Modi’s move to open up media, retail and banking to foreign investors is logical
Reform, perform and transform’ was the motto with which prime minister Narendra Modi approached governance. In the last two and a half years, change in the way union government works has been palpable. Modi government’s move to open up media, retail and banking space wider to foreign investors is a logical extension of what has been initiated after it was elected to power in May 2014. Many argue that the pace of reforms has been slow and at one level maladroit with nothing structural or transformational being attempted.
All the areas where foreign investments are pushed for as a consequence of higher caps remain comparatively sensitive. And, this liberal policy can have far-reaching implications for both India and larger developing counterparts like Brazil, China, Russia and South Africa. Will further opening up of Indian markets work counter cyclical to the restrictive and protective policies being pursued by countries like America under the Donald Trump presidency? Will the new reform policy lead to larger Make in India success story through better asset build up and make 10 million jobs addition a big possibility? As a logical extension of globalisation regime, would economy be put on high growth trajectory? Most of these developments may not happen over night. For instance, FDI limit hiked in print media to 49 per cent, larger foreign stakes allowed for state-run banks and roll out of 100 per cent foreign owned single brand and multi-brand retail entities. These are contentious issues and have been for some time.
Definitely, a new momentum would be induced into the economy at a time when the top trans-national corporations are looking for geographies and markets with credibility to invest, park funds and build wealth enterprises. Their entry along with investors and new crop of management professionals would unsettle existing players as happened during demonetisation.
When FDI was allowed across 15 sectors after Bihar elections, several critics had professed that it was to bolster sagging image of Modi. Now, it’s suggested that latest round of FDI opening up has been readied as an anti-dote to possible losses the BJP may face in the on-going legislative assembly elections in five states including Uttar Pradesh.
Given the opposition’s pathological antipathy to the Modi government, every decision is linked to victory or loss in a particular election. Modi’s public utterance that “this government does not do anything in a knee jerk reaction” especially on serious policy issues like demonetisation must not be lost sight of. Although we still don’t really know what the benefits of demonetisation were. The government’s math in this regard went horribly wrong. All policy issues or decisions taken are clearly vetted at three levels. There’s no reason to disbelieve that the latest round of foreign investment policy liberalisation has not been thought out properly.
For instance, induction of larger foreign private capital in state-run banks will free the government’s scarce resources for socio-economic development projects. State-run banks whose non-performing assets have hogged headlines more than once, may come under closer scrutiny of both domestic investors and foreign shareholders as well. Aligning our banks with larger global peers is the right thing to do while creating our own behemoth in the form of SBI with all its subsidiaries merged into one entity. Similarly, allowing larger foreign investments in Indian media will hasten the churn, restructuring while making them self-sustainable at a time when several TV, digital and print media groups have had their share of liquidity issues. The move to bring foreign owned single and multi-brand retailers is bound to give a face lift to our fledgling, mostly unorganised units that are in disarray. But, Modi government must be ready to face the consequences of such a decision from its traditional trader community voter base which has opposed this move consistently.