Interestingly, the pro-foreign capital adaptation of the BJP-led government aims to open floodgates for FDI in sectors that were otherwise opposed by the same party while in opposition. Crossing 49% barricade to almost 100% FDI in many sectors may be a positive move forward, but the problem of the present regime is its radical dependence on FDI-driven growth model to make India a manufacturing superpower.
For long, perception about FDI in India was conditioned by the political overtones of victimhood. There was a pathological distaste for FDI, largely because of inherited sense of distrust on everything foreign from its colonial administration and, thus, India was characterised as the recipient of foreign sufferings. In popular parlance, foreign investment was viewed as foreign companies will “expropriate local resources and export a disproportionate share of profits to their home countries so that poor Indians lose control over their own assets.”
As a consequence, India evolved a complex and protectionist industrial policy to ensure a marginal and highly circumscribed role for FDI in Indian economy. However, there was a perceptional change in the early 1970s regarding foreign investment with Foreign Exchange Regulation Act (FERA), 1973 being enacted. The slow pace of reform, however, did not work substantially in favour of India, while China, despite being highly protectionist, ventured into the path of liberalization in 1979 by slowly opening up its economy. Following suit, the Congress government announced its Industrial Policy (1980 and 1982) and Technology Policy (1983) to de-license certain industrial rules to promote manufacturing goods, modernisation of industries through liberalised imports of capital goods and technology, however, to no significant benefit. The overall FDI inflow during 1980 to 1990 was fluctuating, while China consistently maintained a comparatively higher FDI inflow during this period and even beyond. Paradoxically, India was overlooked by the foreign investors at the cost of illiberal and authoritarian China.
Be that as it may, Congress has all the credit to start the platform for speedy proliferation of FDI flow in India when it adopted the economic liberalisation policy in 1991.However implementation of this new economic policy was uneven because of the hostile perception of several stakeholders. Workers in the public sectors protested because of the fear of losing their jobs. Swadeshi Jagaran Manch (SJM) an RSS wing also launched a robust movement against the liberal reforms by invoking the spectre of foreign domination using rhetoric and rumours.
Similarly, BJP’s stand against FDI is historical. The 1991 manifesto of the party clearly stated that when BJP comes to power it would reverse trade liberalization process and focus more on promoting the cause of ‘Swadeshi’. Its 1998 election manifesto devoted a full chapter titled “Our Swadeshi Approach; Making India a Global Economic Power”, proposing that the entire economic problem that India was facing could be solved by the country itself rather than by following western countries.
The “Swadeshi” talk of the BJP was exposed when it came to power in 1998 as they pursued the policies of trade liberalisation rather more vigorously. The party admitted in its 1999 manifesto that “the country cannot do without FDI because besides capital stocks it brings with it technology, new market practises and most importantly employment”. FDI was allowed also in the insurance sector. FDI cap in the telecommunication industry was also increased to 49% and also allowed in the Defence sector though capped at 26%.
It must be learned here that all political parties behave similarly whenever in power. Likewise, all parties behave similarly while in opposition. For example, BJP supported FDI in retail up to 26% in its 2004 election manifesto. Later in its 2009 manifesto, BJP took stand against FDI in retail. However, when the ruling Congress introduced the bill in the Parliament in 2012 to allow 51% FDI in multi-brand retail, BJP opposed it with tooth and nail and maintained its stand against FDI in the multi-brand retail sector in 2014 General Election as well.
Interestingly again, Prime Minister Narendra Modi within two months of gaining power in 2014 took a ‘U-turn’ from the party’s pendulum stand on FDI. The cap of FDI in insurance sector was increased from 26% to 49% in July 2014 and existing cap of 49% in defence sector was also under purview of being exceeded. Thereafter, the Prime Minister engaged in acutely sophisticated “Make in India” campaign by arguing that “We must stress on two FDIs - First Develop India and Foreign Direct Investment”, stating that “For Indians FDI is a responsibility, meaning, First Develop India, and for global investors FDI is an opportunity in the form of Foreign Direct Investment.”
In this regard, the first major overhauling of FDI norms took place in November 2015 to attract more FDI in India under the automatic routes and in multiple sectors by simplifying the process of foreign investment. Through this policy reform, 100% FDI under automatic route was permitted in some of the completed construction development projects. In defence sector, FDI up to 49% was decided through automatic route and beyond 49% only through the government approval route. FDI cap was also increased in broadcasting, retail trading, wholesale cash and carry, banking and plantation sector from 49% to near 100%. Further in March 2016, FDI was permitted up to 100% under automatic route in Business to Business (B2B) e-commerce.
The second major policy change regarding FDI was adopted as Consolidated FDI Policy effective from 7 June 2016 which allowed FDI up to 100% under the automatic routes in most of sectors of Indian economy. For instance, 100% FDI under automatic routes is now permitted in most of the activities of agriculture and animal husbandry, plantation sector, mining, petroleum and natural gas, broadcasting, civil aviation, construction and development, telecom services, trading, e-commerce activities, single brand retailing, railway infrastructure, financial services, pharmaceuticals and so on. FDI in defence is 49% through automatic routes and beyond 49% under government routes whereas in multi-brand retailing FDI is permitted up to 51% under government routes. In private sector banking and public sector banking, FDI cap is 74% and 20% respectively whereas in insurance and pension sector the cap is 49%. With these changes, the present government is not only trying to project foreign investment as in the national interest but also to mould the national consciousness to create greater acceptability for FDI.
Perusing the UNCTAD Report dated 21st June 2016, we find that India has emerged as the most leading recipient of FDI attracting $44.20 billion in 2015, a good 7% per cent higher than 2014 with a corresponding decline in outward FDI from India from $11.78 billion in 2014 to $7.5 billion in 2015.
Nevertheless, the liberal flow of FDI has brought a noticeable change in the attitudinal pattern of the general population in India. The notion ‘foreign’ is no longer a taboo. Even those who championed Swadeshi movement promulgate now that growth is not possible without FDI, with readymade justifications: FDI is for technological advancement; FDI is for the growth of employment; FDI is for clean drinking water; FDI is for food to eat and shelter to live in; FDI is for agricultural infrastructure to grow; FDI is for the rich, middle class and the poor; FDI is for industrialists, landlords and farmers; FDI is for Brahmin, Bania and Dalits; FDI is for TNCs/MNCs, national industries, small scale/cottage industries, retailers and local vendors. In a word, FDI has emerged as a magic wand to solve all the problems in India. Strangely, classical political opposition to FDI is disappearing or has virtually disappeared.
We must acknowledge the fact that FDI-driven growth is not going to be natural and automatically balanced in the long run. We need not neglect the questions of distribution of wealth, concerns for social security schemes and income imbalances as it is soon going to become a focal point for political mobilisation. Let India not be owned by the foreign investors, top corporate managers and the super-rich alone.
(Afroz Alam is Associate Professor & Head Department of Political Science Maulana Azad National Urdu University, Hyderabad)