Finance minister P Chidambaram has pledged to lift the caps on foreign direct investment in several sectors and revise prices of locally-produced gas and power tariffs in an effort to narrow down the current account deficit. His attempt to win back market confidence by bringing in new reform measures is welcome. However, it is unlikely to boost investor sentiment in the absence of concrete measures on the ground. Even if the Reserve Bank of India opts for another rate cut during its review of monetary policy, ignoring the fall of rupee and continued inflation worries, this will not help if it is not accompanied by corresponding government action to clear administrative hurdles in the way of investments. Many of these do not require legislation but can be achieved by simplifying the administrative procedures and regulations which can be done through executive action without going to Parliament.
However, it is crucial to implement reform measures whole-heartedly and not as the government did in the retail and aviation sectors, by opening up to foreign players only to come out with complicated regulations that put investors off a few weeks later. Lack of clarity in the policy and stiff conditions have driven away global players like Wal-Mart, Tesco and Carrefour despite the government permitting 51 per cent investment in multi-brand retail. Recent clarifications from the Department of Industrial Policy and Promotion have added more rigidity and disincentives and will result in further delay in investment decisions.
The urgency of revving up business confidence and investment flows is undoubted. Of the 588 Special Economic Zones approved, only 158 have started exports till date. The National Investment and Manufacturing Zones meant to energise industry have been moving at a snail’s pace. Investor sentiment must be encouraged by clarity and forward movement in crucial areas such as land acquisition, interest rates and regulatory uncertainties.
