Furthering reforms, promoting growth

A careful assessment of the perceived gains accruing from reform against the possible adverse fall-out needs to be made before rejecting foreign investment.

Published: 09th September 2012 08:09 AM  |   Last Updated: 09th September 2012 08:09 AM   |  A+A-


Indian economy is faced with a slowdown and discussions over taking forward the reforms process to reverse this trend are making headlines. A key item being debated relates to further liberalization of the FDI regime. More specifically, policy makers are talking about FDI in the context of multi-brand retail, pension, insurance, aviation and the defence sector. While there are arguments on both sides, my submission is to examine the issue of FDI in its totality. And if on balance the positives outweigh the negatives, then we must go ahead leaving ideologies aside.

Consider the multi-brand retail sector, which today is closed to foreign participation. Opening this sector would have a bearing on retail trade, farmers and industrial workers. But for a large part these would be positive. Thus to dismiss FDI here as being anti-competitive and therefore unwarranted is incorrect. Global experience shows that FDI in this sector supplements growth, enhances innovation, encourages competition and brings down prices and it therefore merits our approval.

A related area is that of agriculture. Food security is a national mission and if allowing FDI in the retail facilitates, at every point in the value chain, access to new advances in farming technology to boost productivity, yield better returns for farmers and add to the nation’s food stocks, then why the opposition.

In any case no policy is a panacea for growth and development. Any policy reform that is introduced entails a trade off. A careful assessment of the perceived gains accruing from reform against the possible adverse fall-out needs to be made before rejecting foreign investment.

Such comprehensive thinking must also pervade any discussion on FDI in manufacturing. No one can possibly deny the benefits that would ensue if FDI bolsters trade linkages by allowing the host country to export to third countries via the company that channels foreign investment. Export-oriented FDI can thus become a win-win for both the supplier of investment and the recipient.  In fact, investment is a concomitant to durable trade relationships.

That brings me to some other contentious areas such as FDI in pensions and insurance. Opening up of pension sector and enhancing FDI limit in insurance would energize these sectors but significantly support investment in infrastructure projects that can then have affordable long term sources of funding necessary to counter the long gestation and high gearing of infrastructure projects. Let us also remember that investment in physical infrastructure is the most stable form of investment. No one can possibly take our infrastructure facilities away!

I feel that there is clear need for a change in basic mindset regarding FDI. For instance, in aviation and defence sectors, we need to have an open mind.

Foreign investment in aviation would doubtless benefit the country if those channelizing funds are certified to be qualified to run airlines. So also in the defence sector. If FDI beefs up our military preparedness and in no way compromises with the country’s security and sovereignty, it should be encouraged.

At the end of the day, we need to put in place checks and balances and evolve methodologies and frameworks to overcome challenges rather than sidestepping the issue or being dismissive about it.

The author is the President of FICCI


-- Sunday Standard


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