FDI decisions hope for economy

The Centre’s decision to open the door wider for foreign direct investment is aimed at mobilising scarce capital, propel economic growth and create employment opportunities.

The Narendra Modi government is betting big on tapping the potential in coal mining and contract manufacturing by allowing 100% FDI in these areas. Easing and simplifying obligations for single-brand retail companies with 100% foreign equity could make India a large market for these companies.

The government has also allowed 26% FDI in digital content services that's on par with the cap for FDI in print media. There’s no reason to doubt the efficacy of the raft of decisions taken in recent weeks, including the rolling back of some of the most contentious parts of the Union Budget as well as Wednesday’s decisions on FDI.

While these calls have been made in quick succession, it will take quite some time before one sees them translating into action and impact on the ground. But the mood in the market should begin to brighten right away.

Some of the world’s top brands, such as iPhone-maker Apple Inc. and ready-to-assemble furniture giant IKEA are expected to ramp up investments in the Indian retail space with an eye on the potential market. So will global e-commerce firms.

Apple Inc’s contract manufacturers Foxconn and Wistron are already talking of expanding their manufacturing operations in India as they seek to move away from China, due partly to the ongoing US-China trade war.

Allowing brands to sell online in India before setting up physical stores and easing export and local sourcing obligations has the potential to bring in more big brands into the market. This could, in turn, logistics, skills training and financial technology start-ups.

The Centre’s other big call was to open up coal mining to the likes of BHP and end the monopoly of State-run Coal India. Already, 100% FDI was allowed in captive mining of coal and lignite, though not many players came in. But the latest move could bring state-of-the-art mining technologies and practices to India.

The government could, however, face resistance from Coal India workers, who had last year stalled disinvestment, with the backing of the RSS-affiliated Bharatiya Mazdoor Sangh. On the other hand, foreign investors are unlikely to come in droves just because of a cabinet decision.

They will expect to see long-term commitment and conviction on reforms and not mere desperate measures in troubled times. Eliminating red tape and political interference, especially in the states, is a pre-requisite to realizing greater foreign investments.

In 2018-19, India was the largest recipient of FDI at over $64 billion. To raise the tempo, reforms in attitudes and processes must continue.