Is foreign direct investment bad or good for India’s economic growth? If so, why?

economy balaji : FDI good or bad

Answer by Balaji Viswanathan:

There is this beautiful large plant in the garden. It has access to water, nutrients & abundant sun light. But, with all its rich resources, it is unhappy. Because it was not able to attract bees and birds to it. Thus, it started growing beautiful flowers with nectar. It took a lot of effort to make it colorful and with nectar. But, it was worth it as a bee comes and sits on it.

Unknown the bee, it was also carrying pollen from other plants. If the bee happens to land on the pistil of the plant, the pollen could mix with its female counterpart and germinate. This germination produces the offspring of the plant. It then develops a nice, tasty, colorful fruit around this seed that then attracts the birds. These birds then eat the fruit and deposit the seeds in random places. Some of these seeds grow up to become great plants.

A new cycle begins.

Foreign investment & bees

When it comes to foreign investment, there is a lot of misinformation, unnecessary bravado with over anxiety. Imagine the nations as plants and the investors as honey bees.

Even a plant with no nervous system could understand that life is a trade.
It knows that the forager bee comes to suck its nectar. It knows that the honey bee is selfish & would not come to it without the nectar. In fact, the plant makes a super attractive flower just to attract the bee. Why? Because, the bee contains pollens from other plants.

In the same way, investors from other parts of the world contain critical ideas & concepts that we might not have. When those concepts combine with our pistils/strengths new businesses & markets germinate.

For instance, when GE came to do business with India in 1989 it was forced to set up a new outsourcing office by the Indian government. Unknown to GE, it was carrying best practices learned from US, Europe, Japan and other countries. As it setup the outsourcing base in Bangalore, other local companies started learning them. Many employees of GE quit and joined these companies. Some became entrepreneurs. 10 years later, a whole forest was created out of that little pollen. Out of nowhere, a nation known for poverty was now building complex software.  In India's Outsourcing Boom, GE Played a Starring Role

We are moving on to the next stage. Quick question: Which of these core players in the Indian startup industry have had key foreign investments? (Hint: All of them)

Spread your seeds

After the pollination, a fruit is created with a seed inside. Birds get attracted to this juicy fruit and start picking them. In the same way, investors get attracted to profits. Some investors even take profit out of the country, just like a bird takes the fruit out of a plant.

Should the plant worry that the fruit is taken?

That would be silly. Fruits are meant to be shared & has little use for the plant. In the same way, profits are meant to be taken. What the plant has to worry is spreading the seeds & getting a lot of new growth. In the same way, India has to worry about getting its people high paying jobs, having a fast growing economy & being a nation of innovation.

 Hindustan Lever has created a whole network of consumer products & help a variety of rural entrepreneurs get commissions through sales. It has also enriched consumers with product concepts and also helped other entrepreneurs grow by imitating it. Hindustan Lever might take some of the profits out of India, but worrying about it is as silly as a plant worrying about the fruit being taken. Worry about getting your seeds grown into plants & plants into forests.

Project Shakti | Sustainable Living | India

Create protection mechanisms

Of course, not all things attracted to the nectar and the fruit are helpful creatures. Some unnecessary insects also attack the flowers. The plant then creates defensive mechanisms to ward off the threats. To make sure the birds throw away the seeds, it makes it bitter & indigestible.

In the same way, regulators must create protection mechanisms to attract the right companies and make sure they spread the seeds of growth.

See economy as an interconnected ecosystem

As kids we read about beautiful ecosystems and how the insects, snail, plants and the frog are all connected. Everything needs every other thing. Nothing is or can be completely independent.

National economies are complex organisms in this beautiful ecosystem. No nation can stay alone. They all depend on each other. That is the beauty of life.

Foreign investment and trade are parts of interaction with the rest of the ecosystem.

Summary

Even a plant with no nervous system could understand that life is a trade. It sets up a trade with the foraging honeybee giving up nectar for the pollens. But, some of us humans have a very tough time understanding this basic thing in life. Even the biggest tree in the forest needs other other organisms to thrive. Does foreign investment help? Ask the plants.

Is foreign direct investment bad or good for India's economic growth? If so, why?

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