FDI: Conditions Apply


By

Alok Kumar
PGPBM
NSB, NIILM School of Business
New Delhi
 


Foreign Direct Investment (FDI) is a particular form of the flow of capital across international boundaries from home countries to host countries. A set of economic activities and operations carried out in host countries by firms controlled by home country firms.

Marshall Plan

Foreign direct investment has become a buzzword in all the developing nations, and India is no exception. The question before policy makers and problem before economy at large is Is India getting any benefit whatsoever or she just being used as dumping ground to park surplus capital of capital rich nations. Let us delve into the pattern so far. New era of FDI starts from Marshall Plan, officially known as European Recovery Plan. It was the FDI from USA towards rebuilding the countries of Europe, distressed from devastation caused by World War-2. It helped the host countries so well that they stood on their own feet by 1950. There were two more countries brimming with surplus capital, Germany and Japan. Together these countries were known as 'Tirades'.

East Asian Tigers

Post Marshall Plan, The success story of Four East Asian Tigers is most significant. East Asian Tigers include- Taiwan, South Korea, and Hong Kong, Singapore.  These are the nations which utilized FDI most efficiently ever. In their case "the social rate of return on FDI exceeds the Private rate of return" and that too with huge margin. These nations have proved this by growing at approximately 10% rate for 30 years. Economists term this event as "East Asian miracle". 

FDI: A failure?

As world has seen "East Asian miracle" it has also seen "East Asian debacle". The economies which could not use FDI effectively, bombed. This resulted into Asian currency crises and BOP crises and India was no exception. Autarkic India opened up in 1991 and Business houses became free from economic slavery.

Indian chapter

India is poised for a "Paradigm shift". Currently she is growing at the rate of 7 to 8% year on year basis. All she has to do is to continue with this streak. Some of the Indian MNCs have grown immensely and going bombastic with acquisitions of foreign companies. But in some cases, FDI has become a means to serve the interests of host country politicians. Attracting MNCs benefit specific constituencies from whom politicians derive support. A vast country like India needs inclusive growth. Overall performance can said to be satisfactory, But it is the beginning only. The whole story remains to be seen. As a one of the biggest market in the world, India very much is in commanding position. Let us hope that FDI help her take a great leap forward not backward.
 


Alok Kumar
PGPBM
NSB, NIILM School of Business
New Delhi
 

Source: E-mail August 28, 2010

 

           

 

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