With the country's economic growth at its lowest ebb in the last decade and the currency in free fall, the UPA government has opened up several sectors such as defence and telecom to FDI. But will this measure work? AK Bhattacharya, editor of Business Standard, joined IBNLive readers for an interaction on the issue.
Q. Has the govt and Congress fearing NaMo tide, jump started economic reforms all of a sudden. Why is it that govt chose auto route for most of the sectors where FDI has been opened? Your thoughts. Asked by: EM
A. To attribute Wednesday's robust FDI policy liberalisation drive to the government's fear of the NaMo tide would be incorrect. What led to the much-delayed FDI policy relaxation in many sectors is the government's concern over the widening current account gap and the need to bridge it. Choosing the automatic route is always a good option, doing away discretionary control over such clearances.
Q. Was it a wise move to have 100 percent FDI in Basic cellular services at a time like now. People from all over the world is asking why US is snooping on other countries citizens? Will we see a repeat of Snowden or like NewsCorp in the future? What steps have govt ensured in securing the rights of its citizens? Asked by: EM
A. It is unfair and patently incorrect to judge an FDI policy liberalisation move only from such a standpoint. Allowing 100 per cent FDI in basic cellular services will not compromise the Indian citizen's privacy rights. There are and there should be necessary safeguards in the way a telecom company operates, even after 100 per cent FDI authorisation, so that Indian customer's privacy rights are honoured.
Q. By restricting FDI in Defence to 26 percent and making CCS decide on state of the art technology, will this see an increase in corruption in Defence deals? Why can't we have defence collaborations with other countries like France, Israel, etc? This would also help in boosting our defence capabilities both in terms of knowledge and self-sufficiency. Why is the govt still reluctant to do the needful for the country? Asked by: EM
A. This question is pointing towards too many confusing things. Corruption in defence deals could see a rise if discretion takes precedence over transparent and rule-based guidelines. In some defence FDI cases, a review by the Cabinet Committee on Security could even protect the country's strategic interests as well. But corruption could take place even when 100 FDI is allowed in all sectors. The question of defence collaboration and FDI liberalisation are not contradictory - both can be pursued simultaneously.
Q. I think this finance minister has failed in his duties by seeing the way rupee is diving, inflation, FDI, balance of payment etc. Asked by: Prathap
A. This finance minister assumed charge only in August 2012. Will it be fair to blame everything wrong with the economy on him? If someone is squarely responsible for the current mess, it is the prime minister who in spite of his deep knowledge of the economy failed to intervene and adequately influence the previous finance minister to take the necessary steps to prevent the economy's downside. This finance minister can be blamed for his over-emphasis on the need to finance the current account gap instead of facilitating an improvement in the investment climate and increased flow of long-term capital.
Q. Matters on pending for years together cleared in a single meet, using Arvind Mayaram's report. How and why did this sudden realisation happen to the GOM? Asked by: sundar1950in
A. The widening current account gap that has brought down India's import cover to less than seven months.
Q. If the government had done the same at the beginning of their second innings, it would have yielded results. Now, when their term has come to an end, its nothing more than tokenism. Asked by: S ESHWAR
A. Well, something is better than nothing. These were steps that should have been taken long ago. These steps are not going to solve any problem immediately or in the next six months or a year. Foreign investors too are wary of the politically uncertain future that the country is staring at in the next year and a half. So, even if the FDI policy is liberalised, why would they lock in their capital through FDI? And remember that FDI policy liberalisation alone is not what gets FDI into the country. It is also necessary, along with FDI policy liberalisation, to increase the ease of doing business in the country, where India fares quite poorly, and to relax the labour and land acquisition laws adequately.
Q. I think this will take a long time to give results but may help in long run. Asked by: Sathyaki
A. Yes, I agree. Please read my response to S. Eshwar's question.
Q. Have you noticed any major positive welcome moves after the decision on FDI was announced by the GOI recently? Asked by: sundar1950in
A. No. But then it is too early to expect some welcome moves within just a couple of days of the FDI liberalisation move initiated last Wednesday. The fact of the matter is that the moves announced last Wednesday are still not full-fledged government decisions and are yet to be approved by the Cabinet or notified by the industry ministry. So, the wait for the actual notification could take a few more weeks.
Q. Has corruption been an issue in slower FDI happening? Remember VW in AP, Walmart in India and Enron in Mumbai and such cases where allegations were in open. Asked by: sundar1950in
A. Not any more than in other decisions of the government.
Q. Have you done some research you find that ROI in FDI in transfer of technology surpasses our expectation? Asked by: Uttam
A. Technology transfer and productivity gains are two of the many benefits that FDI brings in. Successful technology transfer also depends on the commitment of the foreign partner in the FDI project and the Indian partner's ability to absorb the technology. Generally speaking, Indian companies' experience with technology transfer through FDI initiatives has not been too happy.
Q. Opening up and FDI in Insurance sector was strongly opposed by Left.Now getting this sector on the auto route up to 49 percent in FDI will be facing resistance of Left. Has the UPA 2 decided to go in to 2014 without an opening to left to join it? Asked by: sundar1950in
A. Seeking the Left support the form the next government was never going to be an option for the Congress or the UPA. So why should that figure in their calculation?
Q. FDI in telecom to 100 percent. With the 2G scam still in court and the magnitude of economic loss still not clear, was this hurry necessary? Asked by: sundar1950in
A. There is no evidence to suggest that lower FDI or no FDI in telecom would have prevented the kind of telecom scam you are talking about. Such scams would have happened irrespectively of the FDI policy in place.
Q. Heavy withdrawals of FII and rupee nose diving, sloe growth rates, recession still hanging over - was this the right time to make these hasty decisions on FDI, which will sees not much of an incoming FDI? Asked by: sundar1950in
A. Not doing anything would not have earned the government or the economy any additional gains. On the contrary, by way of a positive signal to foreign investors, the FDI policy liberalisation moves would help in shoring up the international business community's sagging confidence in India.
Q. Detroit in Debt.The automaker HQ is in disarray. Sign of serious economic crisis Globally with European countries monitoring the market on a hourly basis. When the rich are suffering.How can the poor India not get affected. From where does GOI expect the FDI to come in? Asked by: sundar1950in
A. Good question. But with a market that is still growing and the economy still expanding 5 per cent annually, if India cannot attract foreign investment, not too many other countries can either.
Q. Committed FDIs of past by POSCO and ARCELOR have been withdrawn. Both have blamed inaction by the state in assisting the project to take off. Is there no co ordination between Centre and state on FDI? Asked by: sundar1950in
A. The two projects have had different backgrounds. But yes the Centre should have monitored the projects to ensure that they did not suffer this fate.
Q. Any green field project with large investments get protested to on the guise of land grabbing,environment issues or affecting local industry. Is there a lobby working in this to get benefited by making such protests in the name of locals,associations or a PIL applicant? Asked by: sundar1950in
A. Difficult to speculate on that point.
Q. Jet Etihad has hit the hurdle. Between ministries there is difference of opinion. Is the compromise of National security and it's wealth worth to bridge the CAD? Asked by: sundar1950in
A. Policies should never be held hostage to private interests.
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