Why does everyone in India put so much emphasis on bringing in FDI when India’s saving rate is 30% of GDP (among the highest in the world…

Answer by Balaji Viswanathan:

FDI is not just about money. It is about knowledge transfer. When Google comes to India and invests in an office, it is not just bringing money. It is bringing expertise. An FDI by a top notch company like GE allows:

  1. Indian employees to be trained at world standards.
  2. A major boost in exports. GE would automatically export the work done by its Indian office. Hyundai, Google, Microsoft, Amazon and other foreign companies are quite active exporters of tech.
  3. Other Indian companies to imitate and follow the state of the art processes.
  4. GE's suppliers and buyers to get the benefit of working with a world class partner.
  5. Credibility for India as a key place to do business.

None of these are got from domestic investments. Anyone who sees FDI as just money is not really seeing the full picture. Of course, we need to enable local entrepreneurs to invest in the economy. But, nothing can replace the value of Foreign Direct Investment from top notch companies.

That said, there are way too many questions on Foreign Direct Investment in India and anyone who is asking a new question should look through the existing ones. Here are some of them I answered recently.

  1. Is foreign direct investment bad or good for India's economic growth? If so, why?
  2. Why is there a widespread opinion that FDI should be allowed in order for growth or any kind of major development in India?
  3. Foreign Direct Investment: Can someone explain in layman's terms what is FDI and why it is a hot topic in India nowadays?
  4. What are your views on 100% FDI in the defence sector by the BJP government?
  5. Is FDI a bad choice for the country receiving it? In the long term won't the company making the investment move a part of the profits back to the home country & weaken the currency?
  6. How will FDI affect the retail sector in India ?
  7. Aren't policies like FDI and ECB in India, dangerous for the economy?

Why does everyone in India put so much emphasis on bringing in FDI when India's saving rate is 30% of GDP (among the highest in the world…


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