Prime Minister Modi-led NDA government gave the much needed boost to the economy through the announcement of Foreign Direct Investment (FDI) reforms in 15 sectors. These reforms are all set to benefit sectors like manufacturing, defence, agriculture, plantation and broadcasting. The outset of manufacturing sector for wholesale, retail as well as in e-commerce sector will be a mainstay to realize the dream of “Make in India”. The few other proposals were given approval aimed to aggrandize the sectoral caps so that, investors do not face fragmented ownership issues and are able to readily deploy their resources in India. The bottom line of these reforms is to enhance the ease and simplify processes of investment in India.
SOME MAJOR REFORMS:
To quote the words of Finance Minister Arun Jaitely, “Reform is always an ongoing process, there is no finishing line as far as reforms are concerned.” Following are some of the initiatives of government to make India irresistible hub for FDI:
- The proffered reforms enhance the limit of Foreign Investment Promotion Board (FIPB) from current INR 3000 crore to INR 5000 crore
- In the defence sector, 49% FDI is permitted under automatic route and anything beyond through the nod of FIPB
- Portfolio investment and investment by foreign VC’s permitted upto 49% under automatic route
- In broadcasting sector, 100% FDI has been allowed in DTH, teleports, cable TV and mobile networks where 49% is under automatic route and beyond with the approval of FIPB
- The full fungibility of foreign funds has been introduced in private banking sector as FDIs/FIIs/QFIs can now invest upto 74% provided there is no change of control and management of Investee Company
- 100% FDI has now been permitted for duty free shops under automatic route
PERFECT TIMING OF REFORMS PUSH:
The major reforms push come two days post the BJP loss in Bihar assembly elections despite PM Modi giving his heart out to the election campaign. In order to reaffirm the investor’s faith, it was essential for the government to come up with these measures & reinforce the government’s narrative on economic reforms. Moreover, the step is crucial as it is being viewed as one of the major PR strategies for the Modi’s high profile visit to UK in the backdrop. It is considered as a significant image booster for the government which was corroded by the on-going “intolerance debate”.
IMPACT ON THE ECONOMY:
The easing of FDI norms is a reflection of “unequivocal and unwavering” commitment of the government for development and reforms so that they touch the life of every citizen. There is a significant rise in FDI inflows in the country as it could be seen from graph (1).
The raft of reforms and efforts to drum up overseas investment by Modi government could be clearly observed by the rising trend in inflows. It has become easy to raise capital in the country with the advent of these reforms. The fund starved construction sector experiences liberalisation. It is plain sailing for the foreign investors to introduce a highly advanced supply chain which could help local producers and boost the efficiency in the economy. FDI is, thus, primarily a vital factor in influencing the contemporary process of global economic development.
THE ROAD AHEAD:
India is indubitably a lucrative investment destination for foreign players but, there are a few loopholes that pose a series of challenge till present. It is vital for government to hone these areas to perfection so that India could rank number one in terms of most sought after countries to invest in. Inspite of the obvious merits offered by FDI, the following discussed are a few challenges that need to be taken care of:
- RESOURCE CHALLENGE: India has a vast pool of untapped resources. There is abundance of not only manpower but, also of capital. The focus of government should be to channelize the available resources so as to facilitate investment decisions of foreign players in India.
- EQUITABLE DEVELOPMENT CHALLENGE: India being a diverse country necessitates the equal development across all the regions and sections of society. There are many rural areas that have vast potential but are inadequately exploited. To embark the journey of $5 trillion economy, it is essential that the social equality is fostered among all the sections of the society.
- POLITICAL CHALLENGE: The political structure prevailing could impact the inflows from FDI in the economy. Investors want stability in governance. Any upheaval due to change in governance directly tarnishes the image of the country. So, effective means of dealing with such fiasco needs to be modelled by Modi government to assure investors & reinforce their faith.
- FEDERAL CHALLENGE: Policy changes need to be accompanied by its well in time implementation and execution. Modi government has a set of structured reforms which compliments his vision of Building Brand India but it is essential to follow up the implementation of suggested FDI reforms. The taxation rules and ease of doing business is what needs to be taken care of for building strong foreign investors sentiments.
Hence, if the Modi government succeeds in vanquishing these challenges, India could become nucleus for plethora of foreign investments and once again known as the “Golden Bird” as it was in antiquity.
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