India’s easing of FDI rules to boost confidence

The Narendra Modi-led government in India deserves credit for pursuing a consistent approach to economic liberalisation. The government has eased rules for foreign direct investment (FDI) for the fourth time in three years and opened key sectors. Crucial changes have been made to the single-brand retail, which would now allow 100 per cent foreign ownership. The sector had been partially open for a few years, but firms had reservations on the mandatory 30 per cent local sourcing requirement and restricted access of 49 per cent. The government has done well to address these concerns, leaving the field open and offering a five-year holiday on the sourcing requirement. The move is mutually beneficial. Indian workforce, especially the young, will get jobs, the know-how; local manufacturers would evolve as per the global standards; and foreign firms get the business, which is a win-win. A slew of other changes include real estate brokerage, power exchanges and aviation. Air India, in specific, will benefit. The national carrier has been a laggard in the burgeoning sector due to its crippling debt and governance issues.

Home to over a billion people, India is a dynamic market and sought after by foreign players but have largely shied away because of rigid laws and unfavourable environment. The present government, however, has done well to address issues and bring changes that will show positive results in time. For instance, the Real Estate Regulation Act, Goods and Services Tax, and Insolvency and Bankruptcy Code are monumental reforms that will help bring in transparency. Notably, these changes in conjunction with the latest FDI rules will help India gain technological advancement and reduce bureaucratic restrictions. The benefits are already visible. FDI inflows have increased noticeably over the last three years. The World Bank expects India to grow at 7.3 per cent in 2018 and 7.5 per cent in the next two years — fastest by a large economy. With reforms such as these kicking in, it is hard to contest why not.