Increased FDI: Long term interests ignored

India has prohibited foreign investments in too many sectors: U.S. President Barack Obama, July 15, 2013.

India has opened Floodgates of FDI in 12 sectors, July 17, 2013.

Muralidhar Rao

In the name of overcoming looming payment and currency crisis the Central government has announced increasing the FDI limits in 12 sectors including telecom, defence and insurance on July 16, 2013. In case of telecom FDI cap has been raised to 100 per cent in defence sector from 26 per cent to 49 per cent and for insurance it has been raised from 26 per cent to 49 per cent (subject to approval by the Parliament). These decisions have been thoroughly opposed by government’s own ministries, especially Ministry of Home and Ministry of Defence. Raising concerns over hiking FDI cap in defence, space, telecom and other sectors the ministries said that flow of funds from countries like China in these sectors may compromise country’s security.

The Ministry of Home Affairs said the FDI beyond certain limit from countries like China, Pakistan, Bangladesh, Saudi Arabia and Indonesia in defence, space, telecom, information and broadcasting, civil aviation may allow people from these countries to dictate terms which could be contrary to India’s interests. Even Ministry of Defence has opposed higher foreign investment in defence, again stating that the move would make the nation’s security vulnerable.

The Finance Minister Shri P Chidambaram had recently visited USA and soon after his return the Cabinet Committee on Security cleared the decision of opening a few more sectors for increased FDI. People have genuine doubts about who has actually inspired or influenced this decision of the UPA government.

1990-91 crisis – repeated?

Once again, after 22 years nation is amidst a major payment and currency crisis with rising indicators of vulnerability. It is notable that in 1990-91 current account deficit was US$ 9 billion, at 3 per cent of GDP. Now in 2012-13 Current Account Deficit (CAD) has reached nearly 6 per cent of GDP in 2012-13 and external debt of US$ 376.3 billion as on December 2012; RBI has reported various vulnerability indicators such as External Debt GDP ratio, Short Term debt – Foreign Exchange Reserves Ratio have all deteriorated in the last couple of years. For instance External Debt as per cent of GDP, which was only 17.2 per cent in 2006 rose to 20.6 per cent as on December 2012. Short term debt (including original and residual maturity), as per cent of total debt increased to 68.5 per cent by December 2012. Against April 2008 when nation had a total external debt of nearly US$ 174 billion and foreign exchange reserves sufficient to finance import for three years; as on December 2012 we had external debt of US$ 376.3 and foreign exchange reserves capable to finance hardly 6-7 months of imports. Under these circumstances it is no surprise that the value of rupee vis-a-vis dollar sinking from Rs 54 to Rs 61 per US$ in a span of hardly little more than two months. Finance Minister while presenting his budget had clearly indicated about looming crisis and as usual had given his convenient remedies of FDI, FII and ECB (Foreign Direct Investment, Foreign Institutional Investment and External Commercial Borrowing respectively), by way of opening more sectors and raising caps for FDI, giving doles to FIIs and borrowing from the international market freely.

Government Created Crisis

If any single factor, that could be held responsible for this unprecedented trade and balance of payment deficit and depreciation of rupee, it is the mismanagement and criminal negligence on the part of government. Government blames coal, gold and crude oil imports for the present crisis; which itself indicates at lack of timely steps by the government. In the last two years import of gold and silver has been nearly US$ 120 billion, which could have been easily managed, had UPA government taken necessary action timely. The government conveniently skips attentions from the rising telecom imports which have been constantly increasing in the last one decade and have reached at dangerous level now and government seems to be doing nothing to a reduce telecom imports.

Crisis being used as Guise to Promote FDI Agenda

UPA government, instead of hitting the problem at its root, is using the situation to promote its agenda of promoting foreign interests by raising FDI cap in 12 important sectors including telecom, defence and insurance. This decision has disastrous consequences for domestic manufacturing sector as well as national security. Ideally, the domestic markets must have been used to create strong domestic entrepreneurship base, but this government has not demonstrated the will which NDA had done under the leadership of Atalji. In a country where its own people find it difficult to invest money, the expectations for foreign players investing dollars and driving the growth engine will remain pipedreams.

Increasing dominance of foreigners in Defence and Telecome is anti-national: SJM

Awadeshi Jagaran Manch (SJM) strongly condemned the government’s move to increase FDI limit in telecom sector to 100 per cent, as it will not only kill domestic telecom sector, but even expose the nation to serious strategic risks and make the nations security vulnerable. The Manch drew the attention of the public about serious concerns raised by the Home Ministry over hiking FDI cap in defence, space, telecom and other sectors, contending that flow of funds from countries like China in these sectors may compromise country’s security.

“It is even more unfortunate that the advocacy about raising of FDI cap in defence, telecom, space and other sectors is coming from the person no less than Prime Minister of India, in the name of external payment crisis and depreciation of rupee. The argument being given by the government is that such moves would reinstate the investors’ confidence. The SJM sincerely believes that the present payment crisis and depreciation of rupee is primarily due to the policy of unbridled globalisation. Ever since the policy of globalisation has started rupee has constantly been depreciating, as  exchange rate of rupee which was rupee 18 per dollar in 1991 has gone up to more than rupee 61 per dollar by July 2013. The argument, made at that point of time was also that opening the borders for foreign goods and capital would help in correcting imbalance in the balance of payment. However, the outcome of the policy of globalisation is that in the last quarter current account deficit had reached 6.7 per cent of GDP, which was hardly 3.3 per cent of GDP in 1990-91 (the worst year),” said SJM spokesperson Dr Ashwani Mahajan in a statement issued in New Delhi.

Dr Mahajan said the government seems to be compromising the national security, which is most unfortunate. He warned the government to desist from such an anti-national move and drop the proposals to raise FDI limit in defence and telecom sectors.