Big bang reforms in FDI welcome

The big bang reforms announcement of easing the investment environment to attract foreign direct investment (FDI) in 15 high-profile sectors underscores the possibility of initiating reforms that don’t need legislative approvals; the government should now maintain this momentum.

These initiatives follow closely on the reforms in the power distribution sector announced last week. Among the sectors that will benefit are real estate, civil aviation and the non-news TV channels, direct-to-home companies and cable operator companies where there was a 75 per cent cap on FDI. The defence sector and private banks, left out earlier, have now been included. The 100 per cent FDI permitted in completed construction projects is good for the developer but hardly for the consumer. The government’s objective in this case was to boost its housing-for-all programme and it remains to be seen how this will help.

But if there is a rush of investment in constructed projects it will only serve to keep prices high as developers have been keeping lakhs of flats empty rather than bringing down prices in the hope of getting funding. Banks have not been lending to them and they depended on private equity. The 100 per cent FDI in ground handling and helicopter services will push the government’s new aviation policy that seeks to take flying to the masses. Interestingly, FDI via the automatic route, which was applicable only to tea plantations, has been extended to five items — rubber, coffee, cardamom, olive and palm oil. Among the controversial sectors that will benefit is single-brand retail where brands like Apple will be able to open fully-owned stores.

Whilst the reforms have been widely welcomed, there are still nagging doubts about ease of implementation at the ground level. The government has taken measures to cut red tape, it has simplified processes but they are not on the scale needed. Various foreign agencies have said India still remains the most attractive investment destination. But the states are yet to undertake reforms to make the conduct of business easier. Maharashtra, for instance, remains one of the most corrupt places to do business. One has only to visit the stamp office to understand what is happening at the lower levels in this BJP-ruled state. The Modi government is yet to comprehend the damage that corruption and red tape are doing to India’s image. This is a sad matter, and one of concern, because Prime Minister Narendra Modi has by his relentless pursuit of FDI on his visits abroad has brought in 40 per cent more investment last year. But many foreign companies keen to invest are waiting on the sidelines.