FDI: Round-tripping by another name?

Analysing the official discussion paper, Industrial Policy -- 2017, Prof R Nagaraj asks,"Is FDI the new engine of growth." "Flagging the boom in foreign direct investment (FDI) inflows, the paper claims it as a badge of of success for the official policy." Since April 2014 total FDI has been $156.53 billion, of which $45.15 billion was in 2014-15, $55.56 billion in 2015-16, and $60.08 billion in 2016-17. These are huge numbers when converted to Indian rupees so the economy must be doing well. In reality, economic growth has fallen sharply, wrote M Chakravarty. GDP growth was 5.7% in the first quarter and growth in Gross Value-Added, or GVA, was 5.6%. Private consumption, gross capital formation, industrial production, and exports were all down. At 7.8%, four-fifths of the growth was in the services sector. Why are private investment and industrial production falling if foreigners have invested so much money? "Currently, FDI does not come from leading global producers of goods and services, but from shadow banking entities such as private equity (PE) funds. In 2014-15, PE accounted for 60% of total foreign inflows, and the top three recipients were Flipcart, Paytm and Snapdeal (Bain & Co,'s 'India Private Equity Report 2016)." "PE funds do not commit to fresh capital formation or invest in technology, as expected of FDI." Instead, they sell out when valuations of their investments increase. "Put simply, inward and outward FDI flows apparently represent channeling of global capital via India to take advantage of tax concessions (called 'treaty shopping')." In short, this is a legal form of 'round-tripping', that we Indians are so used to. Foreign Direct Investment is considered to be better because it is long term investment in business, which creates new jobs, whereas Foreign Portfolio Investment is considered hot money because it is in shares and bonds, which can sell out suddenly. Seems that FPI is masquerading as FDI in India, which is why economic growth is sluggish. What to do? The government should forget about fiscal consolidation and increase spending to stimulate growth, wrote A Ranade. This what politicians are contemplating but officials in the Finance Ministry fear that increased spending may push up inflation and current account deficit. Shares and the rupee are falling because of fears of increasing fiscal deficit. In addition, the Federal Reserve announced selling of bonds to reduce its balance sheet and FPI investors are selling Indian stocks. Where is the money going to come from? "Public expenditure is grounded in taxation, and taxation is considerable use of coercion," said economist V Kelkar. The public is being dazzled by big projects, which are not working, wrote C Kalbag. People do not understand economics. They like being dazzled.