Fdi in India

After the liberalization and simplification of the FDI policies in some sectors, including retailing, India became the leading country in the world for FDI, which can bring a lot of advantages for the country but also a lot of challenges that need to be managed and overcome.

Starting with the advantages of attracting FDI to India, since Indian retail industry is one of the fastest growing in the world, it is very important that MNCs disperse knowledge through the local economy in order to create competitiveness, diversify production and especially allow the local workers and suppliers to learn new and more efficient methods of producing. This has a lot of relevance since the textile sector is one of the largest contributors to India’s exports, so being efficient is a success factor to grow even more. Besides, employees and suppliers are not the only ones that will benefit from this spread of knowledge, the local consumers will also benefit from it due to the improved service and market competition that lead to higher quality of the goods and services, low prices, new ideas and the usage of a modern, fast and efficient technology. Therefore, companies can multiply their product ranges and create new appealing styles, shapes and forms in order to satisfy a more western or traditional culture, both present in India nowadays. Besides this, FDI helps not only in an increase in GDP - 7,6% in 2016 -, but also in an increase in India’s standards of living (400 million still live in poverty): more jobs, which is crucial for India because it needs to create tens of millions jobs per year due to the population’s density and age structure (65% is below the age of 35); increase in the disposable income; and improvements in the health care and education, in which there are big differences between the rural and urban area and the public and private system.

Therefore, in order to take advantage of these benefits, India should offer some incentives to attract FDI such as reduction in its corporate taxes – in 2016 it was the third country with the highest corporate tax rate; tax holidays, especially since the exemption of MAT and DDT in the SEZ were withdrawn; accelerated depreciation and exemption from import duties, for instance, in the non-conventional energy sector (huge part of FDI in India); and export incentives because India needs export-oriented FDI.

However, there are also some challenges of attracting FDI to the country. The first one is related with the cultural differences between India and the MNCs. The Indian culture is very strong and complex and it

involves a lot of conservatism, which can lead to cultural shocks and it can create a judgemental behaviour and social exclusion. Actually, although younger women are more open minded to wear western clothes, there still are many Indians loyal to traditional dress, which can be a barrier for MNCs to invest in India. Besides this, other challenge is India’s lack