Thursday, October 11, 2012

India 2020: Fear of the Foreign

Mamta Banerjee, the Chief Minister of West Bengal and the agitator-in-chief against the current proposals to allow Foreign Direct Investment in various sectors in India, writes on her Facebook page (I have underlined some portions):

"I want to relate to you a tragic experience of an Indian working in a well known IT company in California, which explains the real life impact of allowing FDI in Pensions. This is not just a stray case, but one among millions of sufferers in USA where pension funds are invested in stock markets. This is what is being attempted by UPA II. Here is an Indian who was putting his savings into a Pension Fund to secure his future at old age. Pension Funds were a part of much celebrated 401k scheme, one of which was operated by the well reputed Mutual Fund company listed in US stock exchange. It is shocking that when US stock market crashed during 2008-09, our Indian friend lost 50 percent of his entire savings. He was left high and dry without compensation and an uncertain future. Do you want this to happen to you and fellow countrymen on introduction of FDI in Pensions by UPA II ? With introduction of FDI, the future of Pensioners will crash. Let us be united and oppose this move."

This is ridiculous: She is arguing that FDI means pension funds getting invested in stock markets. The whole statement is pointless, probably false (that big round number of 50% stands out as phoney) and confuses the issues: Are we saying that pension funds should not be invested in stock markets, which all pension funds do in some proportion, or that it should not be invested in US stock market, which is not going to happen even if there is FDI? Does the writer of the statement know what they are trying to say, other than - let's make an important sounding statement and people wouldn't bother with details?

Despite the apparent nonsense, I chose to quote this statement to highlight how unreal the debate about Foreign Direct Investment is in India. After years of crying out for Foreign Direct Investment, which creates jobs and companies, rather than the Foreign Institutional Investment (FII), the sort India used to get, which inflates asset prices and creates prosperity only for the asset-owning classes, it is fascinating to see how India's political class is siding with the middle men, the entrenched interests which have so far kept the Indian economy inefficient and corrupt.

There are two other explanations of Ms Banerjee's behaviour, other than that she is hand in gloves with the traders who earn a monopoly profit and who are afraid that Foreign investment in sectors like retail would spoil their party. She may be a naysayer by default, just like the regional satraps before her was: But then she would soon be isolated as India becomes more prosperous and even the most delusional of the regional leaders knows that unless they deliver economic growth for their people, they will be washed away without a trace. The other alternative explanation is - and strangely this is the most plausible - that Ms Banerjee has no objections to FDI and would let it happen: She is just creating noise to let people know that she exists, just as any good politician past their sell-by date should do time to time.

The problem is Ms Banerjee is not alone and going by cacophony, it seems India is full of politicians without idea or character, yet it is they, through the omnipresent state, take all the decisions that affect the lives of people. The main opposition party, BJP, made a big fuss about the proposals surrounding FDI, though their own economic plans stand on the prospect of attracting foreign investment, and most of the states ruled by BJP candidates, most notably Gujrat (ruled by Narendra Modi, their most plausible Prime Ministerial candidate), go out of their way to attract FDI. Even Congress, the party in Government and the main and only sponsor of FDI proposals, was going after FDI deals retroactively only a few months ago, before such efforts were struck down by the Supreme Court. India desperately needs to affect a structural change in the economy, allowing efficiencies to emerge in infrastructure and logistics, if the huge wastage of capacity and leaking corruption have to be contained. However, the current political class, so wedded to the old structure, isn't fit or even willing to take the responsibility: They are content in thinking that they can get away by fooling all the people all the time.

It is undeniable that these structural changes will cause some pain: Structural adjustments always do. The government must do enough to soften the blow. The relevant debates in India should be about these - healthcare, social security, education and reduction of poverty - and all political parties must sensibly contribute to the debate. The state of Indian economy, and the world economy in general, precludes cheap politicking - it is time to get serious or face disastrous consequences. But the fear- mongering about foreign investment is pointless. First, it is unavoidable, if India has to remain a competitive, open economy. Second, Indian companies are good enough to invest abroad and compete globally, and there is no reason to think that foreign investment will sweep away Indian competition. 

Having worked myself in an Indian company engaged in IT training, which is not a 'native' sector, I know how good the Indian companies can be and how the bigger foreign competitors failed to dislodge it from its dominant position in the local market. Indian businesses, in most sectors, are good enough to compete with any global business, and in any sector where it is not, it is best we get global competition - as in aviation and retail - so that the consumers are benefited and even the game of Indian companies are raised. This also means creating a globally skilled pool of people in India, which will invariably diffuse across sectors and regions. The point is clear: Indian politicians are trying to shield only those businessmen who are inefficient and mostly corrupt, who wants to shy away from competition, at the expense of Indian consumers and workers, which is everyone.

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