The liberal FDI rules are for quick bucks, not consistent reform

Discussion in 'Politics & Society' started by parijataka, Jul 20, 2013.

  1. parijataka

    parijataka Senior Member Senior Member

    Oct 15, 2011
    Likes Received:
    The liberal FDI rules are for quick bucks, not consistent reform

    The dollar-rupee rate status has been made into a crisis and that crisis has perpetuated a set of announcements on easing the norms that govern FDI. It is not clear whether the fall of the rupee was a crash or a correction. Some, such as I, believe that it was a long overdue correction given higher and persistent inflation in India than in the developed world. Others, such as those in the government, put more emphasis on the possibility of greater inflation due to cheaper rupee. And therefore the need to prevent the rupee from falling into the 60s and ideally taking the dollar-rupee rate back to somewhere close to the 55 number.

    Quick Bucks, not Growth

    It is impossible to foretell where the markets will take the rupee if the government does not intervene. Yet we believe in the power of the markets to provide a better exchange rate than that mandated by the RBI or the finance ministry. And that is why we encourage well-functioning forex markets, with minimal intervention by the RBI.

    I would expect the same rules should apply in an election year as in other years. So what if we do not like the fact that the rupee is now much cheaper, the fact is we created the macro-economic conditions that led to this outcome and the markets are broadly taking it towards its natural level. But the government has decided that it wants a stronger rupee.

    Understanding the objective of any change in policy is important, as that enables a better appreciation of what has been achieved versus what could have been. In this tranche of FDI reforms, the objective is not growth and economic efficiency (they may be by-products though), but earning quick bucks in the form of FDI. And even if greenfield investment does not occur, as long as there is some probability that FDI will flow in, the rupee will get some support.

    Some of the changes are, therefore, more sound-bytes than actually impactful. That is, changing the norms in an industry where there is no inherent investor interest will have zero impact in terms of FDI, but will give the government a larger list to release to the press. That is the precept around which these reforms, if we can call them that, are based.

    The Meekness of Change

    One aspect of these changes was the domination of the services sector. It is well known that Indian industry is in a bad mess, and we could do with some changes in the laws that govern manufacturing investment. Apart from large industry-backed easing of FDI norms in defence production and in refining, there is nothing for industry.

    The reason is, of course, clear; this government has given up on the manufacturing sector. It sets up commissions and committees under well-meaning geriatrics, but does little by way of what is actually required to save this sector from annihilation. The lower rupee would have helped India's much-weakened manufacturing sector compete both domestically and internationally.

    Another facet of these changes has to do with the meekness with which changes have been made; in some cases 26 per cent has been changed to 49 per cent and in others FIPB approval has been changed to automatic approval. In other words, the cap has been loosened a bit, but the cap remains omnipotent.

    This further shows that the negotiation powers of the PM & Co with the Congress high command are highly limited. In other words, not only does the PM have little say on economic issues anymore, but the government under Sonia and Rahul is not one which has the will or the ability to reform.

    Zeros of Reform

    This gets us to the last major issue. This government has little in its kitty. It is unable to change policy because it has few degrees of freedom available to it politically. It is unable to place executive orders because of lack of vision within the Congress. And it is unable to have a vision or generate a consensus because there is no clarity within itself. And, therefore, its only resort is cheap talk and costless signals to play up the economy, under the mistaken belief that if you shout something repeatedly and in different ways, eventually the investors will start believing as well.

    There is a significant possibility that this government will return after polls next year; for its own sake if not for the country's, the Congress needs a new leadership that knows how to get things done. But it is choosing as its flag-bearers a set of people who are zero at implementation and quite inept at reforming where reforms are really required.
    Known_Unknown likes this.
  3. anoop_mig25

    anoop_mig25 Senior Member Senior Member

    Aug 17, 2009
    Likes Received:
    Well its ploy to fill pockets of INC rather then India election time where is money going to come form business men are allready out of money
  4. Ray

    Ray The Chairman Defence Professionals Moderator

    Apr 17, 2009
    Likes Received:
    Announcement alone will not bring in the bucks.

    Even FDI in retail has not brought in the required funds.

    Investors have lost confidence in the manner how India is being governed with flip flops and also immense discord in the Parliament to pass the requisite legislation.

Share This Page