Timing is everything. In between the politically-charged announcement that Reserve Bank of India (RBI) Governor Raghuram Rajan will leave after his term ends and the market-shaking decision by the UK to leave the European Union, India announced it would ease restrictions on foreign direct investment (FDI).
The move has been called a sweeping overhaul of FDI in nine major economic sectors, which includes retail, aviation and defence. India also removed the need for government approval on investments in pharmaceuticals of more than 74 per cent.
The timing was fortuitous, since the move was made more to cover the government’s own embarrassment over Rajan’s departure. It was certainly was not a sign of insightful thinking to take advantage of market uncertainly in the West.
Whether accidental or not, the move could make India a prime recipient of the money looking for a new home following the Brexit.
But India still needs to do more if it wishes to convince the world that — in the words of Prime Minister Narendra Modi — it is “the most open economy in the world for FDI”. While the new policy does make the process of investment easier, there is little substantive change.
Even if the country can convince investors that it is a better place to park their money than China, Hong Kong or the US, India will still have to face the fact that FDI, while essential, cannot cure what ails the country’s economy by itself.
India’s reputation for a bureaucratic business climate and poor infrastructure will continue to put off investors. Timing is everything, and the time for Modi’s Bharatiya Janata Party to address these ongoing and critical issues is now.
