FDI Impact on Rural India

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FDI Impact on Rural India

  1. 1. FDI and its impact on rural economy By Arunesh Kumar
  2. 2. Introduction Foreign Direct Investment (FDI) broadly encompasses any long-term investments by an entity that is not a resident of the host country. Basic idea behind FDI is to leverage the host country’s advantage in form of access to cheaper resources, access to a consumer market and access to talent specific to the host country. Through it both the investors and host country are mutually benefited.
  3. 3. History of FDI in India Prior to 1991 India was a closed economy and GOI followed socialist model of development. There had been “license raj” and growth of different sectors of economy were controlled by Govt. The coming decade begun with replacement of FERA by FEMA and LPG. And India witnessed an increase in FDI from 1991 onwards.
  4. 4. Sources of FDI in India [2012] Countries % of FDI Countries % of FDI Mauritius 38 Netherland 4 Singapore 10 Cyprus 4 U.K. 9 Germany 3 Japan 7 France 2 U.S.A. 6 U.A.E. 1
  5. 5. Destinations of FDI in India [2012] SECTOR % of total FDI inflow Service Sector 20 Construction activities 12 Telecommunication 7 Computer & Software 6 Drug & Pharmaceutical 5 Chemical 5 Power 4 Automobile 4 SECTORS % of total FDI inflow Agri. Services 0.9 Food Processing 0.86 Textile 0.69 Mining 0.59 Paper & Pulp 0.46 Vegetable oil & Vanaspati 0.17 Fertilizers 0.16 Agri. Machinery 0.13 Tea & Coffee 0.06
  6. 6. GOI policies regarding FDI India's foreign investment policy has been formulated with a view to inviting and encouraging FDI into India. The process of regulation and approval has been substantially liberalized. FDI under automatic route is permitted in most activities/sectors, except a few where prior approval of the Government is required.
  7. 7. Entry route for FDI  Automatic route  Through Govt. approval  By way of share acquisition  Investment through existing collaboration in India  General permission of RBI under FEMA  Participation by IFI
  8. 8. FDI in Agriculture Sector  Fertilizer- 100% FDI is allowed in fertilizers under the automatic route in India. FDI inflows to fertilizers are beneficial for the expansion of the fertilizer industry in India.  Agri-Machinery- A corpus of ` 8000 crores to Rural Infrastructure Development Fund (RIDF)have been extended  Timber Product- The FDI in Timber products industry of India have facilitated in setting up of new units in India.  Tea and Coffee- 100% FDI is allowed in Tea and Coffee in India under the automatic route. FDI inflows to tea and coffee are expected to make the industry more competitive in the international arena.
  9. 9. Cont..  Agri services -The FDI Inflows to Agriculture Services are allowed up to 100% and allowed through the automatic route covering horticulture, floriculture, development of seeds, animal husbandry, pisciculture, aqua culture, cultivation of vegetables, mushroom and services related to agro and allied sectors.  Textile -Foreign Direct Investments (FDI) up to 100% is allowed in this sector through the automatic route by the Reserve Bank of India . In order to facilitate the technological advancement in the textile industry, the Technology Upgradation Fund Scheme (TUFS) was set up.
  10. 10. Negative Impacts On Rural Economy  FDI will lead to job losses.  Jobs in manufacturing sector will be lost.  Freedom of farmers will also be curtailed.  Wage Inequality & Wealth Disparity. Political Corruption. Disbalance in Ecology and Environment.
  11. 11. Positive arguments:  Because of the investment of foreign companies, job opportunities will increase in areas like marketing, agro-processing, packaging, transportation, etc.  Because of FDI, the post of exploitative middlemen in India will be removed,
  12. 12. Cont…  Foreign companies will invest around $100 million in India. Because of that there are lots of developmental activities.  According to the Indian Government’s conditions, foreign companies have to source a minimum of 30% of their goods from Indian micro and small industries. This will provide the scales to encourage domestic manufacturing, by creating a big effect for employment and to upgrade the technology.
  13. 13. Cont..  Foreign companies will also create a supply-chain in the India market. Because of that, food which perishes due to bad infrastructure facilities and refrigeration will not be wasted.
  14. 14. Challenges  Resource challenge: India is known to have huge amount of resources. Acquiring those resources and utilising them effectively and efficiently is important  Equity challenge The development in rural and urban area is uneven. The poor have always suffered. So a big challenge is fostering social equality and at the same time, a balanced economic growth.
  15. 15. Contd…  Political challenge: Indian political environment is not constant. Business policies are affected with the change of political environment. It will create constraints in smooth and fine running of FDI policies.  FDI favours only urban regions for the investment and neglect rural & backward regions.
  16. 16.  Lastly, there are no provisions for the improvement of handicraft industries and there are few provisions for the small scale industries under FDI in India.
  17. 17. Suggestions  The government should design such policies under FDI which must be related with agriculture base industry. It will important step in reducing unemployment from rural region because 60% human resources lives in rural area.  Give maximum reward to the farmers for their agricultural crops and try to increase the wages level of the skilled and unskilled labour.
  18. 18. Cont..  Emphasis must be given on the survival of small industries and handicraft business. Theses industries should get benefit from the FDI projects for their existence. The policy makers must consider these industries while making FDI policy.  Finally, it is insisted that hard punishment should be given to investors or responsible persons about the wastage of natural resources under FDI in India.
  19. 19. Conclusion 96% of workforce in India is engaged in unorganized sector, in which agricultural farmers, labors and retailers form major share. Whether FDI is supposed to support the formal sector. Moreover it is likely to benefit those people who already have professional skills. Though it will also benefit farmers and rural economy, but still there are many apprehensions regarding worthiness of FDI. So only strong mechanism can do justice to achieve full and comprehensive benefits of FDI in India.
  20. 20. hank

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