Disadvantages of FDI to India –
Exploitation – If 100 % FDI is allowed in all sectors of the Indian economy, the economy may become totally dependent on the foreign country(s) for satisfaction of its needs and wants. This can result in a form of modern – day colonialism wherein the resources of the host country (India) are exploited by the investing country and used for its own profit and not for the host country’s benefit.
Jeapordises Balance of payments of India – Reduction in cost of production, reduced prices, increase in national income all contribute positively to the balance of payments position of the economy. But when the investing country achieves the break even point (it recovers its initial investment), the investing country starts earning profits. The benefits gained by the investing country may be significantly greater than those gained by the host country (India). This can jeopardise the balance of payments position (make it unfavourable) of the host country.
Generates Negative Externalities in Labour Market – All firms in a particular industry have the common objective of maximising their profits. The most direct approach used for achieving this is by cost reduction It is true that MNCs also give higher wages to workers. This is done by giving wage premiums to the workers. This improves the consumption power of the workers but also has the detrimental ability of disrupting the local unemployment market. When the price of labour increases, wage premiums decrease. Thus, a distortion is created and there is disequilibrium in the labour market. Job matching becomes inefficient, leading to an increase in the level of unemployment.
Threat of Monopoly – The multi national companies usually enter the Indian market with advanced technology and hence, supply better quality of products at a lower price. However, there is the threat of monopolization by these firms i.e. when all their competition has been removed from the market, they can increase the prices as they wish and consumer will have no choice but to buy the product at the increased prices as there will not be any other supplier of the product.
Fear of Total Dependence – The multi national companies, by increasing the competition, can also lead to the closing of the Indian companies. This leads to a decrease in the Gross Domestic Product and the National Income of the country. India may become totally dependent on foreign countries for its income and sustenance.