The opening of nine sectors, including defence, food trading and aviation, to larger foreign direct investment has been rightly hailed as a game-changer. But, more than that, the new FDI policy reflects a change in the mindset of the government. For instance, all the bogeys of security that haunted the defence and telecommunications sectors have been overcome. In fact India, in this matter, is ahead of the US which does not allow full ownership of broadcasting by non-US entities. India’s new foreign direct investment policy provides between 49 and 100 per cent foreign investment in various aspects of broadcasting.
Whilst this opening up is welcome, there is a lot that needs to be done in the area of ease of doing business and erasing the interface between the public, business and industry and the bureaucracy. The bureaucracy’s stranglehold is still very obvious and they continue to hold sway over Prime Minister Narendra Modi’s visionary and liberal schemes and ideas. For instance, in the opening up of the defence sector, the new policy permits over 49 per cent FDI in defence through the government approval route in cases where modern technology is made available.
Earlier it was “modern and state-of-the-art technology”, but the latter has been removed, and, inexplicably, the word “modern” has been left in. Will the bureaucracy be better at deciding what is modern than the investing company? This only reveals that the bureaucracy still has a large presence even as Mr Modi is trying to simplify things and make life easier for business. The objectives of the government — getting foreign investment and generating jobs — are achievable. The FDI permitted in existing airports will bring in investment and will boost the new civil aviation policy which envisages making flying affordable for the masses.
For sentimental reasons the government seems to still want to protect domestic carriers and has capped FDI by foreign airlines in this area at 49 per cent. But even more interesting is the FDI in retail food processing. Companies like Walmart can bring in best practices in warehousing and supply chains.
It seems more than a coincidence that the government decided to announce this FDI policy on Monday, a couple of days after RBI governor Raghuram Rajan’s announcement that he would quit after his term ends in September sent shock waves across the country. The FDI policy certainly changed the sentiment of the stock market, which did open in the red but soon recovered and saw a robust closing. The Rajan episode was almost forgotten by the afternoon. The government was quick to assure the world that big-ticket reforms were very much on the top of its agenda.
