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    November 2015

Will FDI reforms address underlying issues?


The Centre’s recent move of easing the FDI limits in 15 diverse sectors is a step in consonance with the Narendra Modi Government’s mantra of economic reforms. Since the liberalization of the Indian economy in 1991, successive Governments at the Centre have toyed with the idea of easing FDI caps. But the present dispensation’s move in actualizing such a policy is indeed commendable. Our Cover Story analyses the impact of the recent FDI reforms on the Indian economy as well as industry’s reaction on the issue. 
Though the Government’s decision indicates its intention of giving greater impetus to the growing economy, the timing and the manner in which it was announced have unmistakable political overtones. Within 48 hours of the announcement of the Bihar Assembly poll verdict which dealt a stinging blow to the BJP, Finance Minister Arun Jaitley announced the Government’s decision to open the floodgates of foreign investment at a hurriedly called Press conference following a meeting with the Prime Minister and his key aides which raised many eyebrows. Further, the Government not going through the formality of getting the proposals vetted by the Union Cabinet raises a pertinent question as to whether it was an attempt to deflect people’s attention from the BJP’s humiliating defeat in the crucial Bihar elections. 
Even if we set aside the political connotations of the big-ticket FDI investment announcement, there should be a reality check on whether the move will really succeed in bringing more foreign investment and boost the Indian economy and create the much-needed jobs in the country. 
Raising the FDI caps is no guarantee that foreign investment will automatically flow in. There should be a conducive business and legal policy environment as well as proper infrastructure in place to attract foreign investors. As Jayant Patil, Defence Business Chief, Larsen & Toubro, says, “Unless business flows due to its own commercial logic, the new liberalisation measures are mere catalysts.”
The raising of the FDI limit in the defence sector is a welcome step but it should be seen that the indigenous defence capabilities are protected as well. Also the move should ensure that it would bring the latest technology in the Indian defence sector.
Another aspect of the issue is compliance with Indian labour laws. With no clear-cut labour laws in India, the Government should see that the interests of employees in foreign companies are not compromised. Also the Indian economy will grow only when the purchasing power increases which means higher wages and permanent jobs instead of contractual employment. The Government should also ensure that its recent decision on FDI also increases the purchasing power of Indian citizens.
As of now, the big-ticket FDI reforms seem promising but how much the policy transforms into reality at the ground level is the real challenge. After all, as we know that all that glitters is not gold.


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