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Journalism of Courage
Liberalising FDI limits will be meaningless if the line ministries end up blocking foreigners
In the face of the opposition by various line ministries,the government has done well to try and hike the FDI limits in various sectors. Indeed,the fact that the prime minister cleared the hike in FDI levels in insurance,from the existing 26 per cent to 49 per cent,suggests the government is willing to slug it out in Parliament. It may even have had some back-channel discussions that suggested it could pull it off,in quite the same manner it managed to push through FDI in multibrand retail. The question,however,is whether foreign investors will be enthused enough to bring in the dollars India needs if the rupee is to remain at even current levels. Right now,given the likely current account deficit of around 80 billion in FY14 as well as expected FDI and other flows,India is short by around 20-25 bn,which is making the rupee depreciate. Normally,that money could come in through FIIs,but given the appreciating yields in the US,they have pulled out 2.9 bn between April 1 and July 15.
Similarly,not long after the UPA risked its government on FDI in multibrand retail,its industry ministry has come up with rules that have prevented even one global retailer from putting in an application. One such rule says that once a foreign retailer develops an SME as a supplier 30 per cent of sourcing has to be from SMEs and that SME grows in size,that sourcing will no longer be seen to be fulfilling the norm. In the defence sector,where FDI caps have been raised,this is to be allowed on a case-by-case basis. Conditional clearances,past experience has shown,simply dont work.
