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Modi Sarkaar makes a big bet on FDI, but will it work?

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shimadrish
-Writer is an Activist and former Media President of Delhi University Students Union.
 

For the first time Narsimha Rao government under the leadership of then finance minister Dr.Manmohan Singh open the doors to the world what came to be known as the great economic liberalization of 1991, which was more of a compulsion. Indian economy was in a muddle with a $70 billion loan and an ascending trade deficit.

The economic reforms initiated opened door for foreign investments, deregulated markets and reduced taxes. It was in 1991 when the Indian economy for the first time linked itself with the global market setup which led to Indian economy escalate into as much as 9 percent.

Now the new government under leadership of Prime Minister Narendra Modi made a big bet on Foreign Direct Investment (FDI). The reforms decisions which took place made India the most open economy in the world for FDI. Defence, Pharmaceuticals, Air transport, Information and Broadcasting, food processing saw approvals for 100 percent FDI. The reason for governments FDI commitments are again more by compulsion.

As pointed out by the World Bank in India Development Update Indian economy faces serious challenges. “The challenge for the Indian economy is to activate the stalled engines – agricultural growth and rural demand, trade, and private investment, while ensuring that demand from urban households and public investments – the working engines of the economy, do not run out of fuel,” the report said. The India Development Update expects India’s economic growth to be at 7.5% in 2015-16, followed by a further acceleration to 7.8% in 2016-17 and 7.9% in 2017-18.

FDI inflows to India touched $55.46 billion in 2015-16 from $36.04 billion in 2013-14 which the centre attributes to policy reforms it has undertaken in last two years. The debate is on over the decision on raising the FDI limit in defence production to 100 percent. With the raising of FDI cap in defence would ensure India’s access to the latest technologies available.

It is to be noted that despite increasing budgetary allocation by the government, the sector has failed to keep motion with other sectors. It is essential as most defence products involve use of advanced and state of the art technology which India lacks and can get transferred only when a foreign partner has a long stake in the company. The industrialization has indicated that a country cannot sustain its demands and consumption within its territory. It has to depend for materials, technology on other lands too.

 

Defence equipment available today are vintage and needs replacements. Moreover, there are many developed countries who have permitted 100 percent FDI in defence. With a globalized setup and increasing competition between countries defence is one such sector which needs maximum attention. With 100 percent FDI in defence it would invite foreign firms into the country eager to make state of art jets, warships, arms and tanks.

The centre believes that FDI in India’s sectors such as Defence, Pharmaceuticals, Air transport, Information and broadcasting, food processing would benefit all as “this will bring modern technology, improve rural infrastructure, reduce wastage of agricultural produce and provide cost effective-people friendly solutions. But we have to analyze the possible impact of the decision on Indian economy.

In the ultimate analysis, the government must go ahead with this decision because opening of country under the new economic order is a must to cope with new requirement of global order. The process of liberalization which started in 1991 cannot be reversed now as the nation has to go outrightly to make its presence in the world market. What is needed is to find out those aspects which may be adverse to the interest of nation and its people.

 

When a country opens its borders to free movement of technology, goods, services and market the market provides incentives to move the country resources into their highest value uses, thereby facilitating economic growth. It has opened up broader communication lines and brought more firms as well as different world organizations into India. This provides opportunities for not only workingmen but also women, who are becoming a larger part of the workforce.

The main hurdle for the government is its ideological parent – RSS. The RSS affiliated body Swadeshi Jagran Manch has called the government decision to 100 percent FDI especially in food processing as a betrayal of farmers of the country. No political party can afford to command the interests of almost five crore people and hope to survive. There have already been cries of market dictatorship and loss of democracy from sections of political leadership.

The opening up of the sectors is not an automatic guarantee of increased economic growth and exports. If Chinese exports have grown since it allowed FDI in the retail sector, then it is because of Chinese strengths in terms of manufacturing, infrastructure and labour laws. Neither of these are favorable in India. Though, Modi’s governance process seems to be running in momentum. In the hindmost two years the administration has certainly moved from an epoch of policy mobility to an epoch of policy primacy. Let’s Hope for the Best!

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shimadrish
-Writer is an Activist and former Media President of Delhi University Students Union.

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