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Dear Prime Minister Narendra Modi, here's why India cannot afford to revoke the decision to allow FDI

Tuesday, 15 April 2014 - 4:25pm IST | Agency: DNA
  • FDI

Many decades ago, Jawaharlal Nehru said in a speech that was intended to make foreign investment in India more attractive, “Of course, we want to socialise. But we are not opposed to private enterprise. We want to encourage private enterprise in every way. We want to promise the entrepreneurs who invest in our country that we will not expropriate them nor socialise them for ten years, perhaps even for a longer time.”

You want to revoke the decision to allow foreign direct investment (FDI) in multi-brand retail. As someone who is committed to restoring faith and trust in the industry, you are now in the position of this wonderful statesman. Jawaharlal Nehru sincerely believed his promise to be a really tempting prospect for foreign investors.

But, I had seen this coming. Globalisation has a bad press. Free trade was never popular. When the UPA government announced the decision to allow 51% foreign direct investment (FDI) in multi-brand organised retail in 2011, the BJP and other opposition parties claimed that this would ruin the nation. A politician even said that she would set fire to the first Wal-Mart store when it opens. But, do you really believe that this would inspire faith and trust in industry?

I do not know about your followers, but it is no longer acceptable to claim that you will set fire to the store of a Muslim or a Christian. Why should different standards apply to foreigners? In a sane world, it would not matter whether a corporation that invests in India is native or not. The ideology of anti-globalisation is based on the belief that foreigners are not people—that they do not have equal rights. That is all there is to it. It is, of course, not true that foreign investment would ruin the ruin local retailers. But, even if it would, so what? I understand why the idea of nationalist appeals to you and the Hindu nationalists, but are local retailers the master race for whom everyone else should suffer privation?

Now, is there anything wrong with an American multinational retail corporation investing in India? You seem to be keen on empowering the poor people in India, by transforming them into skilled workers. But, Indian wages are shockingly low by global standards. This is not primarily because Indian laborers are unskilled. It is because the technological means of production are primitive. An ordinary Indian laborer who moves to the developed west might see his wages instantly rising, even up to twenty times of that of the wage he could have earned in India. But, this cannot be because he became incomparably more skilled overnight. He has become far more productive overnight because western firms employ more sophisticated machinery. In the developed west, the capital invested per head is much higher. 

The only way to realistically raise Indian wages, and empower Indian workers is by raising the capital invested per head. The capital invested per head cannot be raised without repealing the laws and regulations that prevent domestic capital accumulation. It cannot be done without allowing investment of foreign capital. 

You seem to realise that the Indian railways need quality manpower, and even went to extent of suggesting that we need dedicated railway universities. When I was traveling in a train as a teenager, an elderly man seated next to me said that he had traveled in the same train fifty years ago. The train had not changed at all. But, the automobiles on the road have changed tremendously in the past five decades, or even in the past one decade. The reason of course, is that the railways are run by the state, while the automobile companies are private. But, the UPA government could not allow FDI in railways and real estate because the election commission of India did not let the legislation pass.

Turning around the railways would require great investment that the state or even the domestic industry cannot handle. The registered annual revenue growth of Fortune 500 companies is many times of that of India’s GDP. Many believe this to be a reason to oppose foreign investment, but this is a good reason to think that attracting vast amounts of foreign capital is easier than it is believed.

You believe that India has become a country of “underachievers”. But, perhaps foreign investment can do something about this? Firms are managed well in prosperous nations, but managed poorly in impoverished nations. But, the quality of the management of multinational companies is comparable, almost anywhere. The performance of the corporations that separate control and ownership is way superior to that of the firms that does not. Multinational corporations that invest in India are more likely to do so, than be run by family CEOs. 

If poverty bothers you, as you claim, an obvious truth cannot be evaded anymore. Economists have long known that opening the borders for trade and migration will almost end world poverty overnight. In a third-world country like India, globalisation would mean the difference between survival and death for millions of people. Perhaps the nationalists might find a meritocratic world where one’s identity does not matter very painful to bear. But, the truth is that a poor country like India cannot afford to not allow foreign investment in any sector of the industry.




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