EXPECTATIONS

OF FOREIGN INVESTORS
IN TERMS OF
LABOUR LAWS
AND
FDI IN INDIA

Submitted by : Group 1
Aakriti Sikka (17P181)
Harish Menon (17P197)
Ravi Teja Kandala (17P201)
Manish Malik (17P205)
Shashank Choudhary (17P224)
Vaishali Tyagi (17P233)

TABLE OF CONTENTS

Serial No. TOPIC PAGE No.

1. Introduction 3

2. International Labour Standards 4

3. Industrial Disputes Act (1947) 5

4. Contract Labour Act (1970) 6

5. Major Labour Law Amendments 8

6. FDI Policy 2017 9

7. Conclusion 13

8. References 14

Introduction

There has been a steady expansion of foreign investment in recent decades. The upward trend is
particularly strong for less developed countries, signifying the increased importance for these countries
of FDI, as well as the increased presence of multinational firms. Alongside the expansion of FDI have
risen concerns regarding competition between countries or regions to attract FDI. After adopting new
economic policy by government of India in July 1991 many foreign investors came in the Indian economic
scene because the government of India gave many incentives to the foreign investors. So it is clear that
government opened the doors of Indian market to foreign investors. With more companies operating
internationally, the impact on various business functions and labour laws in India is becoming more
pronounced. Globalization, and the need to attract foreign investment, inevitably leads to an attack on
workers rights by diluting existing labour standards, as trans-national corporations concede to the
demands of multinationals. This dilution of stringent labour standards and strong resistance to any
strengthening of workers rights (which sometimes become an obstacle to competitiveness in the global
economy) is becoming prevalent in India. Since the beginning of the reforms in the early 1990s, there
have been demands from industry for liberalization in the stringent labour regulatory framework. The
inux of foreign companies has increased the demand for more relaxation in labour laws to make
investment conditions more conducive. This article identies the areas in Indian labour laws where
change is demanded in the wake of increased foreign participation and steps taken to adapt to the
changing time of globalization.

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International Labour Standards: A World of Division

This section reviews international labour standards and its progression in the context of divergent geo-
political and economic environments of global trade. The 1947 preamble of the original General
Agreement on Tariffs and Trade (GATT) states: Relations among countries in the field of trade and
economic endeavor should be conducted with the view of raising standards of living and ensuring full
employment.

Little towards this end has been achieved as the debate between developed and developing countries
continues to play out at WTO negotiation meetings (e.g., Human Rights Caucus 2005). A major reason
behind this is the political economic conflicts between developing and developed countries, as market
liberalization offered both challenges and opportunities for developing countries. At the first WTO
Ministerial Conference in 1996, the US and the European Commission supported labour standards
enforcement on a human rights basis, whereas minimum wage and labour rights were missing from
the agenda. Asian nations questioned Western countries motivation and resisted linking trade with
enforceable labour standards because such standards could be used as non-tariff barriers to trade
(Fields 2003). The Ministerial Conference concluded: We reject the use of labour standards for
protectionist purposes, and agree that the comparative advantage of countries, particularly low-wage
developing countries, must in no way be put into question (WTO 1996).

The task of ensuring labour standards was delegated to the ILO. The ILO is an UN organization charged
to oversee labour standards around the world. The ILO passes resolutions and urges nations to honour
their obligation to work towards the realization of the ILO Declaration of Fundamental Principles and
Rights at Work declared in 1998 (ILO 1998). However, scholars and practitioners argue that the ILO
does not have any enforcement powers, prompting critics to label the organization toothless. The
declaration established four areas of fundamental labour standards, or core labour rights. They are:

1) Freedom of association and the right to collective bargaining
2) Abolition of child labor
3) A ban on forced labour, and
4) The elimination of discrimination with regard to employment.

These are also known as social clauses at the legal level. Labour practices embody the implementation
of these standards, as well as minimum wages versus living wages,5 limitation of work hours, and
occupational health and safety.
However, as the debate over incomplete labour standards persists. The question is how to realize this
when decent work evolved with social and economic progress and goals can and should rise over time.
Many developing countries either do not have laws to protect these rights or, due to institutional and
infrastructural limitations, cannot implement them. The limited implementation of core standards
affects labour practices.6 In 2000, the ILO introduced decent work as means of capturing and realizing
objectives from different interest groups involved in the debate (ILO 2000). The following section
analyzes the complexity and contradictions embedded in labour standards discourse within the context
of international trade. Foreign investors and developing countries like India.
This section explores foreign investors relationships with India and other developing countries,
particularly with respect to mass produced consumer goods industries, which remain labour intensive
despite technological upgrading. Primarily, foreign investors and developing countries are intertwined
with political economic relationships of convenience. Few countries can sustainably provide an

4
environment conducive to foreign investors FDI. As a result, the effects of labour standards vary widely
among developing countries.

Identifying areas for change in Indian Labour Legislation
In such a scenario, the challenge before the Indian industrial regulatory system is to devise a framework,
which combines the efficiency of the enterprise with the interests of the workers. The regulators need
also to ensure an investor friendly environment. For this it is necessary to take a holistic view of labour
market regulation and address the reform debate with respect to the Industrial Disputes Act, 1947 (IDA),
Contract Labour (Regulation and Abolition) Act, 1976 (CLA) and other associated labour regulations.
The Indian constitution provides that both union and state governments can enact labour laws, but the
effect of national laws in the local labour market depends upon how well they are implemented. The
different key aspects of labour legislation present across the country today are: restrictions on hiring
measures, hours of work measures and retrenchment, restrictions of dismissals index, cost of dismissal
measures, and the rigidity of employment.


Provisions of the Industrial Disputes Act (1947) and Demands for Change

The debatable areas in the Indian Disputes Act, mainly applicable to commercial and manufacturing
operations, includes: Chapter VB related to the special provisions of lay-off, retrenchment and closure
in certain establishments; Sections 11-A related to powers of labour courts, Tribunals and National
Tribunals; Section 25-F that lays down the conditions precedent to retrenchment; and Section 25-G that
details the procedure for retrenchment, dispute resolution mechanism, adjudication and labour
inspections.

Primarily, the disputable aspect of section 11-A of the IDA is that it permits the labour courts to modify
a retrenchment order dealt to an employee, including the case in which a worker is retrenched on
disciplinary grounds. In U.P. State Road Transport Corporation vs. Subhash Chandra Sharma and Others,
AIR 2000 SC 1163, the Supreme Court observed:
... this section vests the Labour Court with discretion to substitute the order of discharge or dismissal
of a workman into an order of reinstatement on such terms and conditions, if any, as it thinks t or give
such other relief to the workman including the award of any lesser punishment in lieu of discharge or
dismissal as the circumstances of the case may require.

The effect of national laws in the local labour market depends upon how well they are implemented.
Court interference in matters of retrenchment order by an employer is perceived by the companies as
over-interference even in their primary functioning. Further, Section 25-F of the IDA provides mandatory
conditions precedent for retrenchment of workmen. These provisions only prescribe the conditions for
terminating the services and do not confer any right on the workman for permanent absorption, as
suggested by the judicial interpretation in a number of cases, much to the consolation of employers.
Section 25-G lays down the procedure for retrenchment. It follows the principle of last come, rst go,
based on the foundations of seniority of service and rules of social justice. This rule in turn may deprive
the employer to retain their most updated and technically accomplished employees. It violates the
employers right to select among the best workers, and neutralizes the right to retain the younger and
better-trained workers in favour of the older and less trained ones, as the case may be.
Section 25-O of the IDA lays down the procedure to be followed by employers during closure of a
company. It prescribes a condition that the employer should refer the cases of closure to the state

5
government. However, in Excel Wears vs. Union of India AIR 1979 SC 25, when this aspect of law came
into question, the court held that the right to close a business is an integral part of the fundamental right
to carry on a business and it is wrong to suggest that an employer has no right to close down a business
once he starts it. The section 25-O as it stood was declared unconstitutional. Further in G.K. Sengupta
vs. Hindustan Construction Co. Ltd., 1994 LLR 550 (Bom), the court held that such a permission of closure
should be refused only if the Tribunal is satised that the managements action is not bonade, the
principles of natural justice have been violated or such a decision would not justify any reasonable
person in coming to such a conclusion.
Though the approach of the section is to provide the procedure for closing down an undertaking, this
section goes further and, among other things, imposes a restriction of seeking permission by the
employer even to close down his undertaking.

The complication of too much legislation
The presence of a large body of legislations complicates the normal functioning of companies. The
working conditions are governed principally by the Factories Act, 1948; the Industrial Employment
(Standing Orders) Act, 1946, and the CLA. The principal laws relating to wages are the Payment of Wages
Act, 1937 and the Minimum Wages Act, 1948. Laws related to Industrial Relations include the Trade
Unions Act, 1926, the Trade Unions (Amendments) Act, 2001 and The Industrial Employment (Standing
Orders)Rules, 1946.

Further, social security systems in India impose a liability either solely on the employer (Maternity
Benet Act, 1961) or on employers and employees together (Employees Provident Fund and
Miscellaneous Provisions Act, 1952), or on an insurance scheme where employer, employees and the
State contribute to the insurance fund( Employees State Insurance Act, 1948).

There is an urgent need to simplify, rationalize, and consolidate the complex and ambiguous extant
pieces of labour legislation into a comprehensive but simple code that allows for labour adjustment with
adequate social and income security for the workers, together with keeping the globalization patterns
in consideration after wide consultation among employers, trade unions, and labour law experts.

Issues concerning the Contract Labour Act (1970)

Under the provisions of the Contract Labour (Regulation and Abolition) Act, a workman is deemed to be
employed as contract labour when he is hired in connection with the work of an establishment by or
through a contractor for work which is specic and for a denite duration. Thus, contract labour differs
from direct labour in terms of employment relationship with the establishment and method of wage
payment. Contract labour, by and large, is not on the payroll. It is usual that the main social benets paid
by the contractor towards the contract labour are charged back to the establishment.
The Supreme Court of India in the Standard Vacuum Renery Company vs. their workmen (1960-II-ILJ
page 233) observed that contract labour should not be employed where (i) the work is perennial and
must go on from day-to-day; (ii) the work is incidental to and necessary for the work of the factory; (iii)
the work is sufcient to employ a considerable number of full-time workmen; and (iv) the work is done
in most concerns through regular workmen.

The legal regulation of contract workers has profound implications for those enterprises that have a
global supply chain spread over several countries.

6
The CLA was created with the objective of gradual abolition of casual labour hiring, and to regulate the
working conditions of casual labour, wherever permitted. Section 10 of the CLA prevents rms from
outsourcing most core functions or hiring workers on temporary contracts for more than 120 days.
Anyone so employed can demand permanent employment from the company. Also, the appropriate
government under section 10 is authorized, after consultation with the central board or state board, as
the case may be, to prohibit, by notication in the official gazette, employment of contract labour in any
establishment in any process, operation or other work.
The Supreme Court in Steel Authority of India Ltd. vs. National Union of Waterfront Workers & Others
2001 (4) LLN 135 OR, held that the contract workers would have no right to automatic absorption. They
would only have a right to a preference in employment if permanent workers were to be employed to
ll in the vacancies created by the removal of the contract workers. The court added that on issuance of
a notication by the appropriate government under Section 10 prohibiting employment of contract
labour in a given establishment, it is for the contractor to provide work to his labour in other
establishments, where the contract labour system is not prohibited.
Giving permanent status to every contract labourer after 120 days would discourage this policy of hiring
skilled labour for shorter duration and specialized works. This helps the establishment to involve more
labour force on a contractual basis and get work done with efficiency. The legal regulation of contract
workers has profound implications for those enterprises that have a global supply chain spread over
several countries. Contracting out work allows rms to concentrate on their core business and improve
overall competitiveness. Therefore, there is a demand from employers for an amendment of Section 10
of the CLA so that there are sufcient guidelines for deciding any process, operation or other work in
any establishment.

Issues concerning special economic zones

Apart from the demand for changes in the existing labour laws, the increase in the number of special
economic zones (SEZs) and foreign companies in India has led to a fresh stipulation for the relaxation of
labour laws in SEZs areas. There is also a debate about having a new set of labour and employment laws
for the SEZs.

In tone with this demand, in 2001, the Federation of Indian Chambers of Commerce and Industry
submitted a study to the Ministry of Commerce and Industries, which briey sets out some of the factors
for the success of SEZs and advocates a exible labour policy for the zones. The only concern is that the
free market argument with no level playing eld puts workers at the mercy of developers and, therefore,
all labour laws are now applicable to SEZs as well.

To create a new institutional infrastructure that can truly advance the cause of workers and promote
growth, the present regulations must evolve from protecting the job to protecting the worker.
So far there has been a concession on economic aspects, now providing concession on social cost of
doing business would make doing business in SEZ more protable. The support from the Federation and
consideration to this effect of the Ministry would help in the grant of concessions in retrenchment laws
and the CLA.

Shift in the focus of Labour Laws

Indian labour laws are often perceived to be too restrictive on employers and despite repeated demands
from industry for liberalization in the regulatory framework, little legal change has been allowed since
the reforms began in early 1990s.

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However, in recent times and pursuant to globalization, a major shift is taking place in employment from
permanent to temporary, casual and contract employment. This has weakened the collective bargaining
machinery of labour. The voluntary retirement scheme has become one of the main instruments for
reducing the workforce. Permanent workers in non-core activities are removed and contractual workers
are hired either through outsourcing to other rms or direct recruitment. Further, several states have
relaxed the provision of enforcement of labour laws leading to exible practices at the ground level. For
example, the states of Rajasthan, Uttar Pradesh and Andhra Pradesh have reduced the scope of labour
inspection, and have exempted several establishments from the authority of labour inspection.

To create a new institutional infrastructure that can truly advance the cause of workers and promote
growth, the present regulations must evolve from protecting the job to protecting the worker. This
implies transforming current provisions aimed at ensuring job security into mechanisms that protect the
income and welfare of those workers adversely affected by technological changes or market
uctuations.


Major Labour Law Changes 2016-17
Reforms in labour laws are an ongoing process to update legislative system to address the need of the
hour and to make them more effective and contemporary to the emerging economic and industrial
scenario. Accordingly, Ministry of Labour & Employment have taken several reform initiatives, both
legislative reforms as well as Governance reforms through use of technology, to reduce the complexity
in compliance and bringing transparency and accountability leading to better enforcement of the
Labour Laws. These initiatives, inter-alia, include:

1. Payment of Wages (Amendment) Act, 2017 enabling payment of Wages to employees by Cash
or Cheque or crediting it to their bank account.

2. Child Labour (Prohibition and Regulation) Amendment Act, 2016 provides for a complete ban
on employment of children below 14 years in any occupation or process.

3. Maternity Benefit Amendment Act, 2017, increases the paid maternity leave from 12 weeks
to 26 weeks.

4. The Employee Compensation (Amendment) Act, seeks to rationalize penalties and strengthen
the rights of the workers under the Act.

5. Ministry has notified Ease of Compliance to maintain Registers under various Labour Laws
Rules, 2017 on 21st February 2017 which has in effect replaced the 56 Registers/Forms under
9 Central Labour Laws and Rules made there under into 5 common Registers/Forms. This will
save efforts, costs and lessen the compliance burden by various establishments.

6. A Model Shops and Establishments (RE&CS) Bill, 2016 has been circulated to all States/UTs for
adoption with appropriate modification. The said Bill inter alia provides for freedom to
operate an Establishment for 365 days in a year without any restriction on opening/closing
time and enables employment of women during night shifts if adequate safety provisions
exist.

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 7. A category i.e. Fixed Term Employment has been introduced under Industrial Employment
(Standing Orders) Act, 1946 to impart flexibility to an establishment to employ people in case
of Apparel Manufacturing Sector to meet the fluctuating demands of the sector due to its
seasonal nature. Click Here

8. Employees State Insurance (ESI) Corporation raises wage limit to Rs 21,000 for coverage from
Rs 15,000.

9. Amendment to the Payment of Bonus Act, 1965 by which eligibility limit for payment of bonus
enhanced from Rs 10,000/- to Rs. 21,000/- per month and the Calculation Ceiling from 3,500/-
to Rs. 7,000/- or the minimum wages.

The process of Legislative reforms includes consultations with stakeholders including Central Trade
Unions, Employers Association and State Governments in the form of tripartite consultation. During
recent months, several such tripartite meetings have been held for considering suggestions on various
legislative reform proposals where the representatives of all stake holders/State Governments
participated and gave their suggestions on the legislative proposals.

Foreign Direct Investment Policy 2017

The Department of Industrial Policy and Promotion (DIPP) has notified India's Consolidated Foreign
Direct Investment Policy 2017 ("FDI Policy 2017"), effective from August 28, 2017. The FDI Policy 2017
is a consolidation of the various decisions taken by the Government of India in the past one year. The
present consolidation subsumes and supersedes all Press Notes/Press Releases/Clarifications which
were in force as on August 28,2017 and reflects the FDI policy as on August 28,2017.

During the last one year, the Government has liberalised FDI regime by easing norms for a host of
important sectors such as Defence, Civil Aviation, Pharmaceuticals, Private Security, Broadcasting etc.
to boost FDI investment. Most of the changes have already been notified by the DIPP and Reserve
Bank of India (RBI), which are now consolidated in the present FDI Policy 2017.

The FDI Policy 2017 for the first time contains provisions specific to start-up companies. The start-up
companies can issue equity or equity linked instruments or debt instruments to foreign venture capital
investor (FVCI) against receipts of foreign remittance, as per the FEMA Regulations. In addition, start-
ups can issue convertible notes to person resident outside India, subject to certain conditions
mentioned therein. This was already notified by the Reserve Bank of India ("RBI") vide Notification No.
FEMA.377/2016-RB dated January 10, 2017. The aforesaid notification also provides for the meaning
of a 'start-up company' which means a private company incorporated under the Companies Act, 2013
or the Companies Act, 1956 and recognised as such in accordance with the notification number G.S.R.
180(E) dated February 17, 2016 issued by the DIPP. The FDI Policy 2017 also provides for the definition
of "Convertible Notes" which means an instrument issued by a start-up company evidencing receipt
of money initially as debt, which is repayable at the option of the holder, or which is convertible into
such number of equity shares of such start-up company within a period not exceeding five years from
the date of issue of the convertible note, upon occurrence of specified events as per the other terms
and conditions agreed to and indicated in the instrument. A person resident outside India (other than

9
citizens/entities of Pakistan and Bangladesh) will be permitted to purchase convertible notes issued
by an Indian start-up company for an amount of Rs. 25 lakh or more in a single tranche.

The FDI policy 2017 now has a definition of "Competent Authority" which means the concerned
Administrative Ministry/Department empowered to grant Government Authorities for foreign
investment under the extant of FDI Policy and FEMA Regulations. Further, Chapter 4 pertaining to
Procedure for Government Approval provides for the relevant Competent Authorities for grant of
approval for foreign investments for sectors/activities requiring government approvals in light of
Foreign Investment Promotion Board (FIPB) being abolished. It inter-alia provides that the proposals
for foreign investment would be examined by the relevant Competent Authorities as per the Standard
Operating Procedure laid down by the DIPP. In the event the proposals involves total foreign equity
inflow of more than Rs. 5000.00 Crore the relevant competent authority will place the proposal for
consideration of Cabinet Committee on Economic Affairs ("CCEA"). Further, the FDI Linked
Performance Conditions, which is also a new addition, means the sector specific condition for
companies receiving foreign investment. The FDI Policy 2017 also clarifies that conversion of an LLP
into a company or vice-a-versa having foreign investment and operating in sectors/activities where
100% FDI is allowed through the automatic route and there are no FDI linked performance conditions
is permitted under automatic route.

The FDI Policy 2017 also simplifies the definition of 'Venture Capital Fund', which is now defined as a
fund registered under the SEBI (Venture Capital Funds) Regulations, 1996.

Some of the key decisions taken by the Government in the past one year, which are now consolidated
in the FDI Policy 2017 are provided below:

i. Branch office, Liaison office or Project office: For establishment of branch office, liaison office
or project office or any other place of business in India if the principle business of the applicant
is Defence, Telecom, Private Security or Information and Broadcasting, approval of the RBI is
not required in cases where Government approval or license/permission by the concerned
Ministry/Regulator has already been granted. This was already notified by the RBI last year.
ii. Defence Sector: Foreign investment beyond 49% has now been permitted through
government approval route, wherever it is likely to result in access to modern technology or
for other reasons to be recorded.
iii. Broadcasting Sector: The sectoral cap in broadcasting carriage services such as Teleports,
DTH, Cable Networks (Digital), Mobile TV, HITS has been raised from 49% to 100% automatic
route. However, in case of infusion of fresh foreign investment beyond 49% not seeking
license/permission from Sectoral Ministry resulting in change of ownership pattern or transfer
of stake by existing investor to new investor will require government approval.
iv. Food Products: 100% FDI under automatic route for trading, including through e- commerce,
is permitted in respect of food products manufactured and/or produced in India.
v. Civil Aviation: With a view to aid in modernization of the airports to establish a high standard
while helping in easing the pressure on the airports, 100% FDI under automatic route has been
permitted in existing projects under automatic route. The earlier FDI Policy 2016 permitted
upto 74% under the automatic route and beyond that upto 100% through government
approval route. Further, in terms of the Scheduled Air Transport Service/Domestic Scheduled
Passenger Airlines and Regional Air Transport Service, the FDI Limit has been raised to 100%,
with FDI upto 49% permitted under automatic route and FDI beyond 49% through
Government approval.
vi. Private Security Agencies: The FDI Policy 2016 permitted FDI upto 49% under government
approval route in Private Security Agencies. However, the FDI Policy 2017 permits FDI up to

10
 49% under automatic route and beyond 49% and upto 74% is permitted through government
approval route.
vii. Single Brand Product Retail Trading: Sourcing norms have been relaxed up to three years
from the date of commencement of the business, i.e. opening of the first store for entities
undertaking single brand retail trading of products having 'state of art' and 'cutting edge'
technology.
viii. Other Financial Services: The earlier FDI Policy 2016 provided that an NBFC having FDI under
the automatic route is permitted to engage in only 18 specified NBFC activities and financial
activities other than those 18 specified NBFC activities required prior approval of the
Government. The FDI Policy 2017 now allows the foreign investment in other financial services
beyond the 18 specified NBFC activities under automatic route provided the activities are
regulated by financial sector regulators such as RBI, Securities and Exchange Board of India,
Pension Fund Regulatory and Development Authority, Insurance Regulatory Authority of India
etc. Further, minimum capitalization norms as mandated under FDI Policy 2016 for foreign
investment in NBFCs have been done away with, considering the financial regulators prescribe
their own set of capitalization norms. This was much awaited change which is likely to provide
a level playing field in the concerned sector.
ix. Pharmaceutical Sector: The earlier FDI policy on pharmaceutical sector provided for 100% FDI
under automatic route in greenfield pharma and FDI up to 100% under government approval
in brownfield pharma. The FDI Policy 2017 permits 74% FDI under automatic route in
brownfield pharmaceuticals and beyond 74% will be permitted through Government approval
route.

Issues Regarding FDI in India

FDI-funded vs non-FDI funded companies - One of the two issues the other is about the international
banking statistics of India in 2016 that the RBIs July bulletin focuses on is the performance of FDI-
funded companies in the country compared to others that had no FDI in 2015-16. Both the groups
have not done too well in terms of growth and their contribution to gross value added, though
according to the central bank, the FDI companies performance is relatively better than the non-FDI
ones at the aggregate level. In terms of economic growth, 2015-16 has not been a happy year, though
it seems to be better when compared to 2016-17. Therefore, no verdict can be passed on the
performance of either of the two groups of companies. What is of greater interest, however, is the
FDI footprint in the Indian economy. Economists have already noted that FDI contributed no more
than 7-8% of total investments in the last 20 years and more, which coincides with the era of economic
liberalisation. But as the saying goes, the devil is in the details indeed, and it is the details of FDI that
are quite revealing.

FDI footprint in the Indian economy - The number of FDI companies on March 31, 2016, stood at
6,433. When this number is broken down further, FDI in manufacturing is 1,820, while it is 4,070 in
the services sector, of which computer companies and those related to computer activities accounted
for 1,202. The comparable figures for non-FDI companies are startling. The aggregate figure of non-
FDI companies stands at 3,04,978, of which manufacturing has 78,337 companies, services account
for 1,75,926 and computers and related activities firms are represented by 18,040. The few big ones
and the many small will always be the case in a market economy. It can even be argued that you can
do without the big ones, but you cannot do without the army of the small companies. It would be a
gross distortion if one were to judge the usefulness of FDI by these figures. It is common sense that it
is a small number of big companies which earn huge profits and contribute to the overall impressive
growth rate, and that a large number of companies stay on the margins of performance and profits.

11
But the larger number with smaller profits is of great importance because it forms the sheet-anchor
of the economy as such.

Domestic savings and capital formation - In terms of investment, the FDI companies had 40% of the
paid-up capital, which is not surprising. But the corollary needs to be asked Is there adequate capital
provision for the no-FDI companies? It can be seen that 60% of the capital needs of the company are
met through local resources. It is the figures for domestic savings and domestic capital formation that
give a hint as to capital adequacy. In 2014-15, gross domestic savings stood at 33% and gross domestic
capital formation at 34.20%. The corresponding figure for net domestic savings is 25% and for net
domestic capital formation 26.4%. Domestic savings and domestic capital formation are clearly below
the benchmark. The general assumption that a fast-growing economy needs a 40% savings rate holds
good.

International power politics - It would be churlish to either dismiss the crucial role played by FDI in
buoying up an economy or to pretend that there is no politics involved in it. When American political
and business leaders push for relaxation of FDI rules in India, they are not only helping American
businesses but they are also looking at political influence. There should be no illusions on this latter
count.
Remember American pressures on India with regard to sanctions against Iran? India did find it difficult
to manage but it did succeed in keeping its economic deals with Tehran intact. International power
politics follow capital flows from the affluent Western countries into relatively capital-starved
economies of the East. But you do not shy away from allowing FDI in because you fear the political
muscle of the foreign investors and their governments. You learn to take the pressure and play ball
with the apparently big guys on terms of near equality.
The more important issue for the Indian growth story is that it needs to rustle up its own capital as
one goes along. There is as yet not much thinking or debate on the issue. Post-liberalisation, the
thinking has been that India should attract as much FDI as it can. As a matter of fact, the boast of BJP-
led NDA government of Prime Minister Modi and finance minister Arun Jaitley has been that India is
now attracting greater FDI, and that the liberalisation of FDI caps for a larger number of sectors and
the dismantling of the Foreign Investment Promotion Board are touted as achievements on the path
of economic reforms. But the RBI figures for FDI companies show that there is a problem, and that FDI
cannot entirely meet Indias capital needs. And that it would be a mistake to measure the success of
the Indian economy by FDI.

12
 Conclusion

Adaptability is a necessary condition for the continued existence of a legal system. The challenges of the
contemporary world (namely economic, political and social) can be successfully met by either discarding
or by adjusting the labour regulations of the Indian legal system. With huge expansion in cross border
capital, trade technology and information ows becoming a dening feature of the Indian economy,
addressing labour concerns for making conditions more investor friendly would be the next rational step.

With rapid globalization of many industries and vertical integration rapidly taking place on a global
level, at a minimum a firm needs to keep abreast of global trends In their industry thats why our
government must address these issues utmost priority and liberalize policies. FDI flows to the
countries that best fit the needs of the firms and provide them with the best chance for profit with
the most limited risk. o New Government will take more incremental steps to restore investors'
confidence and will make India into the one of the most attractive destination for FDI in the world
once again India will be known as the Dreamland for investors

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