MODI's FDI; Fear Directly Ingested.

Yesterday, afternoon the government of India announced the further liberalization Foreign Direct Investment (FDI) in many sectors and for those sectors which already had FDI the cap of investment was increased. The decision included 100% FDI in Defense, further to boost the Pharmaceutical industries a 74% increase was announced and 100% in Civil Aviation as well. The decision helped the Sensex to close at 241-point high presenting that the decision was welcomed by the market and all the other investors.

However, we must be critical of these decisions, they should be appreciated, but we must also be a bit investigative about the manner in which these steps should be implemented. If the government fails to put in a regulatory mechanism in place, we would end up putting every one of the Indian investors into jeopardy. Lack of regulations, were the main reason for the 2008 Global Economic Recession. This recession without any doubt was caused by the United States’ stock market and gigantic investment banks such as Lehman Brothers, Bear’s and Stern, JP Morgan Chase and Goldman Sachs-to name a few.

 Banks had drooled out loans to the common public at 1% rate of interest. Banks started to give out home loans and other loans to even those who couldn’t even understand English. These banks then started to sell these mortgages to investment banks (Mortgage Backed Security-MBS)  who restructured them into stocks and then sold them to them to investors all over the world. When these same investment bankers realized that these MBS were going to fail they started to bet against their own products. The aforementioned fraud took place purely because there were no regulations enacted by the Federal Government of the United States.  

To provide an example, absence proper regulation with the help of greed driven Bankers and Politicians, a country like Iceland who had never seen a recession, went bankrupt. Without due regulatory bodies many believe that Indian Politicians would end up taking the whole country public, this maybe a slight exaggeration but our politicians never fail to surprise us. Private investors and private cooperate entities are driven by profit and nothing else. To avoid the destabilization of this country which, undoubtedly remained strong during the time 2008 global meltdown will not be able to sustain an attack on its economy from within its own territory. The increase in foreign investment should always be studied and analyzed not as it stands but who will it react after few years down the line. But, rather than scrutinising the money we must scrutinise the Investor itself. Consequently, investigation of the investor would provide a better understanding of the intentions behind the investment. Undeniably, the major intention behind every investment remains profit, but the question that still has gone unanswered is – Profit at what cost? Corruption being systemic in India but not endemic can prove our worst fear true ramifications of which would be greater than anything the world has ever witnessed. For history has taught us something repeatedly; nothing is too big to fail.