India & the Bubble

On 27th October, 2016, it was one of those discussions over Diwali dinner where a family friend asked me what do I think of government policies and reforms. Maybe the government is in the right direction (don’t know what is right or wrong), I said, it still appears that they are living in a bubble in whatever direction they are taking.

He asked me what made me say that? I gave him a simple example of FDI policies. I told him that not long ago (a month and half back), someone told me that “we did not have to worry about FDI because now the government has liberalized FDI in almost all sectors and that India is number one when it comes to FDI”. Given seniority, I didn’t argue about the flaws in the statement. My mind kept spinning and kept asking – is he referring to the fDi Intelligence report? If yes then did he stop reading after the words `India outpaced China as leading FDI destination’ because from what I remembered it should have read ‘India outpaced China as leading FDI destination  BY CAPITAL INVESTMENT’? Has he forgotten to read the World Investment Report, 2016, report which if I remembered correctly ranked India 10th in FDI inflows?

Anyhow, I politely suggested that liberalizing FDI caps does not amount to all the FDI reforms that the country needs to undertake. It may be the first step. We, as a country, need to go further than that. We need to be able to build supportive policies to facilitate FDI reforms which in some sense also form a part of the comprehensive FDI reforms. For instance, we need to be able to build an absorptive capacity which not only helps in attracting FDI but is THE most important factor in reaping benefits from those FDI inflows. I was asked to explain further to which I asked on how are they expecting to reap the benefits from say high-tech FDI when domestic human capability is probably not in a position to be able to absorb the same? More importantly, how are they planning on creating that absorptive environment where the displaced human capital to the manufacturing sector is now being absorbed by the manufacturing sector? Does India have the required skill development/human capital policies in place (which I like to call the “supportive policies”) to absorb such displacement?

The family friend listened to me carefully, nodding his head in agreement, acknowledging that he had never thought about this before, and also a bit surprised to learn that I was laughed upon (well I would be surprised if they hadn’t laughed!).

While human capital is just one example to facilitate FDI reforms, I said, we need to cut across departments and work in tandem. Silos is not the answer. We need to stop living in the bubble of “we do not have to think about FDI because we have liberalized FDI caps across almost all sectors and that India is the top FDI destination..” (just for the readers, this is not a statement made by me!). We need to stop taking shelter and comfort in a one-off event and report, and work hard to move out of this bubble. Reality is consistency and consistency has to be over a period and across reports.

Funnily, the front page of economic times on 28th October, 2016 read FDI regime yet to take off pending the changes in foreign exchange laws. I had to send this article to the family friend with the subject of the email being `remember the bubble we spoke about last night?’.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s