“FDI” is unique in terms of terminology recognition – it stands for “Foreign Direct Investment” in the Indian context.
As against the portfolio investments in the equity markets, FDI is direct investment in productive assets. It is a more meaningful destination for overseas investments in a demand-hungry and large country like India.
Apart from developing the manufacturing capability of the country in high-end manufacturing, the FDI also goes in to develop India as an export base. This has played out very well in the telecom manufacturing (cell phones and networking equipment) and car manufacturing.
For India however, apart from the above two obvious benefits, the critical benefit lies in developing the human skills in manufacturing, testing, quality assurance and certification. While such skills are available in plenty in the country, the matching of those skills with value-added, higher-end manufacturing, often leads to disappointment as either the skills are not as well developed as expected, or just not available.
While manufacturing employment is never going to match the services industry employment figures, it nevertheless represents a critical facet in a country’s advanced development and progress. No one is expecting India to match the manufacturing prowess of China, and there is simply no point in making investments in toy manufacturing which China will continue to do better than any one else in the world. However, there is hope that Indian skilled workers could make a big difference when it comes to high-tech manufacturing, such as designing and producing high-end forgings for automotive manufacturers such as General Motors.
Government should allow unfettered, unconditional FDI into Indian manufacturing industries. There is no point in imposing conditions, apart from those which the source country itself would impose in the areas of safety and quality. Why would a global manufacturer come into India in the midst of all the red tape, and try to manufacture in impossible conditions, and ship things out using a dilapidated and mostly unusable infrastructure in roads and ports ? It would make no sense to them.
Government should shed its anti-investment mindset and strongly push for 100% investments via the FDI route. That is the only way to ensure that high-end manufacturing jobs are available to engineers who are passing out in such large numbers from engineering colleges. Why waste their learning and engineering skills in IT or BPO centres ? Government should not worry about any protests from domestic industry, as increasing FDI will only result in upgradation of their own skill levels and more mergers & acquisitions, which would overall lead to scale and consolidation in lines of manufacturing.
Consider the export argument. This year (which ends on 31st March 2012) would see India reach an export target of close to USD 300B (at the rate of almost USD 25B a month of late). The next obvious goal is USD 500B which would make India one of the top six exporting nations in the world. Again the goal should not be to beat a Germany or a China. We should take on quantitative targets which are achievable and work towards enabling the same and removing the hurdles on the way. That should be the KPI of the Commerce Ministry of the Government of India. It is surely possible, but would become very possible with increased and unfettered FDI into India.
And, exports mean prosperity and an appreciating currency. We should pre-plan for USD = INR 40 within the next two years. Yes, that would be a difficult target, but I would not say that is a target but rather an outcome of concerted action to enhance our export competitiveness. That would reduce the profits of exporters, hence it is required that we plan very much in advance.
Let us become a global power in manufacturing – that would be surely possible with the investments from global manufacturing companies which need to be actively encouraged to come to India.
Will the Indian Government do it ? What they are doing is neither adequate nor result-oriented. They need to get pushy and aggressive, more sales-driven. Obviously, there is a lot of competition for the investment dollar.
Cheers,
Vijay Srinivasan
5th February 2012
Mumbai
