A number of businessmen with whom I have had conversation in the last few days are not finding much logic in the Centre's recent decision to hike the foreign direct investment limits in a host of sectors. While some of them are raising concern about national security, which, according to them, could be threatened due to further opening of the FDI gates in sectors like defence, telecom and media, almost everyone I talked to are of the view that the Centre has run out of all other options to pull the economy out of its slump, and now they are pinning all and every hope on foreign investors' money.
Personally, I am not against the idea of opening up of the market, but what I find surprising and worrying is the rush at which the policy makers are churning out such decisions. What are the decisions based on? Are all relevant factors considered before allowing FDI in these sectors? Are we compromising with long-term interest of the national economy for the sake of some 'quick fix' solutions? Such questions are dime a dozen. And most importantly, our national security should always be the top priority.
And now look at the irony: the same day on which the government announced its FDI proposals, South Korean steel major Posco revealed its decision to pull out of Karnataka where it was planning to set up its Rs. 31,800-crore steel plant, citing 'long delay' in acquiring the required land as the reason. The next day ArcelorMittal, another giant in the steel industry, also announced scrapping of its Rs. 40,000-crore integrated steel plant in Odisha, giving similar reason. This may be a mere coincidence but the fact remains that India is still an unattractive place for foreign firms to do business. If the bumps are not smoothed out, FDI invitation is not going to fetch much result.
In the World Bank's 'Doing Business 2013' list, India ranks 132 out of 185 countries. This goes in line with our entrepreneurs' view that time, costs and difficulties in running a business in India are very high, and it is, in fact, so challenging that these days even some local entrepreneurs are showing interest in shifting their manufacturing bases outside the country. I think improving the business ecosystem — an area to which policy makers have never given much attention — can bring much more results than any other means.
Now, coming back to FDI, I think the government is creating no less mess by means of confusing guidelines. For example, in September 2012, they lifted curbs on FDI in multi-brand retail but so far no global retailer has moved to file applications. Some experts view that this is because of lack of clarity on some critical issues, such as investment in back-end infrastructure, local sourcing, population limit, etc. Similarly, restrictions on FDI in B2C e-Commerce, which could be a much faster route to attracting foreign investment, haven't yet been removed. These concerns should be urgently addressed.
I invite readers' feedback. Do you think the government is on the right track?
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