— Photo: Shaju John

Yasheng Huang.

CHENNAI: The robust economic growth of India in recent years is bound to result in more foreign direct investment flow, but that should not make the country excessively rely on foreign capital, an expert on international management said here on Tuesday.

Though many economists systematically underestimated India while comparing it with China, the fact was that "FDI goes to a country that has had growth," according to Yasheng Huang, associate professor of international management at the Massachusetts Institute of Technology Sloan School of Management. He was addressing a meeting organised by the Confederation of Indian Industry.

Effect of growth

Such investment, he said, "is the effect of economic growth [but] not necessarily the cause of economic growth. This is exactly what is going to happen to India." Maintaining that FDI flows would follow growth, he said, there, however, were "economic downslides with excessive reliance on FDI."

Noting that the economists who underestimated India only took note of the physical infrastructure in the country and not its soft [social] infrastructure, he said India was better off on several fronts, including property rights and a relatively efficient financial system.

However, there were lessons for India to be learnt from China, especially the social investments made by the latter in the 1970s and 1980s.

To continue with the growth story, India must initiate measures to introduce labour market flexibility and develop critical infrastructure such as power and expressways (roads). "India should create a level not biased playing field for foreign and domestic firms," he said, pointing out that the country's growth had come on the back of relatively less but efficient investments.

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