Modi's FDI fixation: Is the hype over foreign funds overdone?

New Delhi: Is foreign direct investment the panacea to all our problems on the economic front? If you follow the exuberance among economists of all denominations over Prime Minister Narendra Modi’s aggressive wooing of global investors, FDI would appear as some kind of a magic wand a single flash of which can miraculously accelerate the growth momentum, create world class infrastructure, produce jobs, reduce inequality and, in general, take care of all the woes of the economy. The global experience with excessive FDI does not quite support this enthusiasm, but right now no one appears to be in the mood to be cautious.

“Historically, any foreign investment has badly impacted the country’s economy and its job market. The BJP government is following its predecessor’s neoliberal policies by decontrolling the market,” says MS Bhatt, professor and former HOD, Department of Economics, Jamia Millia Islamia university.

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He points out that the government has allowed foreign investments in profit-making sectors like manufacturing, food processing and pharmaceuticals because “quick exit” is possible in these sectors at any point of time. “The move is aimed at boosting the profit-making capacity of foreign firms at the expense of downtrodden and underprivileged who would hardly benefit from this decision,” he said.

When asked about ‘Make in India’ campaign, he said, “The government should focus its own resources and invest money on research-based works to strengthen the indigenous market rather than inviting foreign firms to come in.”

Well known economist Jayati Ghosh, who teaches at Centre of Economic Studies at Jawaharlal Nehru University (JNU), also turns down the argument of government supporting foreign investments. “Foreign Investment is not going to achieve the kind of results it is hoping for in terms of pushing the economy towards speedy growth rate,” she says.

She believes that foreign investment will have a negative impact on the creation of jobs and in the contrary it is going to cause loss of employment in the medium term, something which the Indian economy cannot afford.

“The government should rather contemplate about the pattern and nature of the growth. It means we should invest on infrastructure development that in turn will automatically boost the economy and create employment,” she suggests.

Much celebrated economist Prabhat Patnaik notes that FDI is particularly designed in a way to “benefit foreign investors at the expense of local traders, especially in sectors like retail on the pretext of job creation”.

“Anyone under the notion that in the current era of globalization, one could not do much about policies like FDI should not maintain control over affairs. If the current global situation leads us into an anti-democratic stance, we need to delink from the global scenario,” he adds.

Most of the economists Firstpost contacted preferred FDI engagement in India on a long-term, not flighty money where investors seek to make quick profits and make a quick exit. The latter, they feel leaves the economy and livelihood of people vulnerable. The blanket embrace to all kinds of investment in all sectors is an ill-conceived idea, they said.