In this globalisation era, no country can progress without attracting foreign direct investment (FDI). And it's truer in the case of a country like India with over a billion people to feed and their needs to be met. Governments have to develop proper infrastructure so that a majority of its citizens can have a near-decent standard of living. This needs large scale-investments in all sectors, to generate jobs for millions of its jobless youth. Viewed against this backdrop, the Modi government's decision on Wednesday to further liberalise FDI norms appears to be a right move.
Real estate sector still reeling under the aftershocks of demonetisation, GST and RERA, has been addressed and rise in FDI through automatic route to 100 per cent would boost construction sector. Centre also decided to allow foreign airlines to invest up to 49 per cent in Air India, the country's loss-making national carrier. This is obviously aimed at hiving off the Maharaja. Minutes after the government decision, Singapore Airlines has announced that it's open to the idea of investing in the 71-year-old airline. Power sector also received some sort of a sop as foreign investors are now allowed to pour funds in the IPOs of power exchanges.
However, the decision to increase FDI through automatic route in single-brand retail from 49 per cent to 100 per cent has generated more vibes – both positive and negative. FDI in retail sector is always a politically-sensitive issue in India as it impacts millions of small and tiny retailers spread across the country. As expected, organised retailers and corporates welcomed the move while small traders opposed it.
The government also received flak from the Opposition. In a way, they are right. As the Chief Minister of Gujarat, Narendra Modi derided the Congress-led UPA government for allowing FDI in multi-brand retail in 2013. Congress tried to score some brownie points now by reminding people of the strong words that Modi used then to let the world know his fiercest opposition to foreign investment in the retail sector. But the fact of the matter is that FDI is essential for the country's development and no political party can ignore this truth.
This is not first time that Modi government has tweaked with FDI norms. In 2016, it relaxed foreign investment norms in over a dozen sectors including key segments like defence and news broadcasting. The government now claims that its policies and reforms in last three years helped India get over $60 billion in FDI in FY17, a record for the country, from $36 billion in FY14.
To be frank, opposing the Centre's latest move is meaningless as 100 per cent FDI in single-brand retail is already there and the only change is the 'automatic route.' The bottom line is that PM Modi wants to send some positive vibes across to the world leaders as he heads to Davos for his maiden World Economic Forum (WEF) visit later this month. The latest FDI moves should be seen in that context.