FDI in India - An Ethical Dilemma?.

On saturday night, i was watching the santosh sivan directed malayalam movie - "urumi".  Along with the breathtakingly beautiful cinematography(as one would expect of Santosh Sivan), the story of Kelu nayanar who challenged Vasco Da Gama and the Portuguese supremacy unfolded.Well, this post is not about writing a review of the movie - though i liked the movie. It had been refreshingly different. But what i want to write about is the message that the director has tried to bring out through this well crafted film.  Till saturday evening, i had been a vehement supporter of FDI in India. But this film had succeeeded in planting a doubt or two about it!.

The movie speaks about how portuguese, who came to trade with us slowly became our masters.So was the case with British. The movie ends with a modern day analogy where in we allot land to foreigners to come and set up their factories here. This is exactly what has been  the centre of debate ever since the Korean giant POSCO tried to open its steel plant in Paradeep,Orissa. It is the single most largest FDI ($12 billion) in India till date. So the pro-development people have argued that such a step is important to increase our forex reserves as well as to induce growth for our economy. But questions have been raised about its environmental impact (the plant requires deforestation of huge amout of forest land) and also about the concerns of villagers who will be forced to move out of this area.

Obviously Santosh Sivan views the FDI as a necessary evil, where we pave way for foriegners to establish their supremacy once again. So now i have 2 doubts - is FDI an evil in itself?. Or is it the way we implement it(not providing rehabilitation programs for the poor people displaced) that is evil?.

I tend to agree with the second , where as the director's stand is the first. Ofcourse, the story has cunning politicians and multi national companies, who are only interested in maximising their own profits. But that should not be a reason for us to shoe them away. We should have good government policies in place so that the people who come here for business do just that!. In the way , if they make profit well and good. But it helps our own economy, our own people.  This should not be at the cost of poor people losing their livelihood.

In the end, i think FDI is not an evil as such. The problem is with the intermediates trying to make mileage out of it. A good way to go about it will be to provide annuities to the poor people ( as a percentage of the profit that the company makes) and not just one-time compensation. A way should be there to factor in the value of land appreciation over the years. All these if properly implemented will be a win-win situation for both the foreign company and the poor villager displaced.

raghuram rajan and financial crisis....

I am a fan of  Raghuram Rajan , who predicted the Financial crisis before it happened. This he did while at a dinner party hosted to celebrate the retirement of alan greenspan, the then chairman of US Federal reserve, whom many hold responsible for his loose monetary policies which ultimately led to the financial meltdown.
He was the chief economist at IMF and now a professor of finance at booth school of business,chicago. He is also the economic advisor to the PM of India.

I purchased his book - Fault Lines from flipkart.com. They offered 40% discount!. To hell with bookshops in Bangalore!(who dont offer any discount > 10%). Thanks to excellent customer support from flipkart, i received the book the very next day and started devouring with great apetite from then next day..I am yet to complete the book , but from what i have read it promises to be provide a very good insight into the root causes - not just the superficial reasons as we know them - of the sub-prime crisis.

Ever after, when I hear his name mentioned in the newspapers or articles, i follow them keenly. Today I read another well analyzed aritcle at project syndicate - where he finds reasons on why the government stimulus packages have failed to lower the unemployment rates. As in his original book, he points out that the government policy makers fail to see beyond the surface.He advocates imparting "new-skills" to the construction workers who lost their job following the crisis as key to improving the employment rate. The unemployment rates cannot be lowered by increasing demand as thought of by the policy makers.

In another article , he ponders over why the economists missed predicting the crisis at all. His reasons are both intuitive and insightful.


Note - An excellent article by Paul krugman on the reasons for the financial crisis - explains very lucidly the keynesian and the new-classical school of thoughts...

consequences of arab revolts...

Was reading an interesting article on government handouts in Arab countries (to appease the people revolting) .
Came across this interesting quote -

"If a job is indeed productive, its output would be rewarded by other members of society who benefit from it, without the need for government subsidies and guarantees.The fact that government guarantees a job implies that its output is not wanted. Such jobs are a liability for society, not an asset." 


Should some of the politicians in Kerala ponder over this?.


I am referring to - this article at Project Syndicate.