INDIA AS OPEN AS OPEN CAN BE - WHY MARKETS NOT CELEBRATING?

By Ruma Dubey

To water down the Rajan exit, the Govt came up with a slew of reforms – once again to do with FDI. India now carries the tag of being “the most open economy”.

• It first announced the FDI easing in defence. The foreign investors were irked with the condition of access to ‘state-of-art’ technology’; so that has been done away with. What we have now is FDI beyond 49% and upto 100% is permitted through the government approval route, in cases resulting in access to modern technology in the country.
• It allowed 100% FDI  through Govt approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India.
• In pharma, it allowed FDI upto 74% under automatic route in already existing ventures though Govt approval will be required for FDI beyond 74% and upto 100% in such brown-field pharma companies.
• In airlines, it permitted 100% FDI in India-based companies while a foreign company can hold only upto 49% stake though balance 51% can come from investors based out of India.
• It also allowed 100% FDI in existing airport projects without needing Govt approval.

Despite this massive opening up and easing of rules for FDI, the market is not happy and seems to be sulking. Why is it that this news of FDI was not liked by the Indian markets? Is the cloud of Brexit so dense despite reports coming in yesterday that Brexit looks more and more unlikely? Or is it simply because India has had more than its fill of FDI and it now needs something to boost domestic companies and their growth directly?  News of projects getting cleared, infra projects getting a fillip,  GST, and some boost to manufacturing sector - these are some news which could bring in cheer which in turn could get reflected in jubilation on Dalal Street. For now, marketmen are just observing not reacting.

Yes, there are the apparent gains of FDI – boost to economy, growth, money coming in, manufacturing bases getting created, generation of employment, access to better technology and processes, skill development, improved trade, increased competition and better standard of living. Yes, we want Ikea to set shop in India.

But all this will come at the cost of smaller entrepreneurs and shops. You want to buy a TV? The choices are Samsung, LG, Sony? Local brand like Videocon? No one buys that and do we have local brands in TV anymore? EcTV, anyone remembers, the good ole’days of B&W TV where ‘no choice’ made TV viewing so easy.

McDonalds, Subway, PizzaHut and Dominos – everywhere around us we see only foreign brands. Try telling your teenager son/daughter to invite friends over for idli/dosa or roti/bhaji party… you can be sure that party will never happen.

Everything that we use today, right from the toothpaste to the air conditioner in which you sleep in, all are almost always a foreign brand. The stock market too is today at the mercy of the FIIs and that makes us wonder whether it is right to have so much foreign dependency?

In the pre-Independence days, we were under the British but all products were Indian made and we were then amongst the richest economies in Asia. Today, we are free from the British rule but slave to all things foreign – right from the safety pin to the cars we drive.

Many would find this thought process to be pretty ‘backward’ or too conservative but the real truth today is that too much of this globalization, which is one-way into India, is hurting us. How can all reforms be only about FDI? Yes, we need technology and we need to grow economically. But how can this way of making India into a factory while the world reaps benefits be the right way? ‘Made in China’ has proliferated all around the world –in the same way because we constantly compare ourselves with China, can India boast of any ‘Made in India’ mass produced, global product?

Take the case of this recent ban on Indian getting LCD TV’s from the foreign trips to Dubai or Thailand. In a flight of over 300 passengers, over 50-60 passengers were carrying big LCD TVs. The Govt, under the pretext of wanting to curb the falling rupee, put a clamp down on this. But what the Govt really needed to think about was why Indians were getting these TVs from abroad, going through so much inconvenience. The reason was simple – it was simply cheaper to bring it from there. A Sony 46-LCD TV costs around Rs.68,000 to Rs.70,000 in India while the same model in Dubai cost around Rs.37,000. The 40-inch Samsung LCD in India comes at Rs.74,000 while in Bangkok it comes at around Rs.42,000. Why do the same companies sell it so cheap in other countries and so expensive in India? Well, the companies say that it is due to the 30-35% composite tax imposed on flat TVs in India. They also blame it on higher overheads and operating costs on account of multi-layered distribution structure and size of operations. Then the question which comes to mind is – what is the point of having these brands in India when it is more expensive here than in other countries? Aren’t we then getting a raw deal?

If FDI is supposed to give us only global brands but at more expensive rates and at the cost of domestic manufacturers, is this then good for India? There has to be a balance between domestic investment and FDI.