To read a general vote of foreign investor confidence in IBM’s decision of upgrading its presence in India would be overly optimistic. It is the one sector that has been and is free of active official policymaking, and investors, domestic and foreign, have been pretty much left to decide their business for themselves. Of course the government apathy-inspired infrastructure constraint will bite in at some point. But pending that, big-ticket investment in IT should really been seen as the norm, not a wondrous exception. The terribly sad thing is that, had government policy not intervened, big-ticket foreign investment could have become the norm in plenty of other sectors as well.It is extraordinary, for example, that two governments, one led by the BJP and the other by the Congress, haven’t had the commonsensical courage to allow for retail FDI. Traders’ lobbies unnerved the BJP and the Congress is not willing to take on the Left. This, when there’s abundant evidence that small retailers have flourished alongside big chains in most countries and that retail FDI has high employment generation capacity. Mining, a sector that shows up as a laggard in all GDP estimates, is another victim of unfathomable policy paranoia — Coal India’s slothful monopoly is equated with national interest, at a time India needs a huge jump in the quantity and quality of coal, given its power generation needs. In roads and transport, FDI, as well as domestic private investment, is confronted with politicians using medieval intrigue as policy. India should be getting five to six times more FDI than it gets now to build its national infrastructure and for providing new services to its increasingly affluent middle class. That is not happening because we don’t have a simple policy: FDI in all sectors should be free except those figuring in a very small, publicly known negative list.China, of course, gets that order of FDI. But all the envious talk about Chinese policy clarity misses a point — India has a great advantage in terms of far superior corporate governance standards, a modern legal system, a comparatively better intellectual property rights protection regime and, in general, better institutional environment. How can we fall so far behind, with so much going? Because our governments make too much policy.
