In your interest.
Online Personal Finance Magazine
No beating about the bush.
The writer takes a look at the recent shotgun reforms undertaken by the scam-tainted government
About a year ago, when the murmurs on FDI in retail were beginning to gather momentum, Moneylife published this article written by me on the subject. (100% FDI in retail in India, good or bad...). The article still holds true. Obviously, there is no way matters can be generalised into convenient compartments; it is much deeper than the small-shop-versus-large-supermarket. Likewise, on supply chain, we could write a book in India. Very briefly, FDI should be simple to understand—if somebody wants to invest in India, then they do it because they see some gain for themselves. It is not always monetary or out of goodness of the heart, as their lobbyists would like us to believe, or as various East India Companies have shown us in the past.
So why this urgency? After all, money does not grow on trees. If it has to come, it will come, right? Right. Through proper channels, therein, lies the rub. Two big reasons shine so bright, that like the sun in the sky. We choose to not see the brightness directly knowing fully well it is there.
Firstly, to be frank, not much has changed on the ground in India to justify the sort of urgency being referred to as “sweeping reforms”. Unless, of course, the term ‘sweeping’ is being used in the sense that, as much as could have been looted in the last few years by the various formations in control in New Delhi, that remnants like FDI in retail are amongst the final ‘sweepings’1 waiting to be lifted.
1 — The maritime and commercial context of sweepings refers to the cargo left behind after the main cargoes have been discharged or taken away, and by rights these sweepings have to be taken away so that the ship or warehouse can receive more, and this is free money for those who are given the job of cleaning things up.
The second and more important real reason for urgency is, and visible for those who would like to see even if they were blind, that it is becoming increasingly more difficult to park hot money abroad in a variety of tax havens and offshore centres—whether it is London/New York/Singapore trio with satellites, Commonwealth-linked tax havens controlled mostly by the Square Mile in London, the American enclaves in Delaware and Wyoming and more, or better known tax havens like Cyprus, Luxembourg, Cayman Islands, Switzerland, Mauritius, Isle of Man, et al.
Be it Carl Levin chasing money to tax in the US and the Romney taxation gaffes in the election year or the way the investment banking industry is suddenly running to cover its bases especially out of London, the word is out—if you had money parked anywhere, be ready to either lose it or pay taxes on it somewhere. This is emanating the loudest from the OECD/developed countries who would love to get their hands, in these globally distressed times, on funds from people and corporations that came from somewhere else but ended up becoming resident or domicile in their countries or in tax havens under their control.
That's the single most important reason why anybody and everybody connected to India, with a finger in any hot money pie in danger of getting stranded abroad, is desperate to roll it back into India. It doesn't get simpler than this. You can't move money between tax havens of late without running the risk of losing it totally.
Fair enough, the country could do with her prodigal sons and thieves returning to pay back their debts to society, which is not such a bad idea especially when the larder starts to run empty. But letting them in without any checks or balances on where the money came from—are we that stupid or hungry? Give us a chance, a fair chance at good governance, and see how Domestic Direct Investment comes tumbling out of all over India, as it already in from the “unorganised sector”.
Say we wanted to start a small shop; then even before we could roll up the shutters, we would have to explain where every last rupee used as capital came from. But if you and I were smarter and able to first of all loot and scoot on a variety of scams, send the money out and then wanted to bring the money back in, then what better route than through unimpeded FDI?
Investment in retail, civil aviation—and others such as coastal shipping and the real estate for example—is certainly welcome. But the larger question is—why only for the foreign investor? Where aren’t we making the investment climate in India more attractive for the domestic investor?
To those who will not learn from history, a short trip back in time to the Calcutta and Madras of the final days of the Mughals—the concessions given to the Hastings, Clives and the Yales, and the countervailing additional transactional costs on domestic commerce during the era of Jagat Seth and Mir Qasim—is suggested.
Let us have some clarity and transparency on investments in India and ensure that the foreign investments coming in are identifiable, just as it is for domestic investments. At the same time, let us not try to kill the “unorganised sector”, by giving FDI unchallenged access to our markets.
Otherwise, we have to be prepared for another era of slavery or, worse, become a battlefield between the warring powers of the West on one side and China on the other.
The need of the hour is good domestic governance. And nobody seems to be bringing that up.
(Veeresh Malik had a long career in the Merchant Navy, which he left in 1983. He has qualifications in ship-broking and chartering, loves to travel, and has been in print and electronic media for over two decades. After starting and selling a couple of companies, is now back to his first love—writing.)
According to a representative body of cooperative agriculture banks federation, increase in income of farmers due to FDI in retail would also lead to improvement in recovery of loans from them
GDP growth will return to a higher slope curve, with policy reforms from the government, says Morgan Stanley
The government has initiated bold measures to reduce the fiscal deficit and revive private investment in a meaningful manner, according to Morgan Stanley Economics Research. The diesel price hike by Rs5 per litre and the decision to allow FDI (foreign direct investment) in multi-brand retail and aviation at a higher level are just two examples. This needs to be pursued further as given below:
First, accelerate the implementation of major public policy reforms. These include:
• Strengthening institutional capacity to allocate critical national resources such as land and minerals to the private corporate sector in a transparent manner for rapid industrialization.
• Enacting the Goods and Services Tax Act (GST)—value-added tax.
• Strengthening institutional capacity to manage the awarding of major infrastructure projects through public-private route, which should increase transparency.
• Building a comprehensive plan for energy security along with a systematic program for energy pricing reform.
• Initiating fiscal consolidation that aims to reduce the national government deficit and improve the mix of its expenditure towards development spending.
• Initiating policy measures to boost the productivity of the rural workforce and manage rural wages growth to a more moderate level matching the trend in productivity.
Second, the government needs to identify and fast-track 25-30 large infrastructure and core industrial projects: Some of the public policy reforms highlighted in the first part above are likely to take time to be reflected in the growth numbers. Hence, Morgan Stanley believes that in the near term there is an urgent need to accelerate investment growth with concerted effort to achieve it. The government could support speedier implementation of projects that are already under way, or else encourage new projects that can be taken up for execution quickly to ensure that investment activity is revived in a more timely fashion. These projects could be those that have a limited call on land and mineral resources.
Morgan Stanley believes that the government should focus in particular on infrastructure investment, which can be taken up in a counter-cyclical manner, because weak global sentiment could weigh on manufacturing investment. For instance, many Indian cities need a jump-start in critical urban infrastructure facilities and the central government could provide a capital grant of about $10 billion to initiate projects worth $40-$50 billion.
Morgan Stanley says that that in many cases the plans for such infrastructure projects are ready but they need a determined push from the central government. With the government providing leadership in policy reforms, the downside risk to growth is reduced and the GDP growth will return to a higher slope curve.