Foreign Direct Investment is cross-border investment made by a resident in one economy with the objective of establishing a ‘lasting interest’ in an enterprise that is resident in another economy, other than that of the direct investor. This is how IMF nails FDI’s definition. Government prefers the FDI, since it is non-volatile and non-debt creating over other mechanisms of foreign funding. FDI in India, as of now is routed through either the Government Approval Route, or Automatic Route that dispenses off the need for multiple approvals from regulatory and/or governmental bodies.
Let us consider FDI in retailing, both organized and unorganized. The former, a mere 3-4% in India, is trade oriented under license, while the latter that forms the rest is low-cost retailing, and is ubiquitous. There is a socio-economic dimension to unorganized retailing, with uneducated, unemployed and educated unemployed taking refuge in retailing to negotiate poverty-related concerns. So, clearly, FDI in retailing will target the organized sector, with its so-called ‘corporate’ formulae and predatory pricing to iron out any competition from unorganized retailers. Agriculture, on the other hand, has been a source of livelihood for millions in this country, which in lean seasons, has to cope with rocketing unemployment. Unorganized retailing helps absorb agricultural labour and provides a sense of security. This equation would certainly be disturbed with FDI in retail, since it would have its own role in raising the number of unemployed with mechanized and skilled labour force at the helm of affairs. Why is this logic devoid of gravity for the policy makers? Instead, what is advocated is construction of a world-class back-end infrastructure with FDI rolling in retail, which would enable farmers direct access to the markets and thus even out deficiencies hitherto responsible for their depravation and poverty.
It is generally considered that FDI is resilient in times of economic downturn, but the flip side is particularly overlooked, which is the adverse impact on the net capital inflow of the developing country during such times. Moreover, negative externalities in the labour market created by FDI cannot be taken lightly. Evidence shows that multinational companies do pay a slight premium over local-term wages, but does this really benefit the host economy? Paying a premium for the price of labour may improve the consumption power of workers, but it also has the detrimental ability of disrupting the local employment market. When prices rise, supply increases while demand falls. Similarly, when the price of labour increase, wage premiums in this case, this creates a distortion and creates a disequilibrium in the labour market.
If the Government looks at FDI as an economically viable solution to socio-economic problems in the country, it is viewing FCRA in a light that is its own definition. FCRA is aid that is sought if the seeking entity is non-political, non-profit, even if it is socially responsible. Housed under the Ministry of Home Affairs, the Act is vulnerable to misappropriations by the officials in times when the Government feels politically threatened, and views the entity with FCRA h anti-people antics. FCRA is always caught in regulatory mechanisms with clearances from the MHA hard to attain, procedures too tedious and demanding, and transparency and accountability as dictated by the Government to be strictly adhered to. In short, organizations obtaining foreign aid are likely to feel their constitutional rights are violated. Why is this?
FDI is obligated by the Government, and hence it becomes a brainchild of the Government. FCRA, on the other hand, is sought by organizations who form the civil society, who give credibility to participatory democracy, voices its concerns, issues and dissent with what the Government plans to do. This is taken to mean by the Government as challenging its powers as policy framers, which is an extremely narrow viewpoint. ‘For-Profit Sectors’, define democracy as the government understands it, whereas ‘For Non-Profit Sectors’ define it as people ought to understand it, and this is at cross-purposes. Authoritarian discretion is enough to put a freeze on FCRA, whereas, revoking it would necessarily mean paying compromises to be more transparent and accountable and in line with Government’s thought process. On the other hand, even majoritarian pressure is not sufficient to put brakes to Government’s flight for fancied FDI, thus in principle quashing the very essence of democracy.
Such an ambivalent position and unbalancing act is anything but autocratic to the core. The time is ripe for a review...