Many overseas investors think of India as the ultimate investment destination. India has one of the fastest-growing economies, a potent workforce, and a vast collection of natural resources. The following are the factors that affect the FDI inflow in India. Let’s have a look:
Foreign investors enter the Indian market with the hope of expansion. However, this can have an impact on the market in the form of increased demand for luxurious items and inflation. There will be a higher requirement of infrastructural facilities. But FDIs have to be dependent on local people for expansion purposes.
A large number of traders, fear that they may lose out on the race because of foreign direct investment. The government facilitates foreign direct investment in the retail business. This creates disturbance and difficulties in the domestic market. The domestic traders will not be able to develop their business. The introduction of digital payment modes like credit and debit cards are affecting many local business organisations as they do not want to give up on conventional trading activities and methods. Hence, they oppose foreign direct investment in India. The government is trying to create a balance for smoothening up FDI inflow in the country.
The availability of items like fuel, steel, power, etc. can be a major factor that affects the foreign direct investment inflow in India. The unavailability of any of these products can result in a lack of proper infrastructural facilities. Foreign direct investment policy needs to ensure the availability of infrastructural facilities for investors. Then only more and more FDI inflow will happen in the country.
Again, foreign direct investment policy needs to take care of the prevalent mass poverty and illiteracy in India. This factor can act as an obstacle in the FDI inflow to the country. The illiterate workforce will not serve the purpose of foreign investors. Poor people will not show any interest in the business of the host and home countries. The wide disparity between haves and have-nots will affect the business scenario.
Foreign investment policy in India is trying to mitigate this issue in order to ensure the convenient inflow of FDI to the country. The reformations and modifications are signalling towards a better India, higher literacy level, and more people above the poverty line.
An overseas investor definitely wants to take back a share of his earnings back to his country. That is the ultimate purpose of his investment. Hence, the foreign direct investment policy must make enough room for the provision of an apt foreign exchange reserve.
The government and RBI together are working towards maintaining stability in the exchange rate. The economy is hoping to see better results soon due to foreign direct investment policy.
TRIMS (Trade-related investments) and TRIPS (Trade-related intellectual property rights) do not bear any kind of discrimination in the foreign as well as a domestic industry. Hence, the government is making attempts to zero out any kind of difference between the two. The economists and policymakers are toiling hard to come up with the foreign direct investment policy that bridges the gap between foreign industry and domestic industry. Vital steps are being taken by the government and RBI.
Large scale industries prefer to outsource certain activities through Foreign Direct Investments . Examples of such activities are foreign exchange transactions, credit card facilities, security systems, etc. This may result in the lack of employment opportunities for the already existing employees. For instance, some trade unions are not in favour of outsourcing banking activities. Because of foreign direct investments, there have been changes in the introduction of core banking and business transactions. So, the organised sector sees this as a threat to employment opportunities.
It is the duty and responsibility of the government to maintain poise and calm among the opposing sectors. The government should come up with a foreign direct investment policy that enhances FDI inflow as well as improve the market scenario of the organised sector as well as the domestic market. A perfect balance will boost the Indian economy towards success, development, rapid growth, and so on. It is noteworthy that the above-given factors are not hindrances to FDI. Rather, these are challenges which government of India and RBI is trying to overcome with the effective foreign direct investment policy.
