Go the whole hog

Updated: Nov 29 2004, 05:30am hrs
Union commerce and industries minister Kamal Nath must suit action to words. On the one hand he states it is destination India for FDI while on the other he does nothing to ensure that our policy regime is attractive for potential investors. Sectoral caps exist in key sectors like telecom, aviation and insurance that have the potential to absorb massive amounts of FDI. There is a bar on FDI in retailing although Mr Kamal Nath has indicated that the government is seriously considering allowing it in the dedicated branded retail segment. Why only in this segment and not elsewhere in retailing To make matters worse, the government would also like to exercise discretion as to the sectors in which it would allow FDI in dedicated branded shops. If India seriously wants FDI which it does it must go the whole hog in liberalising the FDI regime rather than selectively tinkering with it.

The ministers statements on FDI in retail trade betray the same anxiety exhibited by the previous NDA regime in this matter. For the NDA, FDI in retailing was a no-no as it feared it would affect the livelihood of small retailers since 95% of retail trade is in the unorganised sector. The previous BJP-led government had the bulk of its support base from this sector and was unduly sensitive to the political fallout from allowing FDI in retailing. The UPA constituents have no such support base all the more reason why this tinkering is hardly called for. Such statements also are not in sync with the finance ministers budget speech in which he stated that the FIPB has outlived his usefulness as many of its functions would be put on the automatic route. By any reckoning, FDI in retailing is in no danger of being put on this route!

Due to such a less-liberal regime, FDI inflows into India are stuck in the $3-4 billion range which is far below the potential. The country can easily absorb much higher levels of $8-10 billion per annum. But for this, the UPA government must roll out a redder carpet than it has done so far. Kamal Nath appears pleased as punch with the provisional FDI figures of $2.38 billion during the first half of 2004-05. But China got 23 times higher FDI this year. Which country then is destination FDI India or China