IS FDI THE ONLY WAY TO "ECONOMIC REFORM"?

By Ruma Dubey

The markets were in a ‘buying’ mode today and the moods were optimistic. The BSE Sensex rose to a 15-month high, while the Nifty hit 17-month highs. All because today the Cabinet is set to approve reform proposals for insurance and pension sector and is taking up 21 proposals in all, including the Companies Bill which earmarks a percentage of profit earned towards Corporate Social Responsibility.

Yet, all eyes are on three reforms on the agenda – hike in FDI in insurance firms to 49% by allowing the additional 23% through FIIs, allow 26% FDI in the pension sector and setting up of the National Investment Board to be headed by the Prime Minister which will give fast track approvals for infra projects above Rs.1000 crore.

Prior to that, on 13th September, the Cabinet had approved 51% FDI in multi-brand retail and also mooted relaxing FDI norms for civil aviation and broadcasting sector.

One thread running common through most big bang reforms is – FDI. And this raises a big question – are today reforms only about FDI and only through FDIs?  So are we confusing reforms with foreign investments? Or is it because there simply is nothing else which can be done?

Bringing in FDI is good from a capitalistic point of view. The media is all out, lauding this ‘opening’ up, going more global. But if we take a moment to sit back and look, it makes one wonder whether we are opening up too much? The Wall Street crisis affected almost every American, directly or indirectly. And it was largely on account of pension and insurance funds. Are we exposing our middle class to the same risks by opening up the sector?

Many would nod their head and smirk, saying the author is a cynic, wanting to punch holes in every balloon. But that is not the case; one cannot help but wonder why all reforms is only directed towards FDI. And that is worrying.

It is not that we do not have issues. The Govt is pushing forth reforms in sectors which at this point of time does not affect the common man much and has turned a blind eye to real issues which if not addressed first will affect this FDI dream too. Non availability of land, lack of research in agriculture, rising cost of labour, unemployable unskilled labour,  lack of roads, power shortages; there are so any crucial infra links which have collapsed. Will FDI alone in some sectors help? Is the Govt playing to the gallery; saying what the media wants to hear rather than deal with real reforms? Or are those ‘reforms’ part of the election trip in 2013-14? There are innumerable operational hassles faced by companies like storage, transport, especially of oversized cargoes, the list is endless. So instead of dealing with any of these, the Govt wants to do only that which will grab local and international media attention. And even companies in India Inc- why have they become so dependent on economic reforms and less on their own innovations?

Manmonhan Singh opened up the Indian investment doors to the world then but today, that alone will not work. The systems put in place then have far outlived their use and now the internal systems need a complete overhaul. Is this going to be done by the FIIs and FDIs?

There has to be a balance between domestic investment and FDI. If there isn't, if FDI is much higher, then surely there is something wrong with the local economy.

Well, having said all this, despite the Cabinet approval today, it will require Parliament approval, especially FDI in insurance. So all this reforms push could all, unfortunately, end once again in an ugly and frustrating political fight during the Winter session. But yes, the intent of the Govt, to push forth comes through strongly; hoping we all remove the tag of “policy paralysis” which has become a hallmark of UPA.