5. Justify the need for FDI for the development of the Indian economy. Why there is gap between MOUs signed and actual FDIs? Suggest remedial steps to be taken for increasing actual FDIs in India. (UPSC Mains 2016)GS-III 2016

5. Justify the need for FDI for the development of the Indian economy. Why there is gap between MOUs signed and actual FDIs? Suggest remedial steps to be taken for increasing actual FDIs in India. (UPSC Mains 2016)GS-III 2016

  Need of FDI for development of Indian Economy:

• Private investment from domestic sector has been constrained because of Non Performing Assets.  
• Induction of advanced technology and technical knowhow.
• Improves efficiency and competition.
• Increases consumer choice.
• Sustain and enhance growth, which in turn will ameliorate poverty.
• Better than Foreign Portfolio Investment, which is hot money (Fly by night money)
• Need for non-debt investments.
• Increase employment opportunities.

 Reason for Gap between MOU and actual FDI:

             MOU’s significantly reflect the political understanding between nations where as investment reflects the economic scenario.

Some reasons for gap are,

• Unpredictable Tax regime.
• Unpredictable policy regime .
• Prolonged litigations involving government.
• Lack of policy clarity.
• Unilateral Withdrawal from Bilateral investment treaties.
• Suspicion upon foreign investors. 

• Hangover of inspector/ license Raj.
• Beauracratic red-tapism.
• Adverse investment climate.
• Numerous riders and cumbersome rules complicate decision making.
• Archaic land acquisition and labors laws constrain functioning.

 Remedial steps to increase actual FDI:

• Stable, predictable tax regime.
• Reliable, fair, transparent, rules based policy making.
• Phasing out of Foreign Investment Promotion Board.
• Expediting clearances and facilitatingfast decsion making.
• More FDI should be allowed through automatic route.
• Fair and rule based intellectual property regime.
• Diluting precondition for sectors with restrictions.
• Management and control by domestic players should be retained only strategic sectors.
• Protect and facilitate beau acts for bonafide actions.
• Decrease discretionary powers of buearaurats.
• Empower buearaurats to take decision without fear or favors.