 Hello and welcome to NewsClick. Today we have with us Professor Vishwajith Dhar and we are going to talk about the make in India and related to the FDI flows or the foreign direct investment flows to India. Vishwajith you have been studying the issue of FDI flows, make in India and so on. Do you think this make in India slogan has led to greater investments in Indian economy? Study that we are still doing and we just published some preliminary results of this study on FDI. This is an ongoing study that we have and we looked at this period since the make in India was announced in September 2014. Particularly because there have been a number of reports and parliament questions through which there have been claims that make in India has been has been fuelled by FDI flows. So, we tried to understand what the reality is and whether these claims can actually be justified. And we found that there is not much of an evidence that there is a link between FDI inflows and the make in India. There are two things that I think your study seems to show. One is that the bulk of the FDI seem to have come in what are called brownfield investments which is already existing companies being taken over by global capital which does not add to the extra productive capacity in the country. The second is round tripping. Let us discuss the brownfield expansion, brownfield investments first. Do you think that bulk of the capital that is coming is really coming through this route? Let me just take one step behind because lot of people do not understand what this FDI is all about. FDI as we know is the foreign direct investment and why is it so important? Why is the government of India going and making such a pitch for foreign direct investment? This is because foreign direct investment is supposed to be long-term investment as opposed to other forms of investment like foreign portfolio investment or foreign institution investors which just come in the stock market and go away. So, hot money. Hot money and even portfolio investment is short term. So, if India is interested in development and wants development finance it should actually pitch for foreign direct investment. Now, the forms in which FDI gets counted and this is a statistical issue is very interesting. The first is that foreign direct investment has flows that are coming new flows which come from outside and these are what we call the greenfield investments. So, new capacity is formed. So, there is a net addition to the capacity that is already existing in the country. The second component of FDI is what we call brownfield investment. The brownfield investment is basically takeovers like what just you mentioned. Takeover of existing Indian companies by the foreign investors. Now, in case of brownfield investment therefore, there is no net addition to capacity. The ownership of an enterprise changes hands and in most cases, we have found that the foreign investor does not even invest in the existing plant and machinery just takes the existing plant and machinery forward. The third component is very interesting. The third component is what we call retained earnings. Now, the retained earnings are the you know out of the profits that a company earns a part of the profits are distributed to the shareholders as dividends and one part is retained and periodically these retained earnings are capitalized. They are put into the equity capital. They are given to the existing shareholders. So, if there is a foreign company which is making a profit in India, remember if it is making a profit in India, it is making a profit in Indian rupees and once it is capitalized, then it becomes the Indian rupees, then they get converted into foreign liabilities because against those higher equity capital they are going to be higher claims which the foreign investor can make and that can result in higher dividend outflow. So, here you can say that quite reverse is happening. Instead of foreign capital coming into the country, here internal resources can go out of the country. So, these are the two components, the brownfield, the takeovers and retained earnings are becoming larger by the day and our argument is that net capital is not coming in. Other part of your study deals with also export of capital from Indian companies and a lot of that seems to be coming back from tax havens, Mauritius route particularly or Singapore and coming in as if it is foreign investment. Did you find a major significant aspect of the FDIs to be this? Yeah, actually you know see when we talked about round tripping, the first country that comes to our mind is China because we knew for a fact that a large part of the foreign direct investment in China was basically you know those expected Chinese who is to bring in money through the Hong Kong route. Now, that started happening in India. Indian capital is actually going out. There is a lot of outflows taking place now and we are now finding evidence of capital going out of the country, getting parked in one of the Singapore and Mauritius and coming back as foreign direct investment. So, it is a real irony because in an Indian capital once it comes back through the Mauritius or Singapore route then gets counted as foreign capital. And gets preferential treatment? And a very important component of this is our very important part of this is that you know there are these bilateral investment treaties we have with many countries of course now the government has decided to knock off the old agreements and bring in a new framework agreement. So, a foreign investor coming from these jurisdiction then gets protection of the Indian government. If the government of India does not behave itself properly with the foreign investors then the foreign investor can take an Indian government to a private arbitration and this is the investor stated dispute settlement process. So, Indian companies do not have that freedom. Indian companies can not you know take the Indian government to foreign arbitration in Singapore and get them to the cleaners, but the foreign investor has that. So, you can actually see the advantages that there are quite apart from the tax breaks and other advantages and which is the ISDS. The main conclusion is that it is it may not be correct to say that the make in India actually triggered FDI inflows there are many other reasons you know we also pointed out that there are statistical issues RBI has reported in inflow which took place much earlier if you look at the company records during this period. So, there was the actual inflows then took place between 2014 and 2016 that actually took place earlier, but RBI suddenly realized that there was missing link somewhere they had the problem of data. So, they put in the they filled up the gap in this period. So, the numbers went up. So, there are number of things that we have actually worked on to show that you know this tenuous link does exist between FDI and make in India. Last question what is the net inflowing is the net outflow? It is getting done on the negative side now and again this is a question that government have must ask itself that you know of course, when we are hankering for foreign capital we are telling everyone that we are a country which is short of capital. So, if you are a country short of capital why is it that so much of outflows are taking place you know why are we getting a negative balance on the net inflows. So, our argument is that there are purpose incentives for foreigners and that is prompting many you know Indian firms Indian capital to actually move out you know I would not say just now that whether there is a flight of capital, but at the moment we only say that the the net balance on FDI is turning out to be negative. So, two years of make in India we are getting a negative FDI inflow. That is right. That is a very significant statement. Thank you Vishyajit for being with us. We will follow this as your research progresses and check out what are the conclusions you come to in more detail. Thank you very much for being with us. So, all the time we have a news click today.