Once upon a time there lived a happy man with his wife and 3 children. His wife died out of sickness and he had to work hard to bring up his sons.
His first son assisted him in his farm work and hence could not attend school, however they both saw through that the other two goes to school. Although second son attended school he was not very good at academics unlike the third son who was good at academics.
The father got very old and his sons were in different economic situations due to their differences in education. He wrote his will in such a way that it balances the requirement and capacity.
The father died and all the three sons read the will and shocked and confused as to how to execute it.
Father was owning 17cows and his will stated that:
- First son he is an illiterate he assisted him in his work and helped two of his brothers to become illiterate. So first son to get 1/2 of the cows.
- Second son is little literate still not as intelligent as the youngest and hence second son to get 1/3rd of the cows.
- Third son is an intelligent and has other means of income due to his education and hence third son to get 1/9th of the cows.
Now the problem is how to divide 17 cows according to the will?
All the three brothers were wondering and decided to seek a wise man's advice. They contacted the wise man in their village and the wise man read the will and assessed the current situation.
He then suggested that he has 1 cow that he will lend them so that it will be come 18 cows in total.
17cows + 1cow from wise man = 18cows
Wise man called the third son and said your quota is 1/9th of the cows right? 1/9th of 18cows = cows. You can take 2 cows.
Now its turn for the second son. His quota is 1/3rd of the cows. 1/3rd of 18cows = 6cows. So second son took 6 cows.
Now there are 10cows left.
First son's quota was 1/2 of cows. 1/1 of 18cows = 9cow and the wise man offered first son with 9cows.
Remaining there was 1cow which the wise man took back.
Thus the complex will was resolved wisely without any confusion, additionally the wise man did not loose/gain anything in this transaction.
Here the wise man's intention was not to fool the brothers and take advantage, but his intention was to help them resolve the issue. Hence he offered his cow and divided the properties with out confusion and took back his cow.
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However investors in FDI(Foreign Direct Investment) scheme are wise as well but their intention is not like the wise man in the above story.
One of my friend gave a very good example of the current situation and post FDI situation to support FDI.
Say currently a product is bought at the rate of ₹2 from farmer and sold to end user at ₹12. The net profit realized between farmer and the end user was ₹10. However this ₹10 was shared among several agents/middle men.
Post FDI it is going to be same product will be bought at the rate of ₹4 from farmer and to be sold to end use at ₹10. Here farmer gains ₹2 and end user gains ₹2. However the net profit of ₹6 is realized by the investor.
Although it appears that farmer and end user got benefit of ₹2 each lets take a closer look.
* ₹6 was realized by single investor and it is not going to be staying with in the country
Now what will happen to the ₹2 each that is gained by farmer and end user?
The FDI investor will introduce a product in such a way that he will force farmer and end-user to buy it even though they are not benefited by the product [there are several examples in which consumers will be thrusted with products even if they don't actually require]. Now with the ₹2 each gained by farmer and end user they will think anyways they earned more and hence they spent more however they did not loose anything in the end. i.e. no actual realized benefit.
If we look further in these transactions the investor has made ₹10 and taken to his country, neither the farmer nor the end user gained/lost anything from what they originally were. In real cases some may even go bankrupt depends on the product that the investor introduces.
This is how FDI will work in a longer term and this FDI is like putting a tortoise in a pot of cold water and the pot heated with mild fire at its bottom. Initially tortoise will feel uncomfortable due to cold water but a while later when the water becomes lukewarm it will start enjoying.
When the water gets warmer and warmer the tortoise gets adjusted to live with increase in temperature. However there will be a situation where the tortoise will feel the pain of heat and will never be able to get out of the pot and eventually die.
Common man is made to be the tortoise and the time when we realize the decision of allowing FDI is incorrect, it will be too late such that we cannot come out of it.
FDI is never a solution at least to a country like India where even without that we are selling local resources to foreign giants in some way or other.
Although there are so many positive points that are put forth about FDI such as even those who does not have money to invest can collaborate with foreign investors and start business. Does this not sound funny? Which of the foreign investor is going to invest to a person who cannot even start a business of his own.
IMHO FDI's are incorrectly compared against what we could take loan from banks. Loan has a fixed liability to be re-paid however this investment does not come with any fixed liability. Its a game of making the market create cash flow end of the day the investor enjoy the benefit. This is true in any business, however in case of FDI the money goes out of the country.
This issue is highly politicalized now and one thing we have to understand that those political parties that are against FDI are not opposing in the benefit of common man, but in a view that they were not able to enjoy the benefit, by letting the foreign investors in.
Whatever we say FDI is going to happen and we will enjoy the benefits for a shorter term, however we feel the pain on a longer term and it will be too late for us to reverse on anything.
Disclaimer: The numbers given above are purely magical and may not be applied in reality as it is, however I have put my view conceptually about the impact/benefit on common man due to FDI in a longer term.
