Good advice on FDI from Harsimrat

Good advice on FDI from Harsimrat

By THE SUNDAY GUARDIAN | 20 February, 2016

Prime Minister Narendra Modi has introduced several innovations in governance. Another has been suggested by Minister of State for Food Processing Harsimrat Kaur Badal. This is to permit 100% foreign direct investment in food processing in India, subject to the condition that the entire product used in processing will be from India and not imported. It makes little sense to use up foreign exchange to buy processed food products from elsewhere, rather than allow them to be made in India. Should the government agree to the proposal made by its own minister, the benefits would be obvious and immense, ranging from a bigger market for its own agricultural produce to the exploiting of lucrative foreign markets for such produce for items made in India. The Modi government is involved in a race against time for creating millions of new jobs each year in this country, as otherwise social unrest will multiply to levels dangerous to stability. Although rife with poverty and even starvation, India also experiences the phenomenon of waste of agricultural products on an unforgivable scale, especially vegetables and food grains. In the case of the latter, the slow pace of transportation systems and the lack of refrigeration and other means of preserving foodstuffs results in much of the produce being lost even before reaching the intended markets. It will take massive investment to set matters right, and this is beyond the capacity of either the government or investors in India. Funds from outside are needed, and the adoption of the counsel of Harsimrat Kaur Badal would help assure that.

Politicians in India have become experts at blocking initiates, including several that would have been hugely beneficial to the cause of faster economic growth. It needs to be remembered that the only panacea for eliminating the vile forms of poverty, which still blight certain spots in this country is double digit growth. In such a context, the major bottleneck is often Central policy. Despite all the talk of federalism, the reality is that a mayor in the US has far more powers than a Chief Minister in a state in India. Huge swathes of activity are governed by the Central government in a manner that is destructive to growth and welfare. What is needed is to transfer authority to the states in most matters relating to economic progress.

For example, in the matter of FDI for retail, rather than an omnibus ban, what is needed is to give each state freedom to decide the parameters within which it will allow FDI within its territory. In such a manner, there will be a competition between states which would be healthy for the union as an entirety. In the Nehruvian system of governance, in the name of equity, those states with high performance indicators are discriminated against, while those that underperform are give rewards. Instead, those states which do well should be incentivized, rather than penalised, while those whose government perform poorly should be exposed in a manner as would lead to a change during the next election cycle. India is a young country caught in the web of policies that were dated even 50 years ago, but which are absolutely toxic in a 21st century environment. What is needed is boldness, the style of leadership that people expected from Prime Minister Modi, and in such a situation, the suggestion to open FDI of 100% in more sectors is opportune. It makes little sense to restrict FDI in a situation where all companies operating in India have to abide by local laws. Certainly, the Modi government is strong enough to face any situation, even if FDI of 100% is allowed.


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