Clean Up Governance to Attract More FDI

It is not just the caps that need Liberalization
 

The government’s modest attempt to open up to more foreign direct Investment (FDI) might not bring In a flood of dollars Immediately, but it is a step In the right direct ion. The most significant measure Is to hike the ceiling for FDI in telecom from 74% to 100%, though Investors who want to go up to that level will still need clearance from the government. This could see the exit of several Indian stakeholders in telecom as valuations go up. once policy confusion is over The limits to FIJI in civil aviation and supermarkets remain unchanged and there Is no point allowing more overseas investment In insurance and pension funds without legislative action. In defence production. FDI is restricted to 260u but, In theory, overseas investors that bring in state of the art technology can go up to 100°,. It has been left to the discretion of the defence ministry to decide exactly what qualifies as state of the art, something that leaves ample scope for graft and a future scandal in defence production units.

Today, prospective overseas inves. tors In india are spooked by the wide holes In policy its implementation and the scope of graft in the system. There is no point allowing FDI In comrn mercial real estate without putting in place a transparent policy to convert agricultural land to commerc1a1/res1dentlal use. These powers of conversion belong to state governments, where petty bureaucrats, brokers and poli ticians demand huge bribes to get the conversion done.

Countries like the US and Britain. which now have powerful laws that bar their companies from bribery anywhere in the world, will soon flnd that despite Its obv ious demographic dividends, India is indeed a complex place to Invest In. WalMart is already under the scanner in the US for alleged bribery In Mexico: the probe has widened to include its Indian and Chinese operations. Just setting FDI limits higher is not enough: to get fUnds flowing, we need better and cleaner governance at all 1ev. els. That takes political resolve at the highest level, bec ause corruption In India Is systemic, rather than opport unistic. tied to how politics is funded.