Posts tagged ‘FDI’

My Questions on FDI


Following are some questions that I had asked to Vivean Fernandes in the chat organised by CNN-IBN on its website IBNlive.in.com

http://ibnlive.in.com/chat/economic-policy-editor-cnbctv18/has-manmohan-singh-been-a-weak-prime-minister/1193.html

Q. When FDI comes in they buy rupee and it goes up. So far so good. But what will happen when these companies will cash in profits and take dollar out. What happened to 1997 asian tigers crisis. Do you not think currency will eventually be doomed because of this decision of FDI? Specially because we know this money will be used for consumption and not infrastructure development Asked by: Amitabh Pandey

Ans by Vivean: Foreign discount stores will source locally (so that the products they sell can be affordable). For that, they will have to upgrade the quality of locally-produced stuff. Look at the design and workmanship of Ikea products, and look at the quality of our own furniture. When Ikea comes to India it will help its suppliers to produce higher quality goods. These goods will then also have a chance to find export markets. So by allowing foreign discount stores to sell here, we will be able to sell more abroad! For an analogy, just look at the automobile ancillary sector.

Unanswered follow up Question:  If that had been the case, our exports by now after 20 yrs would have surpassed our imports? Proof the pudding lies in its eating, isn’t it? But on the contrary, we are still looking for debt to finance our imports and our trade deficit is exponentially growing. Regarding technology, how much manufacturing growth has happened due to import of technology as a result of FDI? Instead, unlike China, its only services where bulk of our growth belongs to. In fact the only way we got technology was when we invested in research e.g., cryogenic engine, our space and missile programs etc. And on the automobile and ancillary growth, the consumption has been propped up by easy money policies of government where inflow of new money (to a certain section of society) was actually performing a theft on the purchasing power of real wealth generators (read farmers, workers etc) of the economy.

 

Q. 20 yrs of PMs policy and we are in greater debt, exponentially growing trade deficits, BOP crisis again staring us and lower currency value leaving less room for government intervention through QE / stimulus? Do you not think we have been spending debt money on consumption? And this is a failure of PM and his economic policy? Asked by: AP

Ans by Vivean: 20 years of Manmohanomics have also given us 6 percent to 9 percent annual economic growth rate, the fastest reduction in poverty in our history, well stocked shops, the possibility of owning a house well before one’s retirement and also hope for our youngsters. We need more of Manmohanomics and not less.

Unanswered questions:

Q. 20 years of Manmohanomics have also given us 6 percent to 9 percent annual GDP growth rate but that is propped up by debt. 20 yrs of manmohanomics has given us record number of farmer suicides, Forex equals to external debt, exponentially growing trade deficits, higher inflation, BOP crisis staring us, greater rich and poor divide and greater disparity in the economy. Don’t you think your argument of GDP growth is meaningless with all this and 90% debt to GDP ratio? Does GDP take into account a country’s debt? If I get a natural calamity, will the money I spent for rebuilding not show the GDP up (“broken window fallacy”)?

Advertisements

FDI in retail – Another form of debt financed consumption


One wonders if he should be happy or sad with the govt’s decision of allowing FDI in retail. The decision marks a sad day for the country but happy that it will hasten to conclusion the obituary of reforms and reformists thus paving the way for a new beginning.

FDI is another form of debt that will attempt to temporarily avert the crisis of falling rupee and rising inflation but alas! only at the cost of greater future pains. FDI gives us capital account surplus, which is a liability. It is a debt which has to be paid back. We have been using this money on capital account not to open factories but to pay FOR OUR IMPORT BILLS because we are a trade deficit (Import > exports) nation. Now when FII’s starts cashing in their profits and pull out from markets, we need to pay them back their money. The point now is that how do we do it? Because we are a trade deficit nation (read it as a poor nation) , options available before us are fairly limited.

1) by raising more debt either by selling our assets or interests to FIIs and asking for investments

or

2) by taking loans from IMF, World bank etc which also we have been doing aggressively last few years.

Any 3rd option of meeting this pull out demand from current account, which is possible for a trade surplus country like China has, in not available to us. From the last 2 decades, we have been adopting both methods to pay our rising import bills and enjoying this debt financed prosperity. This exposes how successful these reforms have been all these years. Recently, we saw another example of how hollow and dangerous this debt financed growth has been, when our rupee was in free fall a few days back and have reached all time low and RBI was scared of intervening due to lack of reserves. The reason was that our foreign exchange reserves is close to external debt. So what good FDIs have been doing in last 20 years? It has made us no wealthy a nation but one that is more on debt than it was earlier.

Wallmart is not here for charity. All it will do is to kill our entrepreneurs and create a few slaves with lesser buying power. It will take the profit out thereby increasing the outflow. When it will do that, rupee will fall and our import bills will drastically rise. On top of it, massive unemployment, that it will cause will mean less purchasing power with people therefore low production. And eventually after sucking the nation when these foreign firms will shut their shops and move out, we will face the same consequence as southeast asian countries had faced in 1997 during the asian tigers crisis. Our rupee would have been devalued to a greater extent thereby giving way to rampant inflation marked with low growth, and massive unemployment. This STAGFLATION causing series of unrest, anarchy and chaos will be the order of the day. That surely looks like the trend unless some intervention saves or change the course.

%d bloggers like this: