¶ … respect to macroeconomic variables, was India an attractive site for foreign direct investment in 2012?
India has become one of the most attractive prospects for long-term economic foreign investment. According to Ernst & Young, despite an overall softening economy during the 2011-2012 economic period: "India remained very attractive for FDI in 2011. FDI projects increased by 20% in India in 2011, attracting 932 projects, which created an estimated 255,416 jobs" (Ready for the transition, Ernst & Young: 4). In fact, the economic uncertainty may have actually worked in India's favor. India is widely regarded as a place which has a technologically astute, highly trained workforce. Labor costs are low, the government is open to foreign investment in terms of its legal infrastructure, and the workforce is culturally attenuated to the attitudes of the West. The fact that English is the language that unites India is another bonus factor. "Investors came to India to find growth opportunities for their business and the possibility to operate at lower cost…India's massive and growing domestic market" was said to be the main draw in a survey of investors and 45% of respondents said that they "see India as a highly cost-competitive location" (Ready for the transition, Ernst & Young: 4).
India's main competitor is clearly China but China does not have the advantages of an English-speaking populace. Also, it has incurred negative publicity in regards to a number of safety scandals regarding products manufactured there, including toys and dog food. India has fostered a great degree of confidence in its investors: 29% percent of investors stated they still believe India would continue its rapid growth into the new millennia and "see India as one of the world's leading destinations for shared service centers (27%) and manufacturing (25%)" (Ready for the transition, Ernst & Young: 4).
However, possible objections remain: first of all, one of the aspects of Indian culture that hampered it for many years was its strong sense of traditionalism and its caste system. Despite all of its recent innovation, the Indian government and legal system has been taken to task for being insufficiently objective and modern its outlook -- corruption remains rife. "At least 42% of young Indians have paid a bribe, according to a 2012 Hindustan survey" to do business (Xu 1). Of course, this is not to discount the profound changes that India has made to improve its infrastructure. Infrastructure improvement is a critical factor for sustained economic development and attracting foreign direct investment (FDI). "If we ask a simple question such as, 'Why are some economies rich and others poor?' we get a simple answer: Rich economies have greater resources per capita -- more capital, both human and nonhuman, and better technology connecting the two. But this answer only begs another question: 'Why do some economies have high levels of capital and technology, while others do not?'" (Jordan 1). India has been building its resources -- both its physical resources but also more critically its human resources. Access to technologically sophisticated education has expanded and there has also been a revitalization of entrepreneurship in the nation.
India's government, although not without its regulatory problems, has also pursued fiscally sound policies to quell investor fears. Because of concerns about rising inflation and unemployment, "the Reserve Bank of India (RBI) is undertaking a policy to drain excess liquidity from the financial system and has raised interest rates by over 350 basis points since the beginning of January 2010 to curb rising inflation. In December 2011, inflation fell below 9% for the first time in the last 12 months" (Ready for the transition, Ernst & Young: 4). One of the risks of a sharp increase in growth is a corresponding increase in inflation and combined with high unemployment, the results can be deadly for a fragile, developing economy. The RBI has thus taken aggressive measures to ensure that India's economic improvement is not a mere anomaly, but builds upon its current...
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