Fdi in Defense

FDI. The effect of labour market rigidities and labour cost however is more pronounced for the export oriented FDI as compared with the domestic market seeking FDI. It is therefore evident that beside promoting the other factors, India will have to attempt to exploit its comparative advantages in the labour intensive sector before they get eroded.   Wages in India are low but as mentioned by a Japanese businessman , its labour is costly. Due to stiff political opposition any major change in labor laws may be ruled out. However, the government would do well by concentrating on reforms in the export sector. This may not attract wide publicity but would be effective nevertheless. It is documented in the literature that export oriented FDI may have greater spill over effects also. Export oriented FDI has favourable externalities of information on export potential for domestic firms beside transfer of best technology to the host country.   The government may therefore do well by focussing on attracting export oriented FDI. It is generally argued that the difference between India and China is not substantial in attracting FDI when adjustments for GDP differences are made. If corrected for measurement bias, the ratio of FDI to GDP would be 1.7% in India and 2.0% in China (Pfefferman 2002, see also Kumar 2004). The difference is however huge in terms of   export oriented FDI. In China the proportion of exports contributed by MNCs is over 50% while it is 6%-7% in India (UNCTAD, 2002).   One may therefore argue that FDI is largely behind China‚Äôs emergence as a manufacturing hub of the world. One of the reasons why India has performed poorly in attracting export oriented FDI could be the labour market rigidities. Our study here has shown that efforts to introduce labour reforms in this sector may prove to be highly effective. There could be a cautious attempt to introduce these reforms. The Taskforce on employment opportunities (Government of India, 2001) headed by Montek Singh...