Letters: Financing the CAD

This refers to the report "Centre may eye FDI to finance high CAD" (June 18). This and many other reports refer to the government trying to attract more foreign direct investment (FDI) through various concessions to finance the current account deficit (CAD). However, FDI actually plays a major role in worsening CAD. Most companies that attract FDI consume the foreign exchange received through FDI in less than two years, and then become net consumers of foreign exchange. According to a recent study, multinational companies, on an average, send out net foreign exchange more than eight times its capital. While FDI comes once, from second year onwards, a multiple of that amount is required year after year for servicing the investment and for their imports. In fact, another report showed how Indian corporates had become net consumers of foreign exchange and their import dependency had increased to 30 per cent. Multinationals are the worst culprits - as far as the net consumption of foreign exchange is concerned. The medicine that the government is trying to administer is worse than the disease.

Mahesh D Bakhai Mumbai

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