Centre’s new initiative to boost growth and jobs
By dramatically easing norms for foreign direct investment in as many as 15 sectors, the Narendra Modi Government has clearly messaged that the loss in Bihar will not impact the ongoing economic reforms process. This commendable signal will assure investors and the business community that the Government has the political will to push ahead with reforms regardless of a few electoral setbacks, and sets the tone for the forthcoming Union Budget. That the announcement and the relevant notification came hours before Prime Minister Modi's visit to the United Kingdom is significant.
The UK is one of this country's important trading partners, and the visit is expected to provide a major boost to economic ties between the two nations. Investors in the UK have been told through the opening of sectors and easing of norms of FDI that their ease of doing business in India has got easier. But the message goes beyond the UK; the Prime Minister will be proceeding to Turkey for a G20 summit where he will interact with a host of important economies and woo them to invest in India — something that he has been consistently doing in the many foreign trips he has undertaken since taking charge in May 2014. With the floodgates opened in FDI, he will have something more concrete on which to make a successful pitch.
The other reason for the Government's decision has to do with encouraging private investment. So far, despite measures the regime has taken, private investment in at least the core sectors has not flowed in the expected quantum, thus leaving public investments to fill the gap. Of course, public investments have their own limitations and the needs cannot be adequately met. The Government hopes that its new initiative will spur private investors, both here and abroad, to put their money where their mouth is. Senior Union Ministers have been asking the private sector to develop an appetite for risks and not merely look to the Government for sops. It appears that private investors have yet to recover from the UPA days.
In the FDI reforms that will positively impact a host of sectors ranging from construction to civil aviation to defence to banking to single-brand retail and even the media, there has been a concerted attempt to speed up decision-making. For instance, the Foreign Investment Promotion Board now has the authority to clear proposals of up to Rs5,000 crore; the earlier cap had been Rs3,000 crore. FDI up to 49 per cent in the defence sector will be granted automatic approval, thus cutting down on time, since investors will not need to approach the FIPB for clearances within that limit.
The Government has also provided for automatic approval for 100 per cent FDI in non-news and downlinking of television channels. News and current affairs TV channels and FM radio can now inject up to 49 per cent with Government approval; it was 26 per cent earlier. Coupled with the many incremental measures the Union Ministry of Finance has taken in the past, the fresh wave of FDI reforms should help better realise the Government's many ambitious schemes. When more private funds flow into key business sectors, public investments can be more optimally utilised in social sector projects that are critical to a developing country.