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What makes an economy grow or, put another way, what attracts investors? Obviously big flourishes get hyped up in the media, but is this what drives investors? A good place to start answering this question, at the end of Narendra Modi’s 100th day in office, is the government’s decision to hike FDI levels to 49% in defence.
Most commentators, including this newspaper, have criticised the government, arguing no great money will come in since there is little difference in terms of the control the foreign partner has in a 26% versus a 49% FDI level—it is only at 51% that the foreign firm will feel comfortable in transfer of technology. Defence minister Arun Jaitley, however, rubbishes this argument and points to how, in a few weeks, the government has cleared two large orders for aircraft made in India—so, he argues, once foreign manufacturers see the market opening up, they will come in, never mind that FDI limits are not at 51% levels.
Time will tell whether Jaitley is right, but it has to be kept in mind foreign investors came in when FDI limits in insurance were at 26% and at 49% for telecom. The two industries are different from defence, but the question is whether simply ‘opening up’ announcements are good enough or whether investors want genuine action/orders of the type Jaitley is demonstrating.
The telecom success suggests investors look at the long-term. Indeed, despite the Vodafone tax case and even the non-renewal of the 900 MHz licences, companies remain interested in investing — were more spectrum available, the industry will immediately invest another R80,000 crore or so just to buy it.
While talking of the NDA’s hits and misses (see table), some of the obvious big misses are not raising gas prices and not starting to cut LPG subsidies in the manner done for diesel—in both cases, you get the impression the PM wants some critical state assembly elections out of the way.
On the positive side, there is a move to fix the UPA’s crippling land acquisition law, though it is an open question as to how much can be done now—the best that Jaitley seems to be promising is some more exemptions to the law; what needs to be seen is if the government can come around with as neat a solution as it did in the case of the