Roadmap for Answer Writing Introduction Define the ‘National Champions’ model of economic growth. Mention how the model involves the government selecting and promoting a few large domestic companies (conglomerates) to lead major infrastructure projects and boost economic growth. Highlight its purpose: fostering growth by ...
Model Answer Introduction Foreign Direct Investment (FDI) plays a pivotal role in enhancing the production capacity and overall development of the Indian economy. It involves capital inflows from abroad, which are essential for fostering growth, technology transfer, and job creation. Need for FDI foRead more
Model Answer
Introduction
Foreign Direct Investment (FDI) plays a pivotal role in enhancing the production capacity and overall development of the Indian economy. It involves capital inflows from abroad, which are essential for fostering growth, technology transfer, and job creation.
Need for FDI for Development of the Indian Economy
- Addressing Domestic Investment Constraints: Domestic private investment has been limited due to the prevalence of Non-Performing Assets (NPAs) in the banking sector, leading to cautious lending practices. FDI can fill this gap by injecting much-needed capital.
- Induction of Advanced Technology: FDI facilitates access to superior technology and managerial skills, enhancing productivity and efficiency in various sectors. This transfer of knowledge is crucial for modernizing Indian industries.
- Improving Efficiency and Competition: Foreign investments promote competition, leading to higher efficiency and the availability of superior quality products in the market.
- Employment Generation: FDI can create numerous job opportunities by establishing industrial units across India, contributing to economic growth and reducing unemployment rates.
- Need for Non-Debt Investments: FDI provides a crucial avenue for non-debt investments, reducing reliance on loans and external debt, which is vital for sustainable economic development.
Reasons for the Gap Between MOUs and Actual FDI
- Infrastructural Bottlenecks: According to the World Bank’s Ease of Doing Business Index, India faces challenges such as inadequate infrastructure, which makes it less attractive for foreign investors.
- Unpredictable Policy and Tax Regime: Complex regulatory frameworks, difficult exit policies, and bureaucratic hurdles create uncertainty for investors, deterring actual FDI inflows.
- Land Acquisition Issues: Land acquisition remains contentious, particularly for foreign investors, due to concerns regarding control over natural resources.
- Prolonged Litigations and Political Deadlock: Lengthy legal disputes and political instability hinder timely investment actions.
Remedial Measures
- Insolvency and Bankruptcy Code: Implementing this code can enhance investor confidence by providing a clear framework for resolving financial distress.
- Ease of Doing Business Reforms: Streamlining processes such as land acquisition and regulatory approvals can attract more FDI.
- Establishment of Special Economic Zones (SEZs): SEZs can provide incentives and a conducive environment for foreign investors.
- Labour Law Reforms: Simplifying labour regulations can improve the investment climate and make it easier for companies to operate.
Conclusion
FDI is crucial for India’s economic development, providing stable and long-term commitments that focus on sustainable growth. Addressing the barriers that hinder actual FDI inflows, such as infrastructural deficiencies and regulatory complexities, is essential for maximizing the benefits of foreign investments in India.
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Model Answer The "National Champions" model refers to a strategy where the government selects a few large industrial conglomerates to lead major infrastructure projects, leveraging their strength to promote economic growth. This model has been debated in the context of India, especially with the scrRead more
Model Answer
The “National Champions” model refers to a strategy where the government selects a few large industrial conglomerates to lead major infrastructure projects, leveraging their strength to promote economic growth. This model has been debated in the context of India, especially with the scrutiny surrounding Adani Group’s trading practices, which brought the feasibility of such a model into question.
Strengths of the National Champions Model in India
Challenges of the National Champions Model in India
Conclusion
While the National Champions model has strengths, particularly in tackling India’s infrastructure bottlenecks, it also presents significant risks. Drawing lessons from South Korea’s successful adoption of this model for trade-oriented sectors, India must carefully regulate the application of this strategy, especially in non-tradable sectors like infrastructure, to avoid market distortions and ensure sustainable economic benefits.
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