Justify the need for FDI for the development of the Indian economy. Why there is gap between MOUs signed and actual FDIs? Suggest remedial steps to be taken for increasing actual FDIs in India.

Justifying the Need for FDI in the Indian Economy

FDI is essential for India’s development due to several reasons:

• Capital Formation: FDI augments domestic savings and capital formation, crucial for infrastructure development and industrial expansion.
• Technology Transfer: FDI brings advanced technologies, management practices, and skills, enhancing productivity and competitiveness.
• Employment Generation: FDI creates direct and indirect employment opportunities, contributing to poverty reduction.
• Export Promotion: FDI can boost exports by establishing export-oriented industries and integrating India into global value chains.
• Infrastructure Development: FDI is vital for financing large-scale infrastructure projects in sectors like roads, ports, and power.
• Economic Growth: FDI contributes significantly to India’s GDP growth. According to DPIIT data (as of November 2023), India received USD 71.37 billion FDI in FY23-24.

Reasons for the Gap Between MoUs and Actual FDI

A significant gap exists between the MoUs signed by the Indian government and the actual FDI inflows realized. Several factors contribute to this:

• Lack of Project Preparation: Many projects lack detailed feasibility studies, land clearances, and environmental approvals, delaying implementation.
• Infrastructure Deficiencies: Inadequate infrastructure, including power, transportation, and logistics, discourages investors.
• Bureaucratic Delays & Red Tape: Complex regulatory procedures, bureaucratic hurdles, and lengthy approval processes create uncertainty and increase costs.
• Land Acquisition Issues: Difficulties in land acquisition due to legal challenges and social unrest hinder project implementation.
• Policy Inconsistency: Frequent changes in policies and regulations create uncertainty for investors.
• Global Economic Conditions: Global economic slowdowns, geopolitical tensions, and currency fluctuations can impact FDI inflows.

For example, despite numerous MoUs signed in the manufacturing sector, actual investments have been lower due to land acquisition challenges and infrastructure bottlenecks.

Remedial Steps to Increase Actual FDI

To bridge the gap and attract more FDI, the following steps are crucial:

• Streamlining Approval Processes: Implement a single-window clearance system for all approvals, reducing bureaucratic delays. The PM Gati Shakti National Master Plan aims to address this.
• Improving Infrastructure: Invest heavily in infrastructure development, particularly in transportation, power, and logistics.
• Land Reforms: Expedite land acquisition processes through transparent and fair compensation mechanisms.
• Policy Stability: Ensure policy consistency and predictability to build investor confidence.
• Project Preparation Facilities: Establish project preparation facilities to assist in developing bankable projects with detailed feasibility studies.
• Investor Facilitation: Strengthen investor facilitation cells to provide handholding support to investors.
• Focus on Ease of Doing Business: Continue reforms to improve India’s ranking in the World Bank’s Ease of Doing Business index.
• Promote State-Level Reforms: Encourage states to implement investor-friendly policies and improve their investment climate.

The Production Linked Incentive (PLI) scheme is a positive step towards attracting FDI in specific sectors, but its effectiveness needs continuous monitoring and improvement.