India Today - - FROM THE EDITOR IN CHIEF - (Aroon Purie)

This month 25 years ago, I watched the Narasimha Rao govern­ment open the doors to the world in what came to be known as the eco­nomic lib­er­al­i­sa­tion of 1991. There was no op­tion re­ally—it was more of a com­pul­sion. The In­dian econ­omy was in a mess. It owed the world $70 bil­lion, over­spent Rs 40,000 crore an­nu­ally and stag­gered un­der a soar­ing trade deficit. The rapid­fire re­forms scaled down im­port tar­iffs, dereg­u­lated mar­kets, slashed taxes and opened the flood­gates of for­eign in­vest­ment. The re­forms were prompted by the In­ter­na­tional Mon­e­tary Fund, which pressed for de­fla­tion and dereg­u­la­tion in ex­change for emer­gency loans. It seemed like a huge gam­ble at the time but worked spec­tac­u­larly well. In­dia’s econ­omy rock­eted into a high growth tra­jec­tory, grow­ing by as much as 9 per cent in 2006-07, dur­ing the UPA govern­ment’s first term. Twenty-five years later un­der Naren­dra Modi’s NDA govern­ment, growth has once again re­vived to 7.6 per cent, even over­tak­ing China for the first time. Now the govern­ment has an­nounced a set of ma­jor FDI re­forms, throw­ing open the doors to in­vest­ment in nine sec­tors, in­clud­ing avi­a­tion, de­fence and phar­ma­ceu­ti­cals, to ac­cel­er­ate the na­tion’s eco­nomic growth. The econ­omy is far more ro­bust than it was in 1991, but is con­fronted by new chal­lenges. Agri­cul­ture has been hit by two con­sec­u­tive years of drought, pri­vate in­vest­ments are down, ex­ports have plum­meted and man­u­fac­tur­ing is flag­ging. These trou­bles have di­rectly im­pacted the job mar­ket. As I noted in my let­ter just two months ago, sur­veys have shown that job cre­ation this year has plum­meted to just 91,000 jobs— down from nearly 500,000 jobs in labour-in­ten­sive in­dus­tries last year.

The govern­ment sees For­eign Di­rect In­vest­ment as the fuel to rev up the econ­omy. Ac­cord­ing to govern­ment data, FDI in­flows to In­dia touched $55.46 bil­lion in 2015-16 from $36.04 bil­lion in 2013-14, which the govern­ment at­tributes to the FDI pol­icy re­forms it has un­der­taken in its two-year rule. The govern­ment has re­moved some of the con­di­tions that were irk­some to in­vestors, as in de­fence and sin­gle-brand re­tail, and done away with need­less restric­tions in in­vest­ing in ex­ist­ing pharma projects, and fur­ther opened up the avi­a­tion sec­tor. This, it hopes, will bring in large-scale cap­i­tal and gen­er­ate employment. These re­forms may have been in the works for some months now, but the tim­ing, just 48 hours af­ter RBI gov­er­nor Raghu­ram Ra­jan’s de­ci­sion to step down, make it seem like a balm to pacify the global in­vestor com­mu­nity wor­ried over ‘Rexit’.

The govern­ment, with some hy­per­bole, de­clared In­dia the most open econ­omy in the world for FDI but it still has a long road ahead when it comes to at­tract­ing global in­vestors. Al­though In­dia ranks in the top ten coun­tries glob­ally for FDI in­flows ac­cord­ing to UNCTAD data, it still re­ceived only 2.51 per cent of the world FDI in­flows in the last cal­en­dar year. Measly when com­pared to the 7.7 per cent share of world’s FDI in­flows that China en­joyed. The govern­ment is still hold­ing back on per­mit­ting for­eign own­er­ship in key financial sec­tors—in­sur­ance, bank­ing and pen­sions and on the en­try of multi-brand re­tail stores. At the In­dia Today con­clave in 2013, I asked our key­note speaker, Naren­dra Modi, then chief min­is­ter of Gu­jarat, why his party op­posed FDI in multi-brand re­tail. He replied it was be­cause they wanted to pro­tect small man­u­fac­tur­ers. “And that is why you first need to open the win­dow only, then, a half gate, and then open the big door.”

It seems Prime Min­is­ter Modi has fi­nally de­cided to open the big door on most, if not all, key sec­tors. A be­gin­ning has been made. Most sig­nif­i­cantly, he’s over some of the ide­o­log­i­cal hur­dles of his party and the RSS. My only fear is that while big an­nounce­ments are fine, there is still a ten­dency to be caught in our in­fa­mous bu­reau­cratic maze when it comes to im­ple­men­ta­tion on the ground. That apart, with the govern­ment’s ef­forts at mak­ing it eas­ier to do busi­ness, these mea­sures should bring cheer to in­vestors. The prospect of a good mon­soon should also lift the un­cer­tainty hov­er­ing over ru­ral growth. All of which au­gurs well for the econ­omy. Let’s keep our fin­gers crossed.

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