IBM ASSINGMENT

Q1.

a) Examine advantages and disadvantages of FDI? How does FDI contributes in Economic development of the host
country? Also differentiate between FDI and FPI?

Foreign Direct Investment (FDI) is a significant source of capital, technology transfer, and managerial expertise for
developing countries. FDI refers to the direct investment made by a firm in a foreign country, with the intention of
establishing a lasting interest in the country. FDI can be made by a firm by acquiring a controlling interest in an existing
foreign enterprise or by starting a new enterprise in a foreign country. In contrast, Foreign Portfolio Investment (FPI) refers
to the investment made by foreign investors in the stock and bond markets of a foreign country without any intention of
establishing a lasting interest in the country. This essay will examine the advantages and disadvantages of FDI, how FDI
contributes to the economic development of the host country, and the differences between FDI and FPI.

Advantages of FDI

Technology transfer

One of the primary benefits of FDI is the transfer of technology from the investing country to the host country. Foreign
companies bring with them new technologies, processes, and managerial practices that can help improve the productivity
and efficiency of the host country's industries. This transfer of technology can also help develop new industries in the host
country, thereby creating new employment opportunities.

Employment opportunities

FDI can lead to the creation of new employment opportunities in the host country. The foreign company may need to hire
local workers to run its operations in the host country. The establishment of new industries can also lead to the creation of
new jobs. This can help reduce unemployment in the host country, thereby contributing to its economic development.

Increased competition

FDI can increase competition in the host country's market. Foreign companies may offer better quality products at lower
prices, forcing local companies to improve their quality and lower their prices to remain competitive. This can lead to
increased efficiency and productivity in the host country's industries.

Increased exports

FDI can also lead to an increase in exports from the host country. Foreign companies may use the host country as a base to
manufacture goods for export to other countries. This can help increase the host country's foreign exchange earnings,
thereby contributing to its economic development.

Infrastructure development

FDI can contribute to the development of infrastructure in the host country. Foreign companies may need to invest in
infrastructure such as roads, ports, and airports to transport their goods and services. This can help improve the overall
infrastructure of the host country, making it more attractive for other foreign investors.

Disadvantages of FDI

Exploitation of resources

FDI can lead to the exploitation of the host country's natural resources. Foreign companies may extract natural resources
such as minerals and oil without adequate compensation to the host country. This can lead to environmental degradation
and loss of revenue for the host country.

Repatriation of profits

Foreign companies may repatriate their profits back to their home country, leading to a drain of financial resources from the
host country. This can result in a balance of payment deficit for the host country.
Dependence on foreign investment

FDI can lead to the host country becoming too dependent on foreign investment. This can result in a loss of control over the
economy, as the host country may need to make concessions to foreign investors to attract and retain their investment.

Economic instability

FDI can lead to economic instability in the host country. Foreign companies may invest in the host country during good
economic times, but withdraw their investment during bad economic times. This can lead to volatility in the host country's
economy.

Cultural imperialism

FDI can lead to the dominance of foreign cultures in the host country. Foreign companies may promote their own culture
and way of life, leading to a loss of cultural identity for the host country.

FDI can contribute significantly to the economic development of the host country. The following are some of the ways in
which FDI can contribute to the economic development of the host country:

Capital infusion

FDI can provide the host country with a significant amount of capital to invest in its economy. This capital can be used to
finance new businesses, expand existing businesses, and upgrade infrastructure. The infusion of capital can also help to
stimulate economic growth and create new employment opportunities.

Technology transfer

As mentioned earlier, FDI can facilitate the transfer of technology from the investing country to the host country. This
transfer can occur through the introduction of new technologies, processes, and managerial practices that can help improve
the productivity and efficiency of the host country's industries. The transfer of technology can also help to develop new
industries in the host country, thereby creating new employment opportunities.

Employment opportunities

FDI can lead to the creation of new employment opportunities in the host country. The foreign company may need to hire
local workers to run its operations in the host country. The establishment of new industries can also lead to the creation of
new jobs. This can help reduce unemployment in the host country, thereby contributing to its economic development.

Increased exports

FDI can also lead to an increase in exports from the host country. Foreign companies may use the host country as a base to
manufacture goods for export to other countries. This can help increase the host country's foreign exchange earnings,
thereby contributing to its economic development.

Infrastructure development

FDI can contribute to the development of infrastructure in the host country. Foreign companies may need to invest in
infrastructure such as roads, ports, and airports to transport their goods and services. This can help improve the overall
infrastructure of the host country, making it more attractive for other foreign investors.

Improved competitiveness

FDI can also help to improve the competitiveness of the host country's industries. Foreign companies may bring with them
new management practices and techniques that can help improve the efficiency and productivity of the host country's
industries. This can lead to increased competitiveness, both domestically and internationally.
Access to global markets

FDI can also provide the host country with access to global markets. Foreign companies may use the host country as a base
to manufacture goods for export to other countries. This can help the host country to access new markets, which can help to
diversify its export base and reduce its dependence on a few key markets.

However, it is important to note that the benefits of FDI are not automatic or guaranteed. The host country must have a
conducive investment climate and appropriate policies and regulations to attract and retain foreign investment.
Additionally, there may be some negative effects associated with FDI, such as environmental degradation, exploitation of
natural resources, and cultural imperialism. Therefore, it is important for host countries to carefully consider the potential
costs and benefits of FDI before welcoming foreign investment.
B) Discuss the national FDI policy framework made by NITI AYOG in India? How it has help to increase FDI in India?
Discuss with Suitable example.

NITI Aayog, the National Institution for Transforming India, is a policy think tank established by the Indian government in
2015. It plays a crucial role in formulating and implementing policies related to economic development, social development,
and governance in India. One of the key areas of focus for NITI Aayog has been to increase Foreign Direct Investment (FDI) in
India.

The FDI policy framework made by NITI Aayog in India aims to create a conducive environment for foreign investors by
simplifying the regulatory framework, promoting transparency and accountability, and reducing bureaucratic hurdles. Some
of the key features of the policy framework include:

Automatic Route: The automatic route allows foreign investors to invest in most sectors without prior approval from the
government. This has helped to simplify the regulatory framework and make it more attractive for foreign investors.

Liberalization of FDI norms: NITI Aayog has worked towards liberalizing FDI norms in various sectors, including defense,
aviation, retail, and insurance. This has helped to attract more foreign investment in these sectors.

Sector-specific policies: NITI Aayog has formulated sector-specific policies to encourage FDI in various sectors, such as
renewable energy, infrastructure, and manufacturing. For example, the government has launched the Make in India
campaign to promote manufacturing in India and attract more foreign investment in this sector.

Single-window clearance: NITI Aayog has worked towards creating a single-window clearance system for foreign investors.
This has helped to reduce bureaucratic hurdles and streamline the investment process.

The FDI policy framework made by NITI Aayog has helped to increase FDI in India. In the last few years, India has emerged as
one of the most attractive destinations for foreign investment, and the FDI inflows have been steadily increasing. For
example, in 2020-21, India attracted FDI inflows worth USD 81.72 billion, which is the highest ever in a fiscal year.

One of the key reasons for the increase in FDI inflows is the liberalization of FDI norms and the simplification of the
regulatory framework. For example, the government's decision to allow 100% FDI in the defense sector through the
automatic route has helped to attract more foreign investment in this sector. Similarly, the government's decision to allow
100% FDI in single-brand retail through the automatic route has helped to attract more foreign investment in this sector.

The sector-specific policies formulated by NITI Aayog have also played a crucial role in attracting FDI. For example, the
government's focus on renewable energy has helped to attract more foreign investment in this sector. In 2020-21, India
received FDI inflows worth USD 8.1 billion in the renewable energy sector.

In conclusion, the FDI policy framework made by NITI Aayog in India has helped to create a conducive environment for
foreign investors by simplifying the regulatory framework, promoting transparency and accountability, and reducing
bureaucratic hurdles. This has helped to attract more foreign investment in various sectors and contributed to the economic
development of the country.
Q2.

a) What is Role and objectives of world Bank in promotion of development of developing economics? Under what
schemes of World Bank, developing economies can get financed for their development?

The World Bank, officially known as the International Bank for Reconstruction and Development (IBRD), is a specialized
agency of the United Nations that was established in 1944. The primary objective of the World Bank is to promote economic
development and reduce poverty in developing countries. This is achieved through various financial and technical assistance
programs, as well as through policy dialogue with governments and other stakeholders.

Role of World Bank in Developing Economies:

Financial Assistance: One of the primary roles of the World Bank is to provide financial assistance to developing countries.
The World Bank provides loans and grants to developing countries to help them finance development projects and
programs. These loans are typically provided on concessional terms, meaning that they have lower interest rates and longer
repayment periods than commercial loans.

Technical Assistance: In addition to financial assistance, the World Bank also provides technical assistance to developing
countries. This includes advice and expertise on a wide range of development issues, such as infrastructure development,
education, health, and governance. The World Bank also provides training and capacity building to government officials and
other stakeholders in developing countries.

Policy Dialogue: The World Bank engages in policy dialogue with governments and other stakeholders in developing
countries to promote policies and reforms that support economic development and poverty reduction. This includes
advocating for policies that promote macroeconomic stability, attract foreign investment, and improve the business
environment.

Knowledge Sharing: The World Bank also plays a role in knowledge sharing and dissemination. It conducts research and
analysis on various development issues, and disseminates this information to governments, development practitioners, and
other stakeholders. The World Bank also hosts conferences, workshops, and other events to facilitate knowledge sharing
and networking among stakeholders.

Objectives of World Bank in Developing Economies:

Poverty Reduction: The World Bank's primary objective in developing economies is to reduce poverty. This is achieved
through a range of programs and projects that promote economic growth, create jobs, and improve access to basic services
such as education, health, and water and sanitation.

Economic Development: The World Bank also aims to promote economic development in developing economies. This
includes supporting infrastructure development, improving the business environment, promoting trade and investment, and
promoting financial sector development.

Good Governance: The World Bank recognizes the importance of good governance in promoting economic development
and reducing poverty. It works with governments and other stakeholders to promote good governance, including
transparency, accountability, and the rule of law.

Environmental Sustainability: The World Bank recognizes the importance of environmental sustainability in promoting
economic development and reducing poverty. It supports projects and programs that promote environmental sustainability,
such as renewable energy and sustainable agriculture.

Gender Equality: The World Bank also aims to promote gender equality in developing economies. This includes supporting
programs that improve access to education and health services for women and girls, promoting women's economic
empowerment, and addressing gender-based violence.
Example of World Bank's Role in Promoting Development in Developing Economies:

One example of the World Bank's role in promoting development in developing economies is its support for the
development of the power sector in India. The World Bank has provided financial and technical assistance to the Indian
government to support the development of the power sector, including renewable energy projects.

In 2015, the World Bank approved a loan of $1 billion to the Indian government to support the development of solar energy
projects. This loan was provided on concessional terms, with a 19-year maturity period and a 5-year grace period. The loan
helped to finance the development of over 1000 MW of solar energy capacity in India.

The World Bank offers a variety of schemes to support the development of developing economies. These schemes provide
financing for a wide range of development projects and programs, including infrastructure development, education, health,
and governance. The following are some of the schemes offered by the World Bank to support the development of
developing economies:

International Development Association (IDA): The International Development Association (IDA) is a financing arm of the
World Bank that provides concessional loans and grants to the world's poorest countries. IDA loans and grants are provided
on highly concessional terms, with very low interest rates and long repayment periods. IDA financing is typically used to
support social and economic development projects, such as infrastructure development, education, health, and governance.

International Bank for Reconstruction and Development (IBRD): The International Bank for Reconstruction and Development
(IBRD) provides loans, guarantees, and other financial instruments to middle-income countries. IBRD financing is provided
on market terms, with interest rates that are higher than IDA financing. IBRD financing is typically used to support
infrastructure development, financial sector development, and private sector development.

Multilateral Investment Guarantee Agency (MIGA): The Multilateral Investment Guarantee Agency (MIGA) is a member of
the World Bank Group that provides political risk insurance and other guarantees to investors in developing countries. MIGA
guarantees protect investors against political risks such as expropriation, breach of contract, and war and civil disturbance.
MIGA guarantees can help to attract foreign investment to developing countries.

Global Environment Facility (GEF): The Global Environment Facility (GEF) is a partnership between the World Bank, the
United Nations Development Programme (UNDP), and the United Nations Environment Programme (UNEP) that provides
grants and financing for projects that promote environmental sustainability. GEF financing is typically used to support
projects that address climate change, biodiversity conservation, and protection of international waters.

Climate Investment Funds (CIFs): The Climate Investment Funds (CIFs) are a set of funding instruments established by the
World Bank to support climate change mitigation and adaptation in developing countries. The CIFs provide financing for a
range of projects, including renewable energy, energy efficiency, and climate-smart agriculture. The CIFs also provide
support for policy and institutional reforms that promote climate change resilience.

Partnership for Market Readiness (PMR): The Partnership for Market Readiness (PMR) is a funding instrument established by
the World Bank to support the development of carbon markets in developing countries. The PMR provides financing for
technical assistance, capacity building, and policy development to help countries establish and operate carbon markets.

Global Partnership for Education (GPE): The Global Partnership for Education (GPE) is a multilateral partnership that
provides financing and technical assistance to developing countries to support education. The GPE provides grants to
developing countries to support education programs and reforms, including teacher training, curriculum development, and
school infrastructure development.

Health Results Innovation Trust Fund (HRITF): The Health Results Innovation Trust Fund (HRITF) is a funding instrument
established by the World Bank to support innovative approaches to health financing and service delivery in developing
countries. The HRITF provides financing for projects that aim to improve the efficiency and effectiveness of health systems in
developing countries, with a focus on maternal and child health.
The World Bank offers a range of schemes to support the development of developing economies. These schemes provide
financing and technical assistance for a wide range of development projects and programs, including infrastructure
development, education, health, and governance. Developing countries can benefit from these schemes by accessing
financing and technical assistance to support their development priorities.

b) What role IMF has played. stabalizing currency of country? What are various types of helps a country can avail
from IMF? Discuss how IMF has been helped to India in solving POP crisis?

The International Monetary Fund (IMF) has played a crucial role in stabilizing the currency of countries around the world.
Currency stability is important for economic growth and development, as it helps to promote investment, trade, and
financial stability. The IMF works with member countries to help them maintain stable currencies through a range of policy
tools and support mechanisms.

One of the key roles of the IMF in stabilizing currencies is to provide financial assistance to member countries that are
experiencing currency instability. The IMF provides loans to member countries to help them address balance of payments
problems and stabilize their currencies. These loans are typically provided on condition that the borrower country
implements certain policy reforms, such as fiscal consolidation, structural reforms, and exchange rate adjustments. The aim
of these policy reforms is to address the underlying causes of currency instability and promote economic stability and
growth.

The IMF also provides technical assistance and policy advice to member countries to help them implement policies that
promote currency stability. This includes advice on exchange rate regimes, monetary policy, and macroeconomic
management. The IMF works closely with member countries to help them design and implement policy frameworks that
promote currency stability and support economic growth.

Another important role of the IMF in stabilizing currencies is to monitor and analyze currency developments around the
world. The IMF conducts regular surveillance of member countries' economies and exchange rate policies, and provides
assessments of global currency developments. This analysis helps member countries to identify potential risks and
challenges to currency stability and take appropriate policy measures to address them.

In addition, the IMF promotes international cooperation and coordination on currency stability issues. The IMF works with
other international organizations, such as the World Bank, the G20, and the Financial Stability Board, to promote policy
coherence and coordination on global economic and financial issues. The IMF also plays a key role in promoting the stability
of the international monetary system through its work on exchange rate regimes, international reserves, and global financial
safety nets.

An example of the IMF's role in stabilizing currencies can be seen in its recent work with Argentina. In 2018, Argentina faced
a severe currency crisis, with its currency, the peso, losing over 50% of its value against the US dollar. The IMF worked with
Argentina to provide a $57 billion loan program to support the country's efforts to stabilize its currency and address its
balance of payments problems. The loan program included policy conditions aimed at reducing fiscal deficits, improving the
business environment, and implementing structural reforms. With the support of the IMF loan program, Argentina was able
to stabilize its currency and avoid a more severe economic crisis.

The International Monetary Fund (IMF) provides a range of assistance and support to member countries to help them
address a variety of economic challenges. The type of assistance a country can receive from the IMF will depend on the
nature and severity of its economic problems. Some of the main types of help a country can avail from the IMF are:

1. Financial assistance: The IMF provides financial assistance to member countries in the form of loans and credit facilities.
The main types of loans provided by the IMF are:

Stand-by Arrangements: These are short-term loans provided to countries facing balance of payments problems. The loans
are typically provided for a period of one to two years and are intended to help the country address its immediate balance
of payments problems.
Extended Fund Facilities: These are medium-term loans provided to countries facing more serious and long-term balance of
payments problems. The loans are typically provided for a period of three to four years and are intended to help the country
implement structural reforms to address the underlying causes of its economic problems.

Rapid Financing Instruments: These are emergency loans provided to countries facing sudden and severe balance of
payments problems. The loans are typically provided within a few weeks of a country's request for assistance and are
intended to help the country address its immediate financing needs.

2. Technical assistance: The IMF provides technical assistance to member countries to help them strengthen their economic
institutions and policies. This assistance can take many forms, including:

Policy advice: The IMF provides policy advice to member countries on a range of economic issues, including fiscal policy,
monetary policy, and structural reforms.

Capacity building: The IMF provides training and technical assistance to help member countries develop the skills and
expertise needed to design and implement effective economic policies.

Data and statistics: The IMF provides support to member countries to improve their economic data and statistics, which is
critical for effective economic policymaking.

3. Global surveillance: The IMF conducts regular surveillance of the global economy and provides analysis and policy
recommendations to member countries. This surveillance includes:

Article IV consultations: The IMF conducts regular consultations with member countries to assess their economic policies
and provide policy recommendations.

World Economic Outlook: The IMF publishes a regular report on the global economic outlook, which provides analysis and
forecasts of key economic indicators.

4. Crisis prevention and resolution: The IMF plays an important role in preventing and resolving financial crises around the
world. This includes:

Early warning systems: The IMF develops and maintains early warning systems to identify potential risks and vulnerabilities
in the global financial system.

Crisis resolution: The IMF provides support to member countries facing financial crises, including through financial assistance
and policy advice.

India experienced a balance of payments crisis in 1991 due to a combination of factors, including high oil prices, rising
interest rates, and a decline in export earnings. The crisis led to a sharp decline in foreign exchange reserves, making it
difficult for India to meet its external obligations. In response to the crisis, India turned to the International Monetary Fund
(IMF) for financial assistance and policy advice.

The IMF provided India with a loan of $2.2 billion under its Extended Fund Facility (EFF) program, which was intended to
help India address its balance of payments problems and implement structural reforms to strengthen its economy. The
program included a number of conditions that India was required to meet in order to receive the loan, including:

Fiscal consolidation: India was required to reduce its fiscal deficit and implement reforms to strengthen its tax system and
reduce subsidies.

Monetary policy reforms: India was required to implement reforms to strengthen its monetary policy framework, including
the introduction of a flexible exchange rate regime.

Trade liberalization: India was required to reduce trade barriers and promote export growth.

Structural reforms: India was required to implement a range of structural reforms to improve the efficiency of its economy,
including privatization of state-owned enterprises, deregulation of industries, and labor market reforms.

The IMF's support and policy advice played a critical role in helping India address its balance of payments crisis and
implement the necessary reforms to strengthen its economy. Some of the key benefits of the IMF's assistance to India were:
Improved macroeconomic stability: The IMF's support helped India stabilize its macroeconomic environment by reducing its
fiscal deficit, controlling inflation, and promoting exchange rate stability.

Strengthened economic institutions: The IMF's technical assistance and policy advice helped India strengthen its economic
institutions, including its central bank and finance ministry, and improve the effectiveness of its economic policies.

Increased foreign investment: The IMF's support helped improve investor confidence in India, leading to increased foreign
investment and greater integration into the global economy.

Enhanced economic growth: The reforms implemented under the IMF program helped to promote economic growth in India
by improving the efficiency of its economy and promoting export growth.

The IMF's support and policy advice played a critical role in helping India address its balance of payments crisis and
implement the necessary reforms to strengthen its economy. The IMF's financial assistance and conditions helped to
stabilize India's macroeconomic environment and promote economic growth, while its technical assistance and policy advice
helped to strengthen India's economic institutions and improve the effectiveness of its economic policies. The IMF's
assistance was a key factor in helping India overcome its balance of payments crisis and lay the foundation for long-term
economic growth and stability.