Exits, FDI, and More

What a fortnight it has been. As we go to press, the United Kingdom has voted in a referendum to exit the European Union. It was a remarkably close vote, practically split down the middle. The markets around the world are going crazy, and in India, the rupee and stock indices are plunging. I think the markets are overreacting because the implications of Brexit will only be clear much later. If it triggers a global financial crisis, it will obviously affect our economy, too. If the markets calm down in a few days or even weeks, India should not be very badly affected. Indeed, it may even gain. On page 26, we look at the short-term impact of Brexit.

Meanwhile, the government announced a major initiative on FDI. Prime Minister Narendra Modi had tweeted that the new norms would make India the most open country in the world as far as FDI was concerned. That may be a bit of a stretch, but there is no doubt that the NDA government has been consistent in its FDI approach. Twenty-five years after then Prime Minister P.V. Narasimha Rao and his Finance Minister Manmohan Singh started on the path of economic reforms, we are now more open and integrated with the global economy than ever before. On the other claim that this FDI will create a lot of jobs and give a boost to Make in India, I have some doubts. A lot of the FDI inflow in past years has been financial investments, and not necessarily money meant for projects. And while all FDI is important, money for greenfield projects has far greater impact in terms of jobs. We look at the impact of the FDI moves in our story on page 34.

There were other big events as well. We lost our bid to be part of NSG because of China’s opposition. It is a setback to our efforts to increase nuclear energy production, but I am sure we will not be hurt in the long run.

Prominent leaders deciding to step down from their roles. Yogi Deveshwar, the longest-serving chairman of ITC, who took over when it was in the midst of a crisis and then turned the tobacco company into a huge diversified conglomerate that today earns half its revenues from other areas, announced that he would relinquish his executive role in 2017. S.K. Roy, Chairman of LIC, also decided to retire two years before his term ended. But the biggest talking point was Reserve Bank of India Governor Raghuram Rajan’s announcement that he was going back to academia when his threeyear term ends on September 4.

Because of his high public profile, his looks and his academic credentials, and also his penchant for articulating his opinion on a range of subjects, Rajan had transformed the profile of the RBI governor. His predecessors were eminent people, but they were not as well known to the public as Rajan. Most RBI governors have been known only to bankers, finance ministry officials, and financial journalists. Rajan was the only one about whom even people with no interest in interest rates talked about.

Rajan had set about making major changes to the financial markets and the RBI after he took over – from cleaning up the banking system to deepening the reach of the banking industry. His successor will need to decide which ones to follow up. Our cover story (page 46) looks at the tasks Rajan embarked on and the status of each one of them.