There is a spirit of glasnost in the New Delhi this week, though we use it for free-spirit economics rather than politics as it used to be in the Mikhail Gorbachev-led Soviet Union of the 1980s. With nine sectors being thrown open this week to increased foreign direct investment (FDI) and/or portfolio investment, there is an air of easy globalisation, but on careful examination, the liberalisation is essentially in sectors in which the entry of foreigners is unlikely to worry any domestic competitor. However, there is some fine print to be read there.
A certain positive in the policy is that it is friendly to jobs. Easier FDI in single-brand retail, aviation, animal husbandry and security services should boost service jobs in these labour-intensive activities. Permission for 100% FDI in retailing or e-commerce in food products should generate jobs for delivery staff and farmers alike, but it also reduces the scope for middlemen in the farm-to-fork chain. How it affects current retail practices remains to be seen. The policy can certainly be called friendly to US giants Apple and Amazon, whose CEOs have met Prime Minister Narendra Modi and impressed upon him their desire to participate in the India Story. The government, by relaxing the local component sourcing norm for “cutting edge technology” companies in single-brand retail, is blessing cool consumers but only for three years – which can be seen as a time window for global names to increase local manufacturing or partner local companies. Pharmaceuticals is one sector in which the dismantling of government approval for up to 74% FDI in existing companies means a strong case for overseas giants taking control of domestic companies, and the fact there is no local lobby crying against this shows we may see more collaborations and buyouts. Given the rise of “Obamacare” health policies in the US, it potentially increases the scope for global partnerships involving Indian drug manufacturers.
Defence is a tricky business. By relaxing the “state-of-the-art” criterion for defence technologies, the government has made joint ventures easier. But what will this mean for a huge defence manufacturing establishment built up over decades involving research scientists and indigenous technologies? That is a question that needs to be addressed carefully. Multi-brand retail in household goods and media remain FDI holy cows in a regime that steers clear of confrontation. All in all, it is a job-spinning policy that confirms a pragmatic scale-back of Nehru Era industrial dreams and post-colonial ambitions to build a strong industrial base across sectors.