FDI has a new definition

Rakesh Khar, Siddharth Tak / Zee Research Group

A country that the world was happy to describe as among the best economies of the world at the start of the year with some calling it among the most favorable destination for investment, the year 2011 has ended ironically with many arguing that foreign investment is the Forever Destructive Idea (FDI) in India.

The Foreign Direct Investment climate in the country indeed turned a full circle with the government first clearing a proposal to bring in retail FDI in November but soon climbing down completely in face of all round political opposition to the idea. A meek United Progressive Alliance (UPA) surrendered admitting that it had not done its home work well and that the decision would remain suspended until a consensus was arrived at.

India’s reform agenda unleashed in 1991 demonstrated to the world that when it came to taking some hard decisions for medium to long term growth of the country consensus seeking was not the top most priority. The famous ‘Bombay Club’ that went hammers and tongs against the reforms agenda seeking protection against global business had to eat a humble pie. The key message being that it is not always that good economics makes for good politics.

But what happened during the last few weeks has come as a shock to many who see merit in India’s ability to take some hard decisions. As politics (in this case vote bank politics) prevailed and hawks within the UPA as also the principal opposition party BJP turned ecstatic at the turn of events, India’s world view took a severe beating. The eternal optimists too now have turned their head away fearing being caught in the political crossfire raging over foreign direct investment in the country.

This is not to argue all about FDI is correct but what obviously is incorrect is the way we have gone as a country about dealing with the issue exposing our underbelly of narrow political currents and cross-currents. Dr Manmohan Singh led government too floundered and floundered badly in communicating its intent in inviting in FDI in retail perhaps numbed by the unexpected opposition from within.

But Dr Singh had shown mettle to navigate opposition of all kinds including putting at stake his own survival on the nuclear issue. Looking back one wonders whether that happened because he then enjoyed the support of UPA Chairperson who this time stuck to her enigmatic silence as the best way to steer clear of the retail FDI mess. Wish, Dr Singh, like at the time of the nuclear controversy, had first and foremost convinced Sonia Gandhi of the virtues of bringing FDI in retail, and thus kicked off the second wave of reforms in the country, and most importantly redeemed to some extent his own image. But it was not to be!

What else would explain the shocking silence of traditional pro reformists like P Chidambaram on the FDI retail issue? But then that could be another story of not so a happy relationship between Singh and his home minister in wake of PMO’s 2G correspondence saga. While domestic politics showed its ugly turns and twists with BJP shedding its Vajpayee led pro reform agenda to embrace the ‘swadeshi’ tag like never before, the investors abroad got the message: stay away from India, at least for now, and hopefully not forever.

The truth is that FDI levels have been headed south. Data sourced from ministry of commerce and industry shows that FDI equity inflow in 2008-09, which was US $27330.82 million, fell to US $25,834.41mn in 2009-10. During 2010-11, FDI equity inflow continuously fell to US $ 19,426.90 and this year FDI equity inflow from April to September only US $ 19136.84 million.

According to the analyst community here there is an obvious reason for the dip. Vishal Ajmera at CARE Rating says, “This could primarily be attributed to the global economic slowdown as well as concerns emanating amongst the global business community regarding the ease of business environment in India”. Jagannadham Thunuguntla, research head, SMC Global Securities, is less diplomatic, “Lack of decision making of UPA government is responsible for the poor FDI performance.

The UPA regime has also rejected the proposal to raise FDI in insurance sector to 49 per cent. This has been rejected by UPA government on the ground of saying this FDI would not have the desired impact and worse expose the economy to global vulnerability.

Confounding the confusion in mid December over India’s FDI story this year has been the ‘last but not the least’ statement of Congress general secretary Rahul Gandhi who came openly in support of FDI in retail. All this after his government had shut the door on the decision. Or, is it a case of a door left half open?

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