Foreign investors will bring money, confidence
Throughout their election campaign, the Bharatiya Janata Party and Mr Narendra Modi effectively hammered home the point that the Congress-led UPA regime had ruined the country's economy and that one of the first things they would do if voted to power is to set it right. Now that Mr Modi has become the Prime Minister, expectations are high on his assurance. It appears that his Government is inclined to take immediate measures that will send the right message. One of the biggest bottlenecks to growth in crucial sectors of the economy, besides environmental clearances, has been the paucity of funds. If reports are to be believed, the new regime has prepared the ground to tackle the issue. It is expected to open up infrastructure, defence and railways for foreign direct investment up to 100 per cent. This is akin to hitting two birds with one stone: First, the move will get these sectors precious funds which they can invest in building new capabilities and enhancing existing ones. The second is that it will win over the confidence of the global investor community who will begin looking at India with renewed interest. After all, foreign investments will be needed not just in these areas but elsewhere too. The net result of the flow of such investments will be increased productive activity in these sectors directly and indirectly, which will then lead to a jump in employment opportunities all around. While there is no clarity on whether the Government will announce the new initiatives as part of its Budget that will be laid before the country in July, or do so earlier, what is evident is that the process has been set in motion. The Union Ministry of Commerce has, for instance, circulated a draft report on the possibility of opening up the defence sector to 100 per cent FDI from the existing 26 per cent.
The need to have enhanced FDI in defence production had been doing the rounds during the Congress-led UPA regime as well, but neither then Prime Minister nor his Defence Minister had the political will to take a call. They were also surrounded by alarmists who told them that opening up sensitive areas such as defence to foreign investors could severely compromise national security. The fact is that issues of national security can be dealt with by placing effective checks and balances. Defence sectors across the world have opened up to foreign investments without compromising national interests. On the contrary, the move has given their defence preparedness an advantage because of cutting-edge technology which they can access through the FDI route. It is amusing that Congress leaders are today claiming that the Narendra Modi-led Government is following in their regime's footsteps in wanting 100 per cent FDI in defence. There is a big difference between wanting to do a thing and doing it.
If the Government takes on the full FDI route in kick-starting growth in the core sectors, it can mitigate the criticism over its refusal — at least for the moment — to open up the multi-brand retail sector to FDI. While the Congress-led Government had cleared FDI in multi-brand retail, it never got off the ground because of strong opposition from many State regimes which refused to implement the decision. This situation has not changed on the ground.