Sunday, August 8, 2010

FDI TURNS INDIA TO A GOLDEN GOOSE.

Its is often said that problematic situations gives birth to opportunities. Even if the opportunities are identified in advance then they will give you not only opportunities but golden eggs in returns. India is now the golden goose which is giving golden eggs. Before India became Independent it was named as a golden bird giving golden eggs. That is the reason why the British and the Mughal emperors rein India for more than 300 years.

But even after a couple of centuries India is now again the golden goose giving golden eggs in its Independent country. By the time you all read this India will be close to celebrate its Independence Day.

After the recession Indian economy made a dramatic turn around in its economic recovery showing that’s its is less affected from the western crisis. In fact we all know the story of how Indian economy raised to the growth of 7.2% GDP after the cyclone of recession. The stock market scaled back by double from its lowest levels in November 2008.But if we look at other activities we will find the fruits of the golden goose. Foreign direct investment in the country's textile sector has more than doubled to Rs968.76 crore in 2009 from Rs415.10 crore in 2007.

A bulk of this has come from Europe, US and China. India is now a hot destination of foreign funds. They are investing in Indian market and making their funds count into double returns. Textile sector have been the biggest favorite destination of investments for FDI. FDI in India's textile sector has steadily increased from Rs415.10 crore in 2007 to Rs869.62 crore in 2008 and further to Rs968.76 crore in 2009.Infact there are host of reason for making this sector a favorite hot spot for FDI. Technology and design development, superior production techniques, better labour conditions, formulation of compliance norms, and development of textile parks have made the sector lucrative.

The Indian multi-brand retail and defense sectors for foreign direct investment, FDI inflows declined by about 45 per cent to $1.41 billion in June this year from $2.58 billion in the year-ago period. The sectors which attracted foreign investment include services, tele communication, construction activities and computer software and hardware. Foreign investment in May 2010 was $2.2 billion. In Parliament, the government said that FDI during the first quarter of 2010-11 was $5.80 billion against $7.01 billion in 2009-10.Higher FDI means that fixed capital or Gross fixed capital formation (GFCF) entry into the Indian market is increasing.This will result to more business venture creation and employment opportunities.This fund inflow is fixed capital and not FIIs investmenst which might exit any time from Indian economy.Gross fixed capital formation (GFCF)  acts as an indicator in the measurement of economic growth of State. It reveals the potentiality of the investments in the public as well as the private sectors and gives net addition of the assets created during the year.


The government have planned to make the Textile sector more strong by framing up old and new policies which will bring huge growth of the sector in the coming years. Few of the glimpses of the policy initiatives taken and awaiting in the wings are as follows.

• Launching of the Technology Mission on Cotton (TMC) in 2000;

• Introduction of the Technology Up gradation Fund Scheme (TUFS) in 1999 for the unorganized sector;

• Introduction of the scheme for integrated textile park (SITP) under public-private partnership to equip textile industry with world-class infrastructure;

• Rationalization of the fiscal duty structure to achieve growth and maximum value addition over the years;

• Allowing 100 per cent FDI in the textile sector under automatic route;

• De-reservation of readymade garments, hosiery and knitwear from SSI sector for large scale investments;

• Setting up of the National Institute of Fashion Technology (NIFT) to sensitise the industry to the concept of value addition; and

• Introduction of 'Integrated Skill Development Scheme' to provide training at various levels.

These new initiatives will make the sector to open doors for more FDI new markets and less dependence on Europe and US.US and Europe are now in frozen mode in terms of consumption so new markets needs to be explored for keeping the Indian export to climb up.

One area where the government needs to fight out is FDI in retail sector primarily in supply-chain infrastructure for fresh fruits and vegetables. This will work advantageous for Indian market since the supply chain gap will reduced due to better quality infrastructure and will enable reduction in prices . The wastage in the supply chain and the commission to trade intermediaries inflate the final price paid by Indian consumers for fruits and vegetables. When we drill hard we find that Indian consumers pay nearly 2-2.5 times the price paid to a farmer as compared to 1-1.5 times in developed markets where the penetration of organized retail is much higher. If FDI in retail segment is increased and more focus is employed then Indian consumers will have to feel less pressure on their nerves while marketing.

The industry ministry had released a discussion paper on opening the multi-brand retail sector to FDI and sought public comments. If allowed, global retailers like Wal-Mart, Tesco, Carrefour and Metro would be allowed to open their front-end outlets selling an array of products. We need to come up with new plans and strategies to reduce food prices and not RBI old mechanism of controlling inflation damaging the capital market growth and companies sales growth prospects.

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