Open up for more foreign investment

A committee headed by economic affairs secretary Arvind Mayaram has pitched for a dramatic opening up of foreign direct investment ( FDI) in many sectors. So would, we hope, the group of ministers being set up on the subject.

India needs foreign inflow of capital. And overseas investors are more bullish than ever on India’s prospects of long term growth. Evidence of this comes from a couple of recent transactions: Standard & Poors acquisition of Crisil and Unilever’s $5.5 billion takeover of its Indian subsidiary, HUL.

The latter is the largest inbound chunk of FDI in India’s history. So, the time is ripe for raising the caps that restrict FDI in certain sectors. In telecom and private security agencies, the committee wants no caps on FDI. This could allow the entry of global giants like Verizon and AT&T into India.

Others like Singtel, Vodafone and DoCoMo, who are already present with Indian partners, can buy absolute control. The 49% cap on security agencies is incomprehensible and raising it to 100% makes sense.

It is also a good idea to allow FDI to go up in areas like supermarkets, defence and state-owned banks. More FDI in the latter will allow them to expand their capital base and grow their operations using new technologies like mobile banking. This will help push financial inclusion.

However, it is not a good idea to allow more FDI in crucial sectors like the media, because this can skew the public discourse in unpredictable patterns and directions.

With the exception of a few such critical sectors, the government should gradually move towards a regime that allows unlimited overseas capital in most sectors barring a few that are crucial to national interest. The committee’s recommendations need to be adopted by the government.