Snap the red tape

Pushing the door open a bit wider for foreign direct investment seems to consume so much energy, there is little left for doing what is ne...

Pushing the door open a bit wider for foreign direct investment seems to consume so much energy, there is little left for doing what is necessary to actually attract FDI. Funds are not going to flow in, like flies into a jar of honey, merely because the door is opened a fraction more. Given that global competition for capital is likely to become more intense, India can increase its share only with focussed and aggressive action. A number of other measures must be taken to boost FDI. The latest proposals from the group of ministers on foreign investment encompassing several sectors will,if approved by the cabinet, need to be accompanied by the removal of procedural hurdles, streamlined approval processes, promotional efforts abroad and, not least, selling the idea at home. Among the group8217;s recommendations are 100 per cent FDI in hotels and tourism, in subsidiaries of non-banking finance companies, in bulk drug manufacturing, in township development projects. FDI may be raised to 51 per cent from 40 per cent in domestic airlines.

The intentions are good but the will to convert them into action is often lacking. How much new FDI will flow in depends on improvements in various areas. Objections from the civil aviation ministry to raising the FDI ceiling for domestic airlines have not apparently been overcome as yet. And policy coherence has still to emerge. A draft aviation policy is being circulated and discussed with industry representatives and it will be some considerable time before it can be finalised. Among key issues up in the air is Sharad Yadav8217;s insistence on social obligations. He clearly would like to impose them on potential strategic partners of Air India and Indian Airlines and other domestic operators. The development objective 8212; flying unprofitable routes 8212; will not be in conflict with the interests of shareholders if a system of incentives rather than obligatory routes is used. The least that the government can do is sort out all such confusion quickly.

Civil aviation is but one area where the absence of policy clarity is a deterrent to new investment, domestic and foreign. Project approvals are still complicated in many fields and present an obstacle race few are inclined to run despite the glittering prizes held out at the finish line. There are complaints even about reformist, forward-looking states like Karnataka where as many as 22 project approvals are required in some cases. Evidently state bureaucracies have not been licked into shape. And maddening dead-end procedures continue. One example. Foreign liquor companies are not permitted to acquire Indian distilleries without approval from the misnamed Foreign Investment Promotion Board. But the Board cannot give a decision because liquor licensing is a state subject. The growth potential of the tourism industry would double and treble with new investment and practices, and there would be enormous spin-offs. But that potential can be realised only if the government anticipates opposition from local,industry and environmental lobbies and frames suitable and clearly stated rules. Opening the door is not the hardest part of getting FDI.