FDI is what PM Narendra Modi needs

Mumbai: In the last 10 months, Prime Minister Narendra Modi has performed very well on the foreign policy front. However, on the domestic front, chinks are beginning to appear in his armour, and I am not referring to the massive victory of the Aam Aadmi Party in the recent Delhi Assembly elections, where it won 67 out of the 70 Assembly seats.

Mr Modi’s first mistake was the Bharatiya Janata Party-People’s Democratic Party alliance in Jammu and Kashmir, which has begun to embarrass him and shock the nation. Within days of the new Mufti government coming to power, the state government has praised Pakistan and the Hurriyat for “permitting peace” during the recent Assembly elections, there’s been the demand for the mortal remains of hanged terrorist Afzal Guru to be brought to Kashmir, separatists are being released from prisons, including the hardline Hurriyat leader Massarat Aalam. Even an “Azadi rally” has been permitted in Bijbehara. Clearly, it’s only a matter of time before the hard-earned stability in J&K collapses.

It is believed that India urgently needs $1 trillion as foreign direct investment to improve its creaking infrastructure, create millions of jobs and kickstart the economy. About $95 million has already been pledged by China, the United States and Japan. The Modi government has announced that by 2022 (75th anniversary of our Independence), it will build 30 million houses, provide toilets, electricity and potable water for the entire population. But one wonders how this will be achieved.

The actual estimate of dwelling units needed for the entire population are more than 40 million. On February 11, while watching a TV programme, I was surprised to know that to build 22 million dwelling units of 1,000 square feet each, the country would need $2 trillion. While I am not an expert, but even if this figure is proved wrong and reduced to $1 trillion, then the question for a layman like me is, how will India, with a $2 trillion GDP that is currently the world’s third-largest (in PPP terms), find the funds needed to build 30 million dwelling units as promised by the Modi government?

Additional funding would also be required for building new roads, ports, airports and shipyards, cleaning the Ganga and generating over 300,000 megawatt additional electrical power in the next five to 10 years. For the record, the current 2015-16 Budget has earmarked Rs 70,000 crore (approx $12 billion) for infrastructure. Clearly, Mr Modi needs to attract massive FDI very soon.

While the current auctions of coal blocks and 2G/3G spectrum are expected to bring in additional funds of Rs 300,000 crore, the government needs to disinvest Air India, hotels and non-performing PSUs to raise more funds quickly. Mr Modi, who is on a Saarc tour to Mauritius, Seychelles and Sri Lanka, will need to redouble his efforts for attracting FDI, especially from the US, Japan and China, without compromising India’s national interests.

India’s latest defence budget of about $40.4 billion (Rs 2,46,727 crore) is a marginal increase of only 7.7 per cent over the previous year’s budget, though another additional Rs 54,000 crore for military pensions and Rs 8,852 crore for MoD civilian expenditure have been allocated separately. Considering that $100-200 bn is expected to be spent in the next decade for induction of urgently needed equipment for the armed forces, clearly the latest budget, a mere 1.74 per cent of the GDP is not enough if India is to meet the increasing challenges from terror, Pakistan and China.

Another area which may not do as well as expected is the new “Make in India” policy, which is the correct policy if India is to ever get out of the rut of permanently importing large quantities of military hardware. The reasons for my pessimism here again are the hugely unrealistic expectations raised on this subject. While the FDI has been raised from 26 to 49 per cent in defence, it would be unrealistic to expect foreign original equipment manufacturers (OEMs) to transfer the complete designs and technology just because the government is willing to set up a few “defence manufacturing special exclusive zones” where attractive tax holidays would be given and exports of hardware permitted.

Even if the FDI is further raised to over 51 per cent in order to enable foreign OEMs to control the organisation and protect its investment and intellectual property rights, the fact remains that India will need another 10 to 20 years to get the requisite skilled manpower to be able to absorb the latest technology available. There are reports that the Indian aerospace industry itself will need an additional 200,000 skilled personnel in the next 10 years. Add to this the need for skilled manpower to build warships, nuclear submarines, weapons and sensors for the three services, as well as experts in the fields of cyberspace and space, strategic weapons, homeland security, etc., and we can safely expect that India would need about 300,000 highly skilled personnel in the next decade, and these people would have to be paid attractive salaries to ensure that they do not migrate to foreign lands or get lured by foreign OEMs.

Mr Modi faces major challenges in moving India forward economically and fulfilling his election promises of achhe din. He is the right man for this difficult task, but he needs at least 10 years to get the economy going on the path to irreversible double-digit growth, and lifting 400 million people out of dire poverty. The future and security of India depends on the type of bold and innovative decisions he takes in the next few months.