore maturity levels in understanding the various issues by discussing and debating these in the Parliament, and not on the streets and election rallies ! Nation-wide or state-level strikes must be discouraged outrightly as these activities often spread the wrong message to the unaware folks. Parliament can introduce or change Laws and Institutions such that things can be improved to a larger extent in the interest of the common man.

Many may differ regarding the implementation, policy and the limits of FDI in various sectors. But if FDI brings organized market, with accountability and transparency, then it should be definitely welcomed in India, without any politics.

Recently (May,2013), the Supreme Court of India has aptly remarked that ‘Consumer is King‘ !!!

So, let the consumer decide…

Aamjunta – what do you say ?

25 Responses

  1. Indeed you are so very right..FDI has many advantages in the current scenario and I fully support FDI to be implemented in India as it will benefit the common man..

  2. Well said – simple and to the point. I hope Indian government and its opposition will not make any politics out of it.

  3. Though I agree with you that FDI should be welcomed in India, I do not agree with you that it will bring more transparency. This is obviously because of the corrupt practices of our politicians and bureaucrats. But, as you said, lets try FDI, may be for a limited period and then evaluate.

  4. Let us be honest. FDI will come to India to do business and not to solve India’s problem.Who will make infrastructure and road to get the goods from farmer to storage place or go-down? FDI can make cold storage but not road for Government of India. Walmart has asked for 20 percent local sourcing to mandatory 30 percent by GoI. So Indian manufacturers won’t be the beneficiary though Indian farmers may be.

    FDI will help corp insurance is a dream. FDI in insurance will give insurance in metros where insurance is profitable and not to rural area.

    I am in favor of FDI, but where governance and parameters for transparency is defined and measured by Government. I need a strong government with strong governance and week control followed by FDI. Else FDI will be disaster. We know why not a single company has come forward for FDI in India after the bill got passed.

  5. I vote for FDI but with the following conditions some of which are also mentioned above…

    1. First of all, change the system – clean it up thoroughly and introduce Lokpal, stricter autonomous monitoring bodies, acceptable competition norms, etc.

    2. Nevertheless, there always must be strict constraints in the Telecom /Internet /Defence sector (for obvious reasons) !!

  6. First of all let me thank you for writing a post which is closed to my heart. I am sure readers will like this.

    If you ask me honestly, FDI was not needed in India. But that is a past. Lets look at the future.

    The current business practices in India be it retail or agriculture, it is just an exploitation of the system. The age-old business gharanas of India never pay any tax, always generates the class of givers and takers. That has to go.

    The middle-man – yes, it is killing. It has to go, may be by force if required.

    Direct marketing – yes, we need in India, especially in villages and tribal areas.

    Online practices – very much required. But, it should not take away jobs, some other jobs have to be created.

    Transparency – correct, we need that, but I doubt how much transparent will the FDI business.

    Governance – we need a strong government, but @ who is going to give that? UPA – you know very well, NDA – in-fighting every day, 3rd Front – distant reality. Serious doubt.

    Overall – I strongly agree that present practices has to change and if FDI brings changes, then it is definitely welcome.

    Jai Hind.

  7. Introducing anything new has got it’s advantages as well as disadvantages just like the two sides of coin! If it has advantages it sure carries some disadvantages along and vice versa! What matters is our skill to take out the brighter side and work upon it’s enhancement so as to outshine the dark side!
    If only we could do that!

  8. indeed .. a well written one .. you have managed a well informative blog .

  9. We should not close our arms for FDI, even though we cannot welcome with completely open arms. Lets accept it is a fact and we should welcome this change. The era of nationalization is gone, now it the era of FDI.

    Indeed a balanced view aamjunta. Congrats!

  10. AJ FDI is a boon only if taken in moderation. Remember we dont want to be overly dependent on the FDI for our own progress. We have the world’s largest middle class which should balance out everything in future provided we take a very macro view towards FDI

  11. Don’t understand why do we have politics over reforms in India?? Narabaji, Bandh, and lootna – ish desh me chalta rahta hai. Is there any respite from this?

    Hope FDI will bring some freedom from all the above.

  12. transparency is the most precious ornament in the jewel of corruption .. if they read it they will term it as fiction work from a Mango People !! 😦

  13. Indian politicians will keep on finding new ways of corruption. . . BTW: Nice Post.

  14. Let us first clearly define, why do we want foreign direct investment in retail? To remove middle-men? Yes! To create infrastructure? No! The government has to create a lot of basic facilities, on top of which extra infrastructure can be built. So, cold-storage facilities may not be the government’s job, but providing good roads, quality electricity and a transparent tax collection system is the basic requirement for creating the storage system. How many trucks are stranded outside city/state limits because the octroi collection office wants a bribe? Even if we reduce travel time taken by trucks to transport the goods, we will be able to reduce prices at consumer level and pay more to the farmer/manufacturer. Pray, once the government addresses the basic requirements adequately, we will automatically get FDI (the regulatory framework providing) and wouldn’t have to go through all this debates.

  15. FDI is necessary in India, but will Didi allow FDI in Bengal? I doubt! She is the middle (wo)man, and you are talking about removing middle (wo)man!!

    Good article again.

  16. Very useful data. Hope to see more articles soon!

  17. Spot on with this write-up, I seriously think this website needs much more consideration. I’ll likely to end up again to learn much more, appreciate your that info.

  18. FDI is no doubt good for India. But, what I do not understand is the implementation of FDI and many other schemes. And how is it going to help India in academics. At present, academics in India is becoming privatized and monetized without any value addition to it. Will that help our children to compete with the MNCs in future? Serious deliberations required at all level.

  19. If middle men are making too much for too little service, there should be more people getting into the middlemen business. Stuff like storage, infrastructure are something that the government and local investors could organise.
    May be we get a lot more products..some of it may be contributing to the non-essential imports which account for hundreads of billion $ already. But these guys will put a lot of small retailers and middel men out of business & livelihood.
    The whole point of development is reduce uncertainity in the lives of people. One always has to be cautious about ushering the farmers, human resources to depend on Global markets and Companies for their livelihood.
    I can give up protectionism..only when the whole world is truely Globalised – Not just globalisations for MNCs to make profits everywhere, but the opportunity for people to move around freely to seek opportunity..In terms of people migration it has been reverse globalisation over the past 100 years. I can open up indian markets for foreign companies to make profits..Only when they open up their doors for Skilled indians to migrate..Not like those H1B visas and in the gulf where they work and develop the companies and are kicked out without having any stake. Its the richer countries that has to give in first.
    America and certain other regions have vast lands for agriculture and other essentials, where there is never going to be a shortage of healthy food and resources to consume for thousand s of years to come. When they open up their country, we open up our market to them. We dont really want to help the socialist american regime where it pays bludgers to slfishly replicate, whereas the Indians over there do the ahrd work ad are kicked out or having amongst the lowest of fertility rates due to exploitation

  20. I have a remote thought that this scenario might have been temporarily created just to make FDI inevitable !!

  21. Well I agree with Ipsita’s observation on the scenario creation.

    Just imagine, we have the Prime Minister, President of India, RBI Governor (new and out going), Deputy Head of the Planning Commission along with a full fledged Finance Minister — all are well known respected economists !! Even then how come the government is unable to control the free fall??

    May be they are creating a situation, where other than choosing FDI, we do not have any other option! Not that I am against FDI. We need FDI, but not in the way it is being forced on us.

    At present we have foreign currency only for 7 months. Is not it alarming? No new government is not in sight in the next 7 months. And the chances of getting a brand new government other than this present government in the next one year is very week due to political instability we have and fighting between politicians. Then what is the solution? Heading for a big problem? or a some thing else which we do not see now.

  22. Very good article; well thought one. The number of quality comments shows that this article has created a stimulation around. May be I can add some of my thoughts here.

    1. Article: I agree that the middle men are the big problem in India, and we need to by-pass them while dealing with the problems. But, what worries me is the projected transparency of the system. I doubt! The reason – we the people. Every one here in India wants to become a Cororepati overnight; without doing any work. I wonder, with this kind of mentality what more can be achieved? I bet, even a new Gandhi/Subhas will not be able to solve this attitudal problem. What we need a strong Patel or a Strong Indira/Shastri or a modern Narsingh Rao/Vajpayee. The decision is left on us, to select a person of reputation and iron hand, not a puppet.

    2. There are so many comments. Let me also join with the discussions.
    @Parsuram- with the mentality of the people in India, nothing can solve the issues here. Lets be honest to it. I agree with you that the governance is the problem and definitely the UPA govt is not doing good. But, at least I give them a benefit of doubt as they listen to one person – madamji. Where as in NDA – every one is fighting and every one is acting as if he/she is the great. No disciple at all. In that case, how do we expect to get the numbers? A long way for them to come to Delhi my friend.

    @Harsha – Good thought.

    @Rukshana – yes, internal and external security have to be tightened. You are right, we need to be careful.

    @Jacom – I agree with your line of thinking. But, lets be agressive also.

    @Kirti – True, every thing has some thing positive and negative. Lets make some thing positive.

    @Nandini – Transparency is the key. I too have doubt on it.

    @MySay- Just love it “transparency is the most precious ornament in the jewel of corruption”. Nice one.

    @Our Jaipur – Very true, they are thik skinned and clever people. But we should be cleverer.

    @Vinay- Making the basics in India is just next to impossible. We move very slow and that is the big problem here.

    @Subudh – Didi/Amma/Behnji/Madamji are rulling India or parts with (out) visiion!! What do we expect from them? We have created them and then we have to dance with their tune.

    @Maity – Academic in India!! Big problem and much bigger than any other problem. We are just making our future dark with the kind of academics we are providing now. Good thought.

    @jayanpsk – Cant understand what do you want to say? Agree with the author or not! Middlemen are the big problem and they do not want some one else to come and take their position – in FDI or as middle man. What else?

    @Ipsita – I think you have rightly understood the mood of the nation and in one line you have conveyed a big story. Join hands with aamadmi party 🙂

    @Sunita – Oh! I never thought this. True. The free fall seems to be designed, not destined!

    Good discussion friends. Carry on.

  23. …”food processing minister Sharad Pawar had told Parliament that inadequate storage infrastructure resulted in wastage of fruits, grains and vegetables worth Rs 44,000 crore every year.”

    Every year !!!!!

    Isn’t it high time to change the system and bring in a regulated FDI ?!

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