How long should India seek foreign investment for its economic development


For fast economic development of the country, India should open up its economy fully to foreign investment. But this should be a short term strategy. For long term sustainable development, India should develop technology, encourage Indian companies to invest abroad and export technology. India, being a large country with a population of over 1250 million should not be a regular importer of technology. According to World Bank data Finland with a population of about 5 million has over 7000 researchers per million of population. That is why it is able to develop, utilise internally and export new technology. China has about 1000 researchers per million of population. But India has only about 160 researchers/million of population. India should give top priority for increasing this number at least to the level of China viz 1000/million of population. This is what, India should do to become a developed country. Its dependence on other countries for technology should gradually decline. For sustainable development India should depend on R & D and not on foreign investment.


Indian Projects- no need for foreign loans


There is news that India will get a loan of $160 million from World Bank for modernizing roads in Rajasthan. When the money is received by India, the equivalent amount of Rs.996 crores will be brought into circulation in India. It may come from the reserves and /or from printing currency notes. Roads can be modernized without importing any material from abroad or in other words there is no need for foreign exchange for the project. Only Indian Rupees is needed and this is available in India or can be printed. Inflation will be there whether loan is taken from World Bank or the Indian currency is released into circulation without taking loan in foreign currency from abroad. So in cases where imports are not required for projects loans should not be taken from abroad and the required amount should be loaned by Reserve Bank of India.

G-20 and World Economic Recovery


Leaders of the G-20 countries have met 3 times in the last one year to discuss ways and means of overcoming the world economic slow down. However, these countries including the rich countries such as the US, Japan and Germany and the emerging giants such as China and India have not fully succeeded in their efforts to overcome the economic and financial crisis in their own countries though they may finally succeed soon. The rest of the world should not look to the G-20 countries to help them fully recover from the crisis. The rich countries can help the poor countries only to a certain extent. Every country should in its own way find ways to recover from the crisis.

The simple solution for any country to register GDP growth is to increase production of goods and services. For this, governments should provide opportunities to all the people – including children above 14 or 15, women, handicapped and old people – to work according to their abilities. In fact, in difficult times, people should work longer (than the normal 8 hours, perhaps 10 hours a day) and harder to further increase production of goods and services.

Bringing in more liquidity i.e. bringing in more money into circulation is necessary to stimulate the economy but if this is not preceded or immediately followed by increased supply of goods and services, the economy would not grow. On the other hand, there would be increase in prices which in turn will lead to cut in production and negative growth in GDP. Money should be put into the hands of the people, after taking work from them.  Embarking on additional welfare measures like extending financial and material assistance, waiver of loans, fees, charges, etc. will only help people to temporarily face the effects of recession but will not revive the economy. Ultimately, it would deepen the economic crisis.

Since there is greater scope of employment generation in developing countries than in developed countries, developing countries are in a better position to recover from economic and financial crisis earlier than in developed countries.

It would be helpful if World Bank and IMF could advise countries, particularly poor countries to gradually reduce grants and subsidies and provide opportunities for all people to work. Increase in production of food, clothing and housing should get priority in poor countries.

Loans from International Organisations


There is news that the Government of India is seeking a loan of US$3 billion or Rs.15,000 crores from World Bank for converting about 6,000 kilometers of single-lane national highways into two-lane highways.

For road works foreign exchange is not required too much. If the government wants money in Rupees, it can raise loans in India itself. If it difficult to raise loans from the public, it can borrow from Reserve Bank of India (RBI). If RBI has any difficulty, it can create a special purpose fund by printing currency and lending to the government. The amount can be recouped over a period of time, say 10 or 15 years.

If the government wants some quantum of foreign exchange, it can withdraw from the country’s foreign exchange reserves. These reserves are over $260 billion and have been deposited in foreign government bonds and in foreign banks yielding very low interest.

Thus, there is no need to seek loan from World Bank or any other international organizations.