The following article from the Financial Times Lex column is worth a read.... please post your comments.
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For a country once largely bypassed by foreign direct investment, India has had a good couple of weeks. Three technology multinationals, including Microsoft, unveiled plans to spend an aggregate $5.7bn. The financial services sector continues to stake out Indian ground: Fortis, the Benelux bancassurance group, is the latest to try and secure a joint venture.
Meantime, survey compilers are falling over themselves to promote India up the FDI league tables: last week A T Kearney ranked the country second only to China. Given China’s $60bn of FDI last year – or 120 times India’s – that is a big leap. The question is no longer whether or not India can secure FDI, but how productive those dollars are.
Investment in call centres and knowledge-based industries is certainly benefiting the economy. Domestic consumption is booming, more workers are included in the organised sector and the tax coffers are growing. More than 2m additional income tax payers have fallen under the net so far this fiscal year, according to the finance minister.
Less helpful, however, is the impact on employment. Hi-tech and financial services investment play to the educated elite. That pool is relatively shallow: hence inflated salaries and staff poaching. A report co-authored by McKinsey, which listed insufficient labour as investors’ biggest concern, estimates the IT industry faces a shortfall of 500,000 professionals by 2010. Meantime, India’s rank-and-file workers barely get a look-in: over half the labour-force is employed in agriculture, while 40 per cent of the population are illiterate. Even though the inflows are growing rapidly, the impact of FDI has its limits.
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