Jitendra Soni & Kanad Bagchi discuss the ambiguity in FDI Policy.

ABSTRACT

Foreign Direct Investment is essential for any developing economy for two reasons. First, it brings much needed capital to the target country, on a long term basis to finance various big ticket projects, which is suitable for swift economic development. Secondly, Foreign Direct Investment by big Multinational Corporations is an important channel for the access to the most advance technologies by developing countries. Given this importance, a country to attract foreign investors should have incentives as well as safeguards in place to protect the investments. Incentives could be in the nature of high and consistent returns and a stable framework on economic and industrial policies. Safeguards are usually provided in terms of exit mechanisms including the most commonly used put/call options. This article is written in the backdrop of the recent decision by RBI to allow build-in options in FDI instruments subject to certain conditions. Mindful of the importance of FDI in the growth and development of any economy, the authors in the present article critically analyze the proposed policy framework as suggested by the RBI and the Government. In this process, the article also addresses some of the ambiguities and uncertainties in the proposed framework. It is submitted by the authors that certain clarifications are imperative so as to make the policy comprehensible and coherent.