Forgetting old opposition, Modi eases FDI rules in single brand retail

Just a fortnight before the Union Budget, the Narendra Modi government announced a number of relaxations in India's Foreign Direct Investment Policy (FDI) that included 100% FDI in single brand retail through automatic route and 49% FDI in government-owned Air India.

The government also decided to allow Foreign Institutional Investors and Foreign Portfolio Investors to invest in power exchanges through primary markets.

In 2012, when UPA government had increased the single brand retail FDI limit from 49% to 100% via government approval, Modi, then chief minister of Gujarat had criticised the government's move as anti-people and an attempt to sell the nation to foreigners.

The BJP, then in Opposition, had also taken out a small booklet which ripped apart the UPA government's logic behind allowing 100% FDI through government approval in single brand retail. However, on Friday, the BJP and its ministers were seen defending the move by the government as something that will help make India investor friendly

Reason behind the move

While it is well known that the two main national parties in India- BJP and Congress- hold the same view on FDI, it is for political posturing that they oppose these policies in case they happen to be in Opposition.

Since now the BJP is in power, it has conveniently forgotten the anti-FDI stand it had taken in 2012.

The move will irk a section of domestic traders in cities, but is unlikely to cause any electoral impact against the government. Over the years, resistance towards FDI in India has dipped and become restricted to traders' bodies and Left parties giving out one or two press statements to mark their anti-FDI stance in the press.

For example, after the decision of the government to allow 100% FDI through automatic route in single brand retail, The Confederation of All India Traders (CAIT) issued a press statement, saying “100 per cent FDI in single brand retail through the automatic route will facilitate easy entry of MNCs in the retail trade and also violate the poll promise of the BJP."

But the traders' body is unlikely to do anything against the government. At the same time, Modi government, which is facing a huge challenge on the employment generation front as its policies under Make in India programme have failed to create new jobs so far, is hoping for FDI to do the trick for it.

The services sector accounts for more than 55% of India's GDP. It has the potential to create more jobs in case foreign retailers, who have avoided investing in India under the government approval route since 2012, begin investing in India.

In April-September period this fiscal year, FDI grew by 17% to $25.35 billion. In 2016-17, FDI had increased by 9% from the previous year to $43.48 billion.

Other foreseen impacts

In October 2017, India jumped 30 places in the ease of doing business rankings to break into the top 100 nations according to the World Bank. A move to further ease India's FDI regime is likely to positively impact India's rankings in ease of doing business next year. Modi government has been trying to break into the top 50 nations in the ease of business rankings.