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Skirting tiol Effort

Sentinel Digital DeskBy : Sentinel Digital Desk

  |  22 Jun 2016 12:00 AM GMT

Close on the heels of Raghuram Rajan’s decision to leave the Reserve Bank of India, the rendra Modi government launched a second wave of foreign direct investment (FDI) reforms allowing 100 per cent inflows in civil aviation and food processing sectors while also easing norms in defence and pharmaceuticals—steps that are seen as attempts at neutralizing the fallout of Rajan’s exit (which has acquired the acronym of Rexit). These decisions were taken at a high-level meeting chaired by Prime Minister Modi that was advanced by a day in order to send out the right sigls that the government was ready to welcome foreign investors to even more sectors of the Indian economy. The announcement had the effect of steadying the stock market and was welcomed by some companies. At the same time it set a lot of people thinking about the ultimate consequences of the tion choosing the path of least resistance in such matters.

There is no gainsaying that the recent state of the Indian economy has been a source of concern for a lot people. There has been a fall in the manufacturing activities in the country, the quality of manufactured goods has fallen (going partly by the huge number of cars manufactured in India having to be recalled by the factories for defective components) and the Indian manufacturer’s respect for the domestic consumer appears to have undergone a further decline. This is clearly a time for belt-tightening and serious introspection, and not for further easing of the conditions for manufacturing industries by launching a second wave of foreign direct investments. This is clearly also the time for greater fiscal discipline and not for protection to irresponsible industrialists who have dumped hundreds of crores of bad loans on our banks. People are turally surprised at the unwillingness of the government to publish Raghuram Rajan’s list of bank loan defaulters, considering that Fince Minister Arun Jaitley had promised to publish even the list of those with large hoards of black money soon after he had taken charge in 2014.

The second dose of liberalization of FDI can have beneficiary effects in certain sectors, but is bound to stoke a casual approach in manufacturing industries in many cases. The 100 per cent automatic investment for small airport projects will be welcomed because they will open up air links to smaller towns and provide employment to a large number of youths. A new segment where 100 per cent FDI has been permitted is the processed food sector. There is no doubt that the food processing segment will gain if foreign investors show interest in this segment. There will also be increased employment and transfer of technology to local food processors, but the fact remains that the shortage of unprocessed food will continue to increase while more expensive processed food becomes more easily available. This may not be the best approach to the distribution of food in a poor country. However, if it does have a major impact on India’s ability to export processed food, the FDI liberalization may be of benefit to our economy. Some of the other liberalizations of FDI are likely to benefit just one major foreign company, and are unlikely to have an impact on our economy. One such single-brand beneficiary of the latest FDI liberalization is Apple that is trying to expand its presence in India, the world’s fastest growing market for android phones. Foreign fund inflows to the Defence sector are bound to be low because it is a single buyer market. Last year the Defence foreign fund inflow to India was a measly Rs 1.12 crore. But if the FDI is opened up for sophisticated state-of-the-art defence equipment, our armed forces might stand to gain substantially. Otherwise, the liberalization might be confined to small arms (pistols, rifles and ammunition of less than 12 mm calibre). All said and done, the real worry should be not what a liberalized FDI will do to our products or supplies, but rather what it will do to our attitudes to work, manufacturing practices and responsibilities of respecting deadlines, production targets, prices and consumers for whom goods are manufactured.

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