There has been a raging debate within the country on whether or not to ease the FDI caps on certain sectors like insurance. There is no doubt that liberalisation has paid off in our country. Further liberalisation of FDI norms would mean greater inflows of money and creation of more employment, world-class services and infrastructure. It will energise greater competition. But if the government were to liberalise the caps on FDI, it should be done in a calibrated manner in order to allow development of necessary competitiveness by domestic companies. Until then, joint ventures and collaborations should be encouraged so that Indian companies imbibe the best global business practices and gain cutting-edge technologies.
Foreign investment should be increased in certain sectors, but a cap should remain in force in some others. FDI in retail, telecommunications, high-end technology and insurance could be beneficial. In defence and banking, it won?t necessarily be.
India do have a lot to gain from liberalising foreign investment in retail. This is also the case with insurance, where major international players see a huge market here. Foreign investment in banking can spread the reach of financing to the underbanked. It can kindle entrepreneurial spirit in rural India.
However, in defence, the government must encourage domestic suppliers and makers to develop in-house technologies that live up to global standards. China has set the right example in this field, by lessening its dependence on foreign, mostly Russian, weaponry and moving to indigenous production.
The bottomline is, if a policy that facilitates FDI helps India achieve inclusive development, we should try it by all means.
The author is MBA student of IIFT, Kolkata