Prime Minister Modi has done well to bring FDI in a number of sectors, but the big change is the labour reforms which will make short-term jobs a reality. The Government must now sharpen its strategies to attract investments
Prime Minister Narendra Modi has broken from the past and ushered in a new economy. The NDA Government has allowed 100 per cent foreign direct investment (FDI) in defence, civil aviation, greenfield pharmaceutical projects, broadcasting carriage services, food products, e-commerce and relaxed sourcing norms for up to five years for single-brand retail trading.
The Government has also brought in ‘labour reforms’ through package for the textile and apparel sectors. Now Ikea and Apple can take a sigh of relief as they can set up their stores in India. Foreign pharmaceutical companies can also set up their units in the country.
The Prime Minister’s Office said that the decisions will make “India the most open economy in the world for FDI”. Possibly this can be true as the country prepares for the mega-spectrum auction.
The decision to allow 100 per cent FDI in defence marks a major push for defence manufacturing under the ‘Make in India’ initiative. The Government has dropped the requirement for ‘state-of-the-art’ technology requirement to apply for FDI relaxation above 49 per cent.
While the Government has been aggressively pushing global defence companies to set up manufacturing in India, one of the major limitations has been the 49 per cent FDI limit which meant that Indian partner would hold a controlling stake in the joint venture.
In the past, the Government had stated that relaxation above 49 per cent can be given on a case-by-case basis through the Foreign Investment Promotion Board (FIPB) for state-of-the-art technology and depending on the extent of technology transfer.
The new policy may force Indian companies to re-look at their plans as it reduces dependence of original equipment manufacturers on domestic manufacturers. That may change the dynamics of business. But it is possibly a clever ploy so that no company gets undue advantage in business, security and political brinkmanship.
A 100 per cent FDI in aviation will open up skies and the five-year operational requirement to fly abroad will help new airlines set up as joint ventures. This should have been taken as an opportunity to close down, sale or lease out the Maharaja — Air India — that drains the exchequer continuously. Air India is bleeding and no amount of infusion of funds will help. However, the new policy does not prevent that. It will be wise on the part of the Government to unshackle the Maharaja and let it decide its own fate.
Severe competition is also on the cards in the broadcasting sector — cable TV, mobile TV and DTH. It will also see investments pouring in. This sector hopes to have a large Indian market. Still many regions need services of various kinds. There is expectation that high-end clients may have tailor-made needs. The market at the lower end has also scope for expansion.
It is also to be seen how pharmaceutical companies bite the bullet. With the recent curbs on prices of scores of drugs, they may be a bit slow to invest. They are used to high profits. Social service is not in their blood. But if they decide to come, it is possible that there will be price wars to the benefit of the consumer.
A major hitch for most foreign investors is the labour law, though mostly these are observed in the breach. Recently, India refused to accept World Trade Organisation norms on labour. It drew flak from the Bharatiya Mazdoor Sangh.
The Government has virtually introduced new norms as it announced the Rs6,000 crore textile package and expects creation of one crore jobs in the textile industry over the next three years. The Centre also plans to invest Rs74,000 core in textiles.
It has allowed short-term employment of up to 150 days. Earlier it was for 240 days. But now workers will get wages equal to those employed on a regular basis. Besides, employees can opt out of the Employees Provident Fund (EPF) scheme. The Government will bear the cost of EPF contribution and give relief to the employers. It also announced Rs5,500 crore duty drawback to boost exports.
Hardcore trade unionists will see it as dilution of the present norms. But in practice, the industry has been doing this in different garb. The new rules will at least ensure that all those working in the industry will be mentioned in muster roll and get the fixed wages.
The dilution of EPF norm will ensure that there will not be deduction as most such cuts went into dead EPF accounts as such small contributions were difficult to claim. The policies may attract foreign investors, who were critical of stringent laws.
The policies apparently were formulated with precision over a period of time. They were announced in phases as well so that the people could realise that the Government is in action mode.
But the industry and the Government have to do more to have real investment. Industry grapevines say for that strategies have to be sharpened. It is expected to have the impact in about three to five years. Followed up with élan, it may change the face of India as a world manufacturing hub.