The paper discusses the implications of trends and patterns in foreign direct investment and of policy and structural changes for foreign direct investment in India in the 90s. Though high economic growth in the 1980s combined with the liberal policies towards FDI introduced in 1991-92 are likely to cause an increase in FDI inflows in the 90s, the government’s expectation of inflows worth $ 4 Billion are unfounded. Inflows anywhere near that level can be achieved in the remote possibility that India achieves 'high speed growth', which itself requires agriculture to grow fast at about 5 per cent. Even so, the inflow of FDI in the service sector, especially financial services, is expected increase in the 90s as an extension of the development of the 80s. FDI's role in manufactured exports is likely to be small. However, the decline in the bias against exports due to a liberalized regime could facilitate manufactured export growth though the means of international subcontracting by foreign firms. International subcontracting could take two forms; (1) Purchase by retail and chain stores and (2) Original Equipment Manufacturing (OEM) arrangement. OEM arrangements could greatly help to use the large under-utilized capacities in engineering and other industries, reduce costs continuously, ensure equalized wage-productivity growth, and increase subcontracting between large and small industry. Though there are tremendous prospects for OEMs and international subcontracting, OEM exports and subcontracted products are virtually non-existent, mainly due to lack of attention in terms of policy. Given that wide diversification of the economy, the low cost of manpower, availability of a wide variety of skills, and large excess capacities, this aspect is vitally important for Indian manufacturing. It can provide the scale of output to segments of Indian manufacturing which are most competitive, so that a significant contribution to the extensification of growth is made.
Prospects For FDI And Multinational Activity In The 90s
Author : Sebastian Morris