Last week the Government further opened up 15 major sectors of the economy for foreign direct investment. Among these were key sectors such as defence, civil aviation and broadcasting. Investment norms were eased in construction, agriculture and banking as well. Even in the media, caps on foreign investment were raised with a few conditions. Overall, the intention was to signal that the reforms process was very much on course and despite the Bihar loss the government was committed to boost growth.
A significant decision was to allow up to 49 percent foreign ownership in defence projects without the need for prior permission. Automatic clearance for foreign investments was a key part of the rationalisation process. The upper limit for the Foreign Investment Promotion Board to give single window clearance was nearly doubled to over $750 billion. Private sector banks were allowed to raise the foreign stake up to 74 percent provided it did not result in the change of management. Also, single-brand retail foreign brands were granted relief, making it easier for the likes of the iconic Apple Inc. to open own stores in the country.
It was not surprising that a section of the BJP-affiliated Bharatiya Mazdoor Sangh was the first to criticise decisions meant to liberalise the foreign investment regime. The ghost of Swadeshi — or voodoo — economics still seems to haunt its bigwigs. Predictably, the leftists too have murmured in protest —they would cease to be leftists if they didn’t. Other political players have not said anything significant though the Congress Party can be expected to oppose them for the sake of opposition alone. They might have liked to do the same thing were they in power now, but now that they are reduced to a paltry 44-member group in the Lok Sabha they must make their presence felt. The government has expressed confidence that the above decisions would pass muster in Parliament. Hopefully, they would because these can help boost growth, and send a message to the world markets that India is the place to invest in, and for signaling to the domestic corporate sector that despite the setback in Bihar the Centre remains committed to reforms.
Foreign direct investment in the first six months of the calendar year rose by 30 percent over the same period last year. Following the above decisions, foreign investment could pick up further. Notably, India has emerged as the number one destination among all emerging economies for foreign direct investment. Following up on the FDI reforms, the government further announced a slew of measures on Wednesday which ought to dispel any impression that it had lost its stomach for tough economic decisions. It cleared a 10 percent stake sale in Coal India which could fetch up to Rs.21,000 crores. This should help in partially meeting the budgeted disinvestment target of nearly Rs 70,000 crores for the current fiscal. It was also decided to make an initial public offering of ten percent in Cochin Shipyard, the largest shipbuilding and repair facility in the country.
No less significant was a three percent interest subvention scheme to boost exports which have been sagging in recent months due to poor economic conditions in Europe. In the infrastructure sector, multiple ministerial approvals for road-building projects up to Rs. 1,000 crore were to be dispensed with. These decisions will immediately benefit 34 stalled projects. Another decision which should make for faster clearances for national highway projects was to segregate land and civil costs of such projects. The cumulative effect of the above decisions will be to boost growth. The aam aadmi may not immediately gain but eventually benefits will flow to everyone once these measures help in boosting overall growth. Incremental reform is the only route possible in noisy and fractious democracies. After the IMF-World Bank – ordered switch from the closed and growth-killing socialist regime in the early 90s, incremental reform remains the most prudent route the rulers can take, especially when the Opposition is uncooperative and obstructionist. Hopefully, more such reforms will be unveiled to boost the overall economic sentiment.
