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Talking about foreign direct investment FDI in emerging economiesformer US Federal Reserve Chief Alan Greenspan says But clearly theLicence Raj in India has discouraged foreign direct investment Indiareceived 7 billion in FDI in 2005 a sum dwarfed by Chinas 72billion Indias cumulative stock of FDI at 6 per cent of GDP at the endof 2005 compares with 9 per cent for Pakistan 14 per cent for Chinaand 61 per cent for Vietnam The reason FDI has lagged badly in India isperhaps no better illustrated than by Indias unwillingness to fullyembrace market forces That is all too evident in Indias often STATICresponse to economic problems Faced with rising food inflation in early2007 the response was not to allow THE rising OF prices to prompt anincrease in supply but to ban wheat exports for the rest of the yearand suspend futureS trading to curb speculation - the very marketforces that the Indian economy needs to break IS the stranglehold ofbureaucracySince Mr Greenspan wrote the words above the FDI inPakistan has continued to rise and remains a success story The totalinvestment grew by 214 percent or 23 percent of the GDP and ForeignDirect Investment FDI posted a growth of 71 percent from US 35billion to US 60 billion in 2006-07 The FDI represents a deeper andlonger term commitment than portfolio investments which tend to be lessdurable and less reliable This has happened in spite of the continuedpolitical instability and security issuesAs Mr Greenspan points outthis dramatic increase in FDI for Pakistan has been made possible by thePakistani governments liberal policies of allowing foreign investmentsin many sectors of the economy and the ability of the foreign investorsto repatriate 100 of their profits in US dollars These profits havecontinued to rise as the Pakistani economy has boomed with the GDPdoubling over the last 5 years Foreign investors sent 519 million astheir profits abroad during first seven months of the current fiscalyear as compared to 4679 million
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