Dear FM, raising FDI limits is not reform

Poor response on FDI in multi brand retail indicates that investors are not interested

If this were a TV serial, we would have run a background laugh track on the following news headlines:
 

• Government unleashes big-bang FDI reforms; 
   

and
 

• Posco walks out of the biggest FDI project in Karnataka
   

Ironically, both headlines happened on the same day. 
 

The two sets of news, however, summarises the ground reality. There is a huge difference between announcement and actual inflows. Take the case of the government’s much-publicised FDI in multi-brand retail. Nothing has come out from opening up of FDI in multi-brand retail. None of the players are keen on investing in India as the riders are unrealistic. 
 

 

The only company keen on setting up shop in the case of single-brand retail is IKEA. The govt could only manage that after they conceded to all the demands by IKEA. As it turns out, IKEA will be operating as a multi-brand retail under the guise of single-brand retail as it will be allowed to sell a number of other products apart from furniture for which it had sought permission. 
 

Back to Posco. Signed in 2010, Posco’s 6-million-tonne steel refinery failed to take off because it did not get land. The company was planning to invest $6 billion in the refinery, which at the time of its announcement was the biggest FDI for the year. The company is also suffering a similar fate in Odisha, where it has also not received land.

Apparently, Posco had promised to set up a 12-million-tonne refinery in the country by bringing in the biggest FDI by any company of $12 billion. Announced in 2005, the company could never get hold of its land. 
 

Posco is not the only company that is facing several bureaucratic hurdles. World Bank ranks India 132nd for doing business. The country ranks 173rd in terms of starting a business and 182nd in getting permits and enforcing them. 
 

Just the announcement of opening up of FDI cannot be termed as a reform. The announcement in no way makes India an attractive investment destination. It is the ease of doing business that attracts entrepreneurs. But this would require governance, which the present government seems incapable of.

Indian businessmen are also not investing in India and prefer other countries because of various hurdles and government’s policy of repeatedly changing the rules of the game after capital has been committed. 
 

Till the government offers single-window speedy clearances, the announcement will be treated as a lip service. Analysts might call term announcements as reforms and try to pump up the market, but the ground reality is that it amounts to nothing. The maximum it would do is allow telecom players to buyout their Indian partners. 
 

The day the government creates a transparent and easy way of doing business in India, there will be enough Indian entrepreneurs lining up to set up businesses. The country would then not require foreigners to help in employment creation. They would in fact be pleading for a toe-hold.