"New Rules The Need Of The Hour, But...": What Manufacturers Say About FDI Changes

Contract manufacturing is the outsourcing of part of the manufacturing process of a product to a third-party.

In financial year 2018-19, FDI into India fell 1 per cent to $44.37 billion.

After the Cabinet's decision to allow 100 per cent foreign direct investment in contract manufacturing through automatic route, many manufacturers have mixed reactions as to how the policy changes will affect their factories. Contract manufacturing is the outsourcing of part of the manufacturing process of a product to a third-party, specializing in design, production, assembly and  distribution.

Narendra Poddar, a textile manufacturer who employs around 100 workers, fears that with this decision, foreign companies can set up their own manufacturing units with their own contractors, thus wiping out the business for small-scale contractors.

"With this FDI now, they will come and exploit our labour and do more harm to the industry. I don't think it is a good idea," said Mr Poddar, owner of Nandan Textiles in Badlapur near Mumbai.

Rajesh Sharma, who also works in the textile industry, agrees with Mr Poddar, but also believes that the government must have taken this into account.

"I think the government needs to think about us as well... But I'm sure they must have thought about this," says Mr Sharma, owner of Shree Textiles.

However, RK Bhatia, who has been a manufacturer of defence material and other supplies for 38 years, is upbeat about the bigger picture.

In financial year 2018-19, FDI into India fell 1 per cent to $44.37 billion. Wednesday's easing of rules could turn that around, believes Mr Bhatia.

"It is the need of the hour. FDI is needed if India wants to have a quantum jump in the rate of development. If we want to have a growth like Singapore, we need 10-12 per cent growth rate in the GDP. For that, companies from abroad are needed," he adds. 

With this decision, the government expects that a much-needed boost will be given to the economy. 

But some fear that any exploitation of this decision may prove detrimental to small-scale industries.

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