Govt’s 100% FDI window of opportunity: Why it’s a good thing but could have been even better

The government could have dared to be even more radical given the fact that appetite for investment is low

Written by P Vaidyanathan Iyer | Updated: June 21, 2016 3:19 pm
FDI, FDI in Defence, FDI in aviation, FDI in pharmacy, India FDI, Indian government FDI, Modi government, FDI BJP, BJP, 100 per cent FDI, business news, economy news In sectors such as pharmaceuticals, the foreign investor concern is not so much FDI caps, but on the larger issue of price controls.

With green shoots in the economy looking to strike roots, the government’s decision on Monday to open up a bunch of sectors including defence, aviation, pharmaceuticals and retail to FDI serves one big purpose: it prepares the country for attracting funds as global corporations scout around for better returns with easy ownership rules in promising markets. Amidst global headwinds, India still is an economy with comparatively brighter growth prospects over the coming two years.

It was only last November that the government undertook an overhaul in the FDI regime targeting more than a dozen sectors including construction, airport services, banking, defence, broadcasting, etc. Monday’s measures are a continuation of the progressive liberalisation process. But the government could have dared to be even more radical given the fact that appetite for investment is low, and the scope for improvement both in terms of ‘ease of doing business’ and FDI rules in certain sectors leave many investors only half-convinced about the India story.

WATCH VIDEO | Modi Govt Liberalises FDI Regime: All You Need To Know

 

For instance, why cap foreign airline stake in Indian companies at 49 per cent when you do away with the FDI cap or in other words allow 100 per cent FDI? Foreign airlines, more than private equity funds or FIIs, would be interested in getting a larger share of the growing domestic business. Coupled with this, why shouldn’t the government put Air India on the disinvestment roster?

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In some other sectors, say pharmaceuticals, the foreign investor concern is not so much FDI caps, but on the larger issue of price controls. While the government could have fully opened up the sector (it has now allowed up to 74 per cent FDI in brownfield projects under automatic approval), what’s bothering drug companies is the enlarging scope of drug price controls, which adversely affects profits. The sector can definitely do with more clarity and certainty on the pricing regime.

India did attract record FDI inflows of $55.46 billion in 2015-16 compared with $36.04 billion in the previous year. And FDI is far more durable and sustainable than foreign portfolio investments. FDI in manufacturing creates employment, quite desperately needed in a country like India where a million plus youth enter the job market every month.

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    Twinkle
    Jun 21, 2016 at 9:18 am
    Modi is a fake tiger created and funded by the rich gujjus like Ambanis to benefit themselves. Time to oust this fake chaddi wala
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      Anpd
      Jun 21, 2016 at 11:36 am
      Confused article. Needs a stand .
      (0)(0)
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      1. A
        ajit v
        Jun 21, 2016 at 9:48 am
        but i have hope country is functional anarchy - any well planned strategy will be collapsed by people in long term know how enron collapsed,
        (0)(0)
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        1. A
          ajit v
          Jun 21, 2016 at 11:19 am
          start BDS movement - boycott, divestment, sanctions against R2S moody and cronies
          (0)(0)
          Reply
          1. A
            A
            Jun 21, 2016 at 11:17 am
            One third of the revenue earned is going to the ry,and pension funds of the govt. Employees. With the implementation of another pay commission report it will go further up. About the efficiency, the less said it is better. Unless this chunk of employees are consciously reduced and accountability is introduced nobody can davevthis country
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