The Dance of Economics

 Economics, the science of choice,

The guiding force of all our lives.

It governs what we buy and sell,

And how we work to earn our wealth.

From the smallest transactions made,

To the grandest plans that we have laid,

Economics shapes our every move,

And influences our every groove.

It's in the prices that we pay,

And in the wages that we earn each day.

It's in the resources that we use,

And in the products that we choose.

Source: www.google.com

Economics is not just a subject,

It's a way of life that we project.

It's the way we allocate our time,

And how we make our lives sublime.

It's the measure of our prosperity,

And the key to our economic destiny.

It's the study of scarcity and choice,

And the foundation of our economic voice.

So let us embrace economics,

As we navigate life's tricky tricks.

For it is a subject that we all know,

And a force that we cannot forego.

Siya Sardana B.A. Honors Economics (batch 2020-23), Department of Economics, Faculty of Behavioural and Social Sciences (FBSS), Manav Rachna International Institute of Research and Studies (MRIIRS), Faridabad, Haryana. sivya13022002@gmail.com

Brain Drain from India

 Abstract

Brain drain, or the emigration of skilled and talented individuals from their home country to seek better opportunities abroad, is a major concern for the Indian economy and society. India has been experiencing brain drain for several decades now, with a significant number of its skilled workforce leaving the country in search of better job opportunities, wages, and career growth. This research paper aims to explore the causes, effects, and solutions to the problem of brain drain from India. Through an in-depth analysis of literature and statistical data, the paper discusses the reasons behind brain drain from India, its impact on the Indian economy and society, and the policy measures needed to address the problem.

Introduction

Brain drain from India is a complex phenomenon that has significant implications for the country's economy, society, and development. India is known for its large pool of skilled and talented individuals in various fields such as engineering, medicine, and information technology. However, in recent decades, India has been experiencing a significant brain drain, with a substantial number of its skilled workforce emigrating to other countries. The loss of talent and skills due to brain drain has several negative implications for the Indian economy and society. This research paper aims to explore the causes, effects, and solutions to the problem of brain drain from India.

Source: www.google.com

Causes of Brain Drain from India

One of the main reasons for brain drain from India is the lack of adequate job opportunities and career growth in the country. The Indian job market is highly competitive, and there is a limited number of high-paying jobs available. This leads to frustration and dissatisfaction among skilled professionals, who seek better opportunities abroad. Another factor contributing to brain drain is the low wages and benefits offered in India. Skilled professionals can earn significantly higher salaries in other countries, making it an attractive option to emigrate.

Another major cause of brain drain from India is the political instability and corruption in the country. The Indian government has been criticized for its inability to create a stable and supportive business environment, which has led to a lack of investment and job creation. Additionally, corruption in the Indian bureaucracy has made it difficult for skilled professionals to get the necessary approvals and permits to start or grow their businesses.

Effects of Brain Drain from India

The effects of brain drain from India are far-reaching and have significant implications for the country's economy and society. The loss of skilled professionals and intellectual capital due to brain drain has led to a shortage of talent in various sectors, which has affected the overall growth and development of the Indian economy. The impact is particularly severe in the fields of healthcare, education, and research and innovation. Brain drain has also led to a brain gain for other countries, particularly in the West, who benefit from the skills and talents of Indian professionals. This has led to a loss of income for India, as the country loses out on the economic benefits of its skilled workforce.

Solutions to the Problem of Brain Drain from India

Several policy measures can be taken to address the problem of brain drain from India. One of the most important measures is to create a supportive business environment that encourages investment and job creation. The Indian government can also increase wages and benefits for skilled professionals, which would make it more attractive for them to stay in the country. Another important measure is to invest in research and innovation, which would create new opportunities for skilled professionals and provide them with the necessary resources and support to grow their businesses. Additionally, the Indian government can provide more support for entrepreneurship and start-ups, which would encourage skilled professionals to stay in the country and create new businesses.

Siya Sardana B.A. Honors Economics (batch 2020-23), Department of Economics, Faculty of Behavioural and Social Sciences (FBSS), Manav Rachna International Institute of Research and Studies (MRIIRS), Faridabad, Haryana. sivya13022002@gmail.com

Reason for Failure of Make in India

Introduction

Make in India is the flagship program of the NDA government to improve the domestic manufacturing industry and attract foreign investors to invest in the Indian economy. India is set to be the third-largest consumer economy, with consumption expected to triple by $4 trillion by 2025. The Make in India campaign invites developed and developing countries to come to India and invest their money in India's future. The government must work to make it happen. This article tracks the nature of the effects of the Make in India movement on the Indian economy and also attempts to develop some recommendations for the government based on the projections and shows the future of the campaign. The Economic Census 2012-13 found that the manufacturing sector slowed down to 2.7% in 2011-12 and 1.9% in 2012-13, compared with 11.3% and 9.7% in 2009-10 and 2010-11. This Indian government initiative promotes the domestic manufacturing industry and attracts foreign investors to invest in the Indian economy. The growth target of the manufacturing sector is 12.14% per year and the share of the manufacturing sector in the country's gross domestic product (GDP) to 25% by 2022. The ambition is to make the country a self-sufficient India for young entrepreneurs and create 100 million jobs by 2020. This project includes programs such as Project Bharatmala, Project Sagarmala, Transport Corridor, industrial corridor, UDAN etc. This will boost India's manufacturing sector. 25 global sectors have been added for the benefit of energy, railways, infrastructure, defense, automotive, and many more sectors. The basic idea of this program is to encourage multinational and national companies to manufacture their products in India and also to facilitate investment, encourage innovation, improve skills development and build the best infrastructure of class workmanship in the country. The basic idea behind this program is to make India a manufacturing hub just like China. The Make in India program is vital to India's economic growth as it utilizes existing talent, creates job opportunities, and strengthens its manufacturing sector and its allies. 

Source: www.wikipedia.org

Reason for Failure

First, Make in India relies on foreign capital to invest in global markets and production. It lacked built-in reliability because it had to schedule its production according to the supply and demand situation. Second, too many sectors have collapsed and lost political focus. Moreover, most of India's key sectors lack domestic comparative advantage in the national economy. Third, policymakers were more concerned about the double deficit, including budget and current account deficits. But they ignore the lack of execution in the economy. This created a scenario where we found a breakthrough in performing our business rankings. Fourth, some of the causes of the investment crisis can be attributed to the declining savings rate of the economy and the NPA crisis in the banking sector. Fifth, the annual growth rate of Indian industrial output in FY 2021 was about 8%. Expectations for construction could significantly overestimate India's industrial manufacturing capacity. Sixth, uncertainty in the global economy. Over the past six years, the world has had to deal with four major “shocks of uncertainty”. The first is Brexit in 2016, followed by the US-China Cold War, the Corona 19 Pandemic, and the Ukraine War in 2022. Trade protectionism has risen, damaging economic growth and prosperity. Finally, India, one of the largest FDI destinations in the world, attracted $100 billion in FDI in fiscal 2022. However, the inflow of foreign direct investment tends to flow into the capital market. FDI to manufacturing in 2022 was only about $21 billion. 

Challenges 

• Investments in shell companies: Much of the FDI in India, comes from Mauritius-based shell companies suspected of investing in black money from India via Mauritius. 

• Low Productivity: Indian factories are low in productivity and workers are inadequately skilled. According to a McKinsey report, Indian manufacturing workers are, on average, four to five times less productive than those in Thailand and China. 

• Small Industrial Units: Industrial units are small in size to achieve desirable economies of scale, invest in advanced equipment, and develop their supply chains. 

• Complex Labor Laws: One of the main reasons for a small business is the complex labor laws of a facility with over 100 employees.

• Investments in shell companies: Much of the FDI in India, although neither foreign nor direct, comes from Mauritius-based shell companies suspected of investing in black money from India via Mauritius.

• Low Productivity: Indian factories are low in productivity and workers are inadequately skilled. According to a McKinsey report, Indian manufacturing workers are, on average, four to five times less productive than those in Thailand and China. 

• Small Industrial Units: Industrial units are small in size to achieve desirable economies of scale, invest in advanced equipment, and develop their supply chains. 

• Complex Labor Laws: One of the main reasons for a small business is the complex labor laws of a facility with over 100 employees. The Labor Disputes Act of 1947 required government approval before dismissing an employee, and the Contract Labor Act of 1970 required government and employee approval for simple changes to an employee's job or duties. demand. 

• Infrastructure: Electricity prices are about the same in India and China, but outages are much higher in India. 

• Transportation: Indian railways are overloaded and Indian ports are worse than many Asian countries. 

• Bureaucracy: Bureaucracy and corruption make India less attractive to investors. India has made progress in the World Bank's Ease of Doing Business (EDB) index but still ranks 77th out of 190 countries. Although the EDB ranking improved, the Make in India campaign was unable to increase production over domestic production. India is ranked 78th out of 180 countries in Transparency International's Corruption Perceptions Index. It is very difficult to secure land for factory construction here. India fell 10 places in the Global Competitiveness Index compiled by the World Economic Forum (WEF) held in Geneva recently. 

• Improper rules and regulations: Labor reform and land acquisition laws have not been finalized while attracting foreign investors to invest in India to support Make in India. Going forward, India will face another external challenge in the form of capital flight. Net capital outflows soared as the rupee fell from $54 in 2013 to over $70 in 2019, exacerbated by higher oil prices. 

• Lack of standardized guidelines: India has few guidelines to support Made in India initiatives. As a result, Make in India's track record and entrepreneurship development programs are incompatible. More work needs to be done globally to make Indian businesses more relevant to global businesses and stakeholders in the global economy. 

Way Forward

First, Make in India initiative has been working to ensure that the country’s business ecosystem is beneficial to the investors doing business in India and contributes to the growth and development of the country. This was accomplished through a series of reforms that resulted in increased investment flows as well as economic growth. Last, with this leading initiative, Indian companies aim to ensure that "Made in India" products are also "Made for the World", complying with global quality standards. The manufacturing industry has been sick and neglected for years in its development. This initiative was launched to revive the manufacturing sector. Most importantly, it is credibility that instills confidence in India's ability in the global investment community. Over the past five years, the government has launched several initiatives to support Make in India initiatives such as Strat up India, Sagarmala, Skill India, Smart Cities, Digital India, etc. to make India a global manufacturing hub and improve ease of doing business in India. However, as ambitious initiatives like Make in India typically have long and short maturation periods, it may be premature to evaluate these initiatives. In this context, Make in India should be backed by structural reforms such as streamlining land acquisition procedures, review of labor laws, etc. Bridging the implementation gap could be the first step in this direction. 

References 

•Amit Singla (2017), Make in India: A Major National Initiative to Build Best-in-Class Manufacturing Infrastructure (A Conceptual Analysis), International Journal of Engineering Research & Technology (IJERT).

•Annual Report 2021-22, Ministry of Micro, Small and Medium Enterprises, Government of India.

• Ashish Saxena and Raj Kumar Tomar (2017, June), Make in India: Issues and Challenges, international journal of Science Technology and Management.

 • Dr. Bulla Thirumalesh and B. Bhagyalakshmamma (2020, September), Make in India Advantage, Disadvantage, and Impact on Indian Economy. 

 • Dr. Satya Narayan Misra and Mr. Sanjaya Ku. Ghadai (2015), Make in India and Challenges before Education Policy. • Dr. Aftab Anwar Shaikh and Eram Khan (2017), Make in India Campaign – Pros, Cons, and Impact on Indian Economy. Pune Research Time- An International Journal of Contemporary Studies. 

 • Ms. Sunita Sanghi and Ms. A. Srija (2015, August), Make in India and the Potential for Job Creation, Confederation of Indian Industry. 

 • Rahul Anand, Kalpana Kochhar, and Saurabh Mishra (2015) Make in India: Which Exports Can Drive the Next Wave of Growth? International Monetary Fund. 

 • Veenu Kumar and Seema (2020), Make in India: Impact on the Manufacturing sector, International Journal of Creative Research Thoughts (IJCRT).

Ritesh Bhurse, M.A. Economics (batch 2021-23), Department of Economics, Faculty of Behavioural and Social Sciences (FBSS), Manav Rachna International Institute of Research and Studies (MRIIRS), Faridabad, Haryana. bhurseritesh@gmail.com

Does Foreign Direct Investment Crowd-In or Crowd-Out Domestic Investment? A Case Study of Emerging Economies

Introduction

Investment is a tool that raises the standard of living for a nation’s citizens and promotes growth. Identifying these factors is one of the biggest challenges in the modern economy. To put it simply, technological knowledge must constantly improve to create new products, markets, or processes that will promote growth. The domestic market comes up with a lot of investment. But after a certain period of time, the domestic investment starts to fade away due to several reasons, where the major reason is the lack of new technology and new skills and implementations. When governments want to grow their domestic economy and drive new technology, business expertise, and capital to their nation, they work to promote FDI.

Source: www.google.com

In economic literature history, there has always been a debate concerning the connection between domestic investment and foreign direct investment, i.e., whether FDI drives domestic investment away or drives it in. The flowchart below (Fig 1) depicts what happens after foreign investment enters the domestic market.

      Fig 1: Crowding-In and Crowding-Out effect of FDI

Source: Own creation 

In order to finance the development of new infrastructure, bring in new machinery and technology, and create jobs for their native workforce, nations have welcomed FDI, as shown in Fig 1. The most obvious benefit of FDI is the creation of employment, which is one of the main reasons a country (particularly one that is developing) will want to entice FDI. FDI increases the manufacturing and service sectors, which leads to job growth and lower unemployment rates in the nation. Increased employment increases earnings and gives the populace greater purchasing power, which strengthens a nation's overall economy. Moreover, employee training and experience-based skills improves a nation's educational system and human resources. It has a cascading effect that trains human resources in other industries and businesses. The introduction of newer and improved technology leads to the diffusion of businesses into the local economy, resulting in increased industrial efficiency and effectiveness. Growing export sales bring in money and profits for enterprises, and through the acceleration effect, this can lead to a rise in capital expenditures. Increased investment boosts a nation's capacity for production, which in turn boosts export potential. For governments with few internal resources as well as those with few chances to raise money on international capital markets, inflow of cash is especially advantageous.

On the other hand, when productivity spill overs occur by the foreign investors, they crowd out the domestic market. FDI aids in the development of a competitive environment and the dismantling of domestic monopolies by allowing the entry of foreign businesses into the domestic market. A good competitive environment encourages innovation by pushing businesses to continually improve their operations and product lines. Additionally, customers have more access to a variety of competitively priced goods. Investors in FDI frequently hold controlling positions in domestic businesses or joint ventures and actively participate in their management. This pushes away the domestic market for the increased want of more lavish foreign goods at affordable prices. Referring to Fig 1, this further leads to a demonstration effect which is the tendency of consumers to copy the consumption patterns followed by others. Foreign companies sourcing locally may cause demand to decline due to stronger competition, or it may rise due to increased competition. The industrial linkage impact calculates how changes in one industry affects other industries' production (mainly the local industries) activity over a specific time period. During this time foreign investors create oligopolies and see at lower prices. International firms when competing with domestic investors tend to provide cheaper costs, better products and services, more options, and more innovation. However, the domestic investors cannot compete with the international investors, in fact the foreign investors start hiring skilled employers from the domestic market as well. This impacts the domestic market over time and the international markets dominate the domestic firm. 

When these FDI’s crowd-in domestic investments, then they act as a complement to each other, which initiates a healthy growth in the economy. Some domestic investments can be complementary because the more FDI’s in the economy, the more domestic investments as well. But as soon as the FDI’s crowd out the domestic investment, they act as substitutes for them. If substitutes rely more on FDI, then it will lead to repatriation of profit back to the origin, and furthermore causes foreign exchange risks to the domestic economy. 

Studies have revealed that since 2000, billions of dollars have been brought back to the United States. According to the Federal Reserve, firms brought back $777 billion worth of cash that had been stashed abroad in 2018. This was mostly caused by the Tax Cuts and Jobs Act, which reduced the transition tax for businesses looking to convert their foreign currency holdings into dollars. Inflows of FDI are frequently seen as an addition to domestic savings that make it easier to finance local investment projects.

 

Trends of FDI and Domestic Investment in Emerging Asia

The table and the graphs below represent the FDI/GDP, DI/GDP, and FPI/GDP in percentage for the South Asia, the South East Asia, and the East Asia regions. 

 

Table 1: FDI/GDP, DI/GDP, and FPI/GDP in percentage

	FDI/GDP (%)		DI/GDP (%)		FPI/GDP (%)
	2000	2020	2000	2020	2000	2020
South Asia
Afghanistan	0.0	0.6	0.0	0.0	0.0	0.0
Bangladesh	0.5	0.4	23.8	31.3	0.0	0.1
Bhutan	0.0	-0.1	50.3	33.8	0.0	0.0
India	0.8	2.4	25.7	27.9	-0.5	-0.6
Maldives	3.6	11.8	0.0	45.5	0.0	-1.8
Nepal	0.0	0.4	24.3	30.4	0.0	0.0
Pakistan	0.4	0.7	17.6	15.0	0.0	0.5
Sri Lanka	1.1	0.5	28.0	25.2	0.3	2.9
SouthEast Asia
Indonesia	-2.8	1.8	22.3	32.4	1.2	-0.3
Philippines	1.8	1.9	15.7	17.4	0.7	-0.5
Cambodia	3.2	14.0	17.5	24.9	0.2	0.4
Lao PDR	2.0	5.1	13.4	0.0	0.0	1.4
Malaysia	4.0	1.3	26.9	19.7	2.7	3.5
Brunei Darussalam	9.2	4.7	13.1	40.6	0.0	9.7
Myanmar	3.7	2.3	0.0	30.0	0.0	0.0
Thailand	2.7	-1.0	22.3	23.7	0.6	2.4
Vietnam	4.2	4.6	0.0	0.0	0.0	0.4
Singapore	16.1	21.6	35.2	22.5	21.9	17.5
East Asia
China	3.5	1.7	33.6	43.4	0.3	-0.7
Hong Kong	41.1	34.1	27.6	19.0	-14.3	19.8
Japan	0.2	1.2	28.4	25.4	0.7	0.7
South Korea	2.0	0.5	32.9	31.9	-2.1	2.6

Source: Own calculations from World Bank Indicators

According to Table 1, Maldives among the South Asian countries (Fig 2) and Singapore amongst the South East Asian countries (Fig 3) have a higher growing FDI/GDP percentage of 11.8% and 21.6% respectively. India has a declining FPI/GDP percentage in 2000-2020 (Fig 4). The graph in Fig 2 depicts the various South Asian countries, where the FDI/GDP %, and the DI/GDP% is highest in Maldives in 2020, but the FPI/GDP% declines in the same year. Sri Lanka has the highest FPI/GDP% of 2.9 in 2020. Sri Lanka has the highest FPI/GDP% of 2.9 in 2020. The South Asian region in 2020, overall has an FDI/GDP % that lies in between 0-12, the DI/GDP% lies between 0-50, and the FPI/GDP% lies between -2 to 3. In Fig 3, The Southeast Asian region in 2020, has an FDI/GDP % that lies in between -1 to 22, the DI/GDP% lies between 0-40, and the FPI/GDP lies between -1 to 18. Thailand has a declining FDI/GDP% in 2020. On an average, China has the highest DI/GDP% in 2020, which indicates a total of 43.4% shares of investment.

 

Fig 2: FDI/GDP, DI/GDP, and FPI/GDP of South Asia (in %)

Source: Own calculations from World Bank Indicators

 

Fig 3: FDI/GDP, DI/GDP, and FPI/GDP of Southeast Asia (in %)

Source: Own calculations from World Bank Indicators

 

Fig 4: FDI/GDP, DI/GDP, and FPI/GDP East Asia (in %)

Source: Own calculations from World Bank Indicators

Summary 

So far, the empirical literature does not draw clear conclusions about the effect of foreign direct investment on domestic investment. Some studies find negative effects on domestic investment, while others show positive effects. Moreover, several experts believe that FDI inflows have no influence on domestic investment.

The data and evidence depict that the FDI in the economies demonstrates a favourable trend of investment, which ultimately leads to a rise in the GDP and the growth of the nation. FDI is necessary for DI to improve. If foreign investors hire qualified workers from the domestic market, that is one form of crowding out as well, since FDI establishes oligopolies and sells at cheaper prices yet they are unable to compete. The FDI and Domestic Investment growth period of most of the countries has been between 2011-2020. The data collected and processed until now depicts that India has the highest FDI and DI among the South Asia countries, whereas China highest FDI and DI among the East Asia countries. Among the Southeast Asian countries, Singapore and Vietnam have the highest FDI and DI respectively. Maldives and Singapore have a higher growing FDI/GDP percentage. India has been showing the highest domestic investment throughout the span of 40 years. Between 2011-2020, the highest FDI CAGR is depicted by Philippines with a rate of 13 and Lao with a rate of 12.4. The South Asian region in 2020, overall has an FDI/GDP % that lies in between 0-12, the DI/GDP% lies between 0-50, and the FPI/GDP lies between -2 to 3; whereas, the Southeast Asian region in 2020, has an FDI/GDP % that lies in between -1 to 22, the DI/GDP% lies between 0-40, and the FPI/GDP% lies between -1 to 18. China has the highest FDI among all the countries and has received four times more investment than India. China's development is mostly driven by domestic investment and consumption rather than exports. Countries such as Malaysia, Myanmar, Afghanistan, and Sri Lanka have a negative Compound Annual Growth Rate from 2011-2020 which depicts that over a certain amount of time, their foreign investment has declined rather than risen, and indicates losses. Japan has a domestic investment of approx. twice that of India over the span of years. During times of uncertainty like the year 2020, countries with a high amount of FPI such as Hong Kong and Singapore experienced increased market volatility and currency upheaval.

 

References

Hayes, A., (2022). General Information on FDI. https://www.investopedia.com/terms/f/fdi.asp#:~:text=FDI%20can%20foster%20and%20maintain,jobs%20for%20their%20local%20workers.

Javorcik, S., (2004). Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages. American Economic Review https://www.aeaweb.org/articles?id=10.1257/000282804146460

Markusenab, J.R., & Venables, A.J., (1999). Foreign direct investment as a catalyst for industrial development. European Economic Review. https://www.sciencedirect.com/science/article/abs/pii/S0014292198000488

Murphy, C.B., (2020). General information on Repatriation. Investopedia. https://www.investopedia.com/terms/r/repatriation.asp#:~:text=The%20term%20repatriation%20refers%20to,nationals%2C%20refugees%2C%20or%20deportees

WTO (1990-2020) World Trade Report

Ms. Aryaa Parida, B.A. Honors Economics (batch 2020-23), Department of Economics, Faculty of BEhavioural and Social Sciences (FBSS), Manav Rachna International Institute of Research and Studies (MRIIRS), Faridabad, Haryana. Written under the supervision of Dr. Durairaj Kumarasamy, Associate Professor and Head, Department of Economics, Faculty of Behavioural and Social Sciences (FBSS), Manav Rachna International Institute of Research and Studies (MRIIRS), Faridabad, Haryana.  aryaaparida@gmail.com