"An investment in knowledge pays the best interest". Does it really quote any latest reference to FDI? Yes it is, in a growing country like India, that is world's 3rd largest it plays a major role in the growth of economy.
In a country like India where there is a need of surplus funds in the sectors like insurance, defense, banking ,retail etc. Domestic Direct Investments are inadequate and forex is required. Moreover in India if funds are available either they suffer from mis - allocation or under utilised money due to lack of ineffective policies.FDI is beneficial in India as it brings a temporary measure during the period when capital market is under development and also productive factors like technical know how, business expertise and knowledge.
FDi can't be regarded as good or bad. As, the FDI quality matters. It both act as an asset and liability. If it is producing and consumable products 'tis an asset . If it is repatriable, it is termed as an liability. So , it is kind of debt inflows.
As demand the forex is either for value addition or consumption to economy in terms of infrastructure , technology defence etc. For consumption it cannot be good but in value addition it will result in in competition in the global market and also strengthen the domestic industry by exposing it to better technology.
For instance, if we compare FDI in defence and insurance. As FDI in former will increase capacity and capability of domestic defence industry with advanced technology and warfare provided that government should not import obsolete technology, as it cannot be compromised. FDI in defence is much needed as it is a value addition to this sector.
on the other hand, insurance is consumption sector. In India both insurance density and penetration is less. So , in no way raising the insurance cap will help, because it needs general awareness of the insurance mainly in rural areas, where they there is low saving and no investments in premiums. The insurance is only popular in urban areas. So if FDI cap is increased foreign players will only focus on urban centres as they operate of profit motive. This will further result in in increasing the gap between urban and rural areas. Government needs to build a proper road map for this.
FDI may act as a disadvantage to the small industries who fear that they can lose their ownership to overseas companies. They also fear that they may not compete with the global players. In fact, the government also don't have control over such companies as they work as a wholly owned subsidiary of the overseas company.
Government need a proper layout map for the FDI to look into each and every sectors so that it benefit directly or indirectly the en - mass e.