India saved 1.4 per cent of its GDP less than it invested and ran up a current account deficit of 1.5 per cent in
2007-08. Neither of these gaps will close in a hurry, dependent as they are on structural factors like our propensity to save, productivity of capital, technological backwardness and energy deficiency. The savings-investment and export-import imbalances will have to be papered over by foreign capital in the foreseeable future. Routing the dollars entering India through a security sieve is not only an administrative nightmare, it could scare some of them away. This is the argument of the commerce ministry, which true to its brief on encouraging capital inflows, has cautioned against an umbrella
security clause in granting clearances to foreign direct investment projects.
The country is unlikely to turn capital surplus in the medium term and the world is feting India as a frontline emerging market with steadily increasing investment. Why risk throwing the baby out with the bathwater? Between 2003-04 and 2007-08, foreign direct investment in the country jumped six and a half times from $2.3 billion a year to $15.4 billion while portfolio investment grew two an a half times from $11.3 billion to $29.5 billion. Over the same period, remittances by the Indian diaspora doubled from $21.6 billion to $41.7 billion. That works out to a $85 billion money trail our sleuths would have had to cover in 2007-08 alone. Discounting, of course the money that enters and exits India’s sizeable parallel economy and where most of the funny stuff is likely to be parked.
Not that we do not have gatekeepers. The banking and stock market regulators have the means to track invisibles and hot money. The government, too, has shown it is sensitive to the national security implications of FDI proposals from select parts of the world. What we need is better policing, not more legislation. Legitimate business, sympathetic to security concerns of nation states, can take fright from strong laws that impede commerce. There is eminent merit in the commerce ministry’s suggestion that FDI is a hugely expensive method of spreading dirty money in the country. Our security establishment could take the hint and focus its resources and energy on areas that patently hold out greater promise of harbouring drug and terror funds.