FDI is a non-debt flow and is needed for the Indian economy for the following reasons.
- FDI brings with it capital and technical know-how.
- Increases the competitiveness of the domestic manufacturers and service providers due to international competence pressure.
- supplements domestic investment to sustain high growth rate by inter-form collaboration.
- could also promote growth by contributing to exports.
FDI imparts desired dynamism to the economy on account of its global marketing network.
With the size of the market of India, she has attracted quite a lot of interest in the foreign investors, who have shown interest and signed MoUs with India to bring in the investment. However,many of these MoUs have not seen the light due to plenty of drawbacks.
- Unsuitable investment climate due to heavy paperwork and red-tapism.
- poor physical infrastructure and absence of skilled labour.
- outdated labour and contract enforcement laws
- tax terrorism.
- corruption and kickbacks expectations from the official machinery.
- High Fiscal deficit and policy paralysis post 2009-10.
- No proper exit mechanism in place.
Therefore India is yet to harness the FDI potential fully. And studies show that the policies that attract domestic investment also facilitate FDI pull. To be able to do that
- Active promotion of FDI by developing viable projects necessary.
- Single window clearances.
- High Government investment in physical infrastructure, esp industrial corridors and ports.
- Rational tax laws and gradual decrease in corporate taxes.
- Having Fiscal and CAD under control.
- Bring down the negative list of FDI.
- Faster adjudication of disputes and better contract enforcement mechanism.