Productivity - Fdi

Productivity

Main reasons to seek FDI

* Augment investible resources

* Improve technological standards, efficiency and competitiveness of domestic industry

Impact of FDI on productivity growth depends on the firm-industry-host economy specific factors, mainly:

* Technological levels prevailing in the industry

* The learning capabilities of the firms

* The absorptive capacity of the host economy

Comparison of US and Japanese FDI in India (empirical findings)

US FDI | Japanese FDI |

* Undertaken by large firms * Short-term profits are important * ‘Reverse-order’ type transfer of technology * Increases productivity by technological change | * Undertaken by small firms * Aims at long term profits * ‘Orderly transfer’ of standardized production * Increases productivity by efficiency improvement |

True Level of FDI flows to India

There are significant problems with the definition interpretation of FDI data in different countries. FDI inflows between countries do not depict the true scenario for comparison.

According to IMF, FDI flows are the sum of three basic components:

* Equity capital

* Reinvested earning

* Other capital associated with various inter-company debt transactions

The definition of FDI and computation of FDI statistics used by RBI does not conform to the guidelines of the IMF

Major Discrepancies:

* India excludes reinvested earnings while estimating actual FDI inflows

* India does not include the proceeds of foreign equity listings and foreign subordinated loans to domestic subsidiaries

* India excludes overseas commercial borrowings

* FIIs 20 per cent of the equity in the form of ADRs and GDRs but these are not a part of FDI

Outflows shown by the source countries are not equal to inflows shown by the host countries. The following table substantiates these discrepancies:

From the above table it can be seen that there is a clear distinction between countries for...