The decision to open up insurance, retail and aviation sectors may bring in foreign investment but it is doubtful if FDI would also translate into more jobs for the people in this country
The issue of foreign direct investment is rocking the political scenario. The Opposition has started singing similar tunes.
Coupled with this are some global changes — the re-election of Mr Barack Obama as US President and the European Union pressure to cut import duties on automobiles and other items from 60 per cent to 10 per cent. All these could impact the Indian economy.
India and the Pacific may have to deal with the resurgence of ‘swadeshi’ in the US as Mr Obama has to create new job opportunities at home. His Administration is keen on strengthening the US manufacturing sector and reducing “unnecessary” imports.
Whether FDI is needed in India or not is an ongoing debate. A country flush with almost Rs9 lakh crore of reserves — Rs7 lakh crore in the private corporate sector and Rs2 lakh crore in public sector — should think twice before seeking expensive FDI that comes with many tags and certainly high repatriation costs.
There is also the issue of the large non-performing assets — bad debt — of banks. According to the latest Reserve Bank of India study, non-performing assets has increased to Rs 1,11,604 crore from Rs 52,807 crore in 2008. The fall in asset quality is stated to be significant in public sector banks. Bad loans are rising as growth falls and industrial activity plummets.
Can FDI pull the country out of this difficult situation? Growth projections are being lowered every day. Euro crisis, US slowdown, rising oil prices, energy costs and lack of prescription to turn the domestic economy are affecting GDP.
The FDI is not generating jobs despite the fact that US FDI during the last four years increased by 30 per cent. Conversely, Indian investment in the US increased to 40 per cent. About 35 India-based companies created over 60,000 jobs in the US, according to Confederation of Indian Industry. The CII study shows that more than 80 per cent workers at India-based companies in the US are Americans, particularly in telecommunication, healthcare, iron and steel sectors.
India’s decision to open insurance, retail and aviation sectors may bring in US investment but it is doubtful it would create enough jobs. Past experience in areas like soft drinks, credit cards and similar activities resulted in creation of low-paid risky jobs. Retail companies are poor employers, even in the US. It is unlikely they would create quality jobs in India.
The response to aviation sector has been less than lukewarm. Even if some companies enter this area it would not create many jobs. The foreign airlines know how to operate with minimum hiring. FDI in insurance too won’t create viable jobs, as only part-time workers are preferred. With the kind of political pressure the US has put on India, more jobs from Bangalore IT hub may shift to the US and Europe. The IT companies would have to follow the US President’s diktat to survive in their global business. The US, despite the slowdown, may create jobs at India’s cost.
Again, EU’s move to lower custom duty in India for goods being supplied from Europe spells doom for domestic companies. Slashing customs duty on high-end wine and spirits is part of the Broad-based Trade and Investment Agreement with the European Union. On the automobile front, if the import duty on cars is lowered to 10 per cent, several European carmakers would export their cars to Indian market rather than setting up units in India, thereby, increasing European business. They could operate without creating many jobs or some low-paid jobs.
It might create problems for units in India like Maruti and others. The tariff protection that the domestic industry has been enjoying will go soon after a deal is signed with the EU. This is a critical element of the trade pact that is being negotiated.
Initially, the Government had offered to lower import duty on a specified number of vehicles. Now it seems to have agreed to an across-the-board reduction, along with a cut in customs duty on around 65 auto parts and machinery.
In return, it has got EU to agree to phase out import duty on cars by 2020 and allow Indian textiles to enter the member countries on payment of concessional duty. A deal to export banana, rice and sugar has also been clinched. But the EU has not allowed any concession in services, visas and labour movement. There are hitches on patent issues, social development and other investment conditions that EU wants to put on India.
The US may have Indo-Pacific orientation. It may recognise that the prosperity of the world depends on ensuring that Indo-Pacific is a place where commerce and freedom of navigation are not hampered — as this would be the new way to America’s recovery. Strategically, it is keen on reducing dependence on China. But having learnt from the Chinese experience it is not keen on depending on the Indo-Pacific the same way. It would plan to extract maximum benefits and throw crumbs to the economies in the region. India has to look for new strategy.
http://www.dailypioneer.com/columnists/item/52854-india-needs-to-watch-its-back.html
The issue of foreign direct investment is rocking the political scenario. The Opposition has started singing similar tunes.
Coupled with this are some global changes — the re-election of Mr Barack Obama as US President and the European Union pressure to cut import duties on automobiles and other items from 60 per cent to 10 per cent. All these could impact the Indian economy.
India and the Pacific may have to deal with the resurgence of ‘swadeshi’ in the US as Mr Obama has to create new job opportunities at home. His Administration is keen on strengthening the US manufacturing sector and reducing “unnecessary” imports.
Whether FDI is needed in India or not is an ongoing debate. A country flush with almost Rs9 lakh crore of reserves — Rs7 lakh crore in the private corporate sector and Rs2 lakh crore in public sector — should think twice before seeking expensive FDI that comes with many tags and certainly high repatriation costs.
There is also the issue of the large non-performing assets — bad debt — of banks. According to the latest Reserve Bank of India study, non-performing assets has increased to Rs 1,11,604 crore from Rs 52,807 crore in 2008. The fall in asset quality is stated to be significant in public sector banks. Bad loans are rising as growth falls and industrial activity plummets.
Can FDI pull the country out of this difficult situation? Growth projections are being lowered every day. Euro crisis, US slowdown, rising oil prices, energy costs and lack of prescription to turn the domestic economy are affecting GDP.
The FDI is not generating jobs despite the fact that US FDI during the last four years increased by 30 per cent. Conversely, Indian investment in the US increased to 40 per cent. About 35 India-based companies created over 60,000 jobs in the US, according to Confederation of Indian Industry. The CII study shows that more than 80 per cent workers at India-based companies in the US are Americans, particularly in telecommunication, healthcare, iron and steel sectors.
India’s decision to open insurance, retail and aviation sectors may bring in US investment but it is doubtful it would create enough jobs. Past experience in areas like soft drinks, credit cards and similar activities resulted in creation of low-paid risky jobs. Retail companies are poor employers, even in the US. It is unlikely they would create quality jobs in India.
The response to aviation sector has been less than lukewarm. Even if some companies enter this area it would not create many jobs. The foreign airlines know how to operate with minimum hiring. FDI in insurance too won’t create viable jobs, as only part-time workers are preferred. With the kind of political pressure the US has put on India, more jobs from Bangalore IT hub may shift to the US and Europe. The IT companies would have to follow the US President’s diktat to survive in their global business. The US, despite the slowdown, may create jobs at India’s cost.
Again, EU’s move to lower custom duty in India for goods being supplied from Europe spells doom for domestic companies. Slashing customs duty on high-end wine and spirits is part of the Broad-based Trade and Investment Agreement with the European Union. On the automobile front, if the import duty on cars is lowered to 10 per cent, several European carmakers would export their cars to Indian market rather than setting up units in India, thereby, increasing European business. They could operate without creating many jobs or some low-paid jobs.
It might create problems for units in India like Maruti and others. The tariff protection that the domestic industry has been enjoying will go soon after a deal is signed with the EU. This is a critical element of the trade pact that is being negotiated.
Initially, the Government had offered to lower import duty on a specified number of vehicles. Now it seems to have agreed to an across-the-board reduction, along with a cut in customs duty on around 65 auto parts and machinery.
In return, it has got EU to agree to phase out import duty on cars by 2020 and allow Indian textiles to enter the member countries on payment of concessional duty. A deal to export banana, rice and sugar has also been clinched. But the EU has not allowed any concession in services, visas and labour movement. There are hitches on patent issues, social development and other investment conditions that EU wants to put on India.
The US may have Indo-Pacific orientation. It may recognise that the prosperity of the world depends on ensuring that Indo-Pacific is a place where commerce and freedom of navigation are not hampered — as this would be the new way to America’s recovery. Strategically, it is keen on reducing dependence on China. But having learnt from the Chinese experience it is not keen on depending on the Indo-Pacific the same way. It would plan to extract maximum benefits and throw crumbs to the economies in the region. India has to look for new strategy.
http://www.dailypioneer.com/columnists/item/52854-india-needs-to-watch-its-back.html
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