It is not clear how much of an impact the Centre’s latest easing of FDI norms across 15 sectors — from single-brand retail and construction to civil aviation and defence — will have in terms of bringing in the investment the economy desperately needs. Raising sectoral limits, doing away with the Foreign Investment Promotion Board’s go-ahead for up to Rs 5,000 crore (against the earlier cap of Rs 3,000 crore), moving decisively towards the “automatic” from the “government approval” route, dispensing with minimum capitalisation and floor area requirements for FDI in construction, and relaxing domestic sourcing norms for single-brand retailers are all welcome supply-side reform measures. They are important from the standpoint of the ease of doing business.
But more important is the timing. It came soon after the humbling of the ruling alliance at the Centre in the Bihar assembly elections, and just before Prime Minister Narendra Modi’s visit to the UK. The fact that the opening-up to FDI has happened notwithstanding electoral reverses sends out a welcome signal of a government committed to reforms. While it would be an exaggeration to call it the biggest liberalisation initiative since 1991, the larger message and symbolism cannot be missed. Whether these measures will result in actual investment immediately is, of course, another matter. Real estate and construction, for instance, are in the doldrums because of an over-supply of units and lack of buyer appetite. It is doubtful whether just making it easier for foreign investors to enter and exit will address the underlying problem of demand.
