Last Monday, for the second time in just over six months, the National Democratic Alliance (NDA) undertook an overhaul of the foreign direct investment (FDI) regime, making it easier for foreign investments.

In November last year, the NDA had eased the ceilings on overseas investments in 15 sectors; this time, it raised the foreign investment caps in more sectors, relaxed FDI conditions and brought more sectors under the automatic route—precluding red tape associated with the circuitous approval route and thereby improving the ease of doing business in India.

What gives?

It is clear that the NDA is making a big bet on the Indian economy: the next round of investments are likely to come from foreign rather than domestic investors. Nothing wrong really, given that we live in such a globalized world and India is very much part of it (a story published in The Times of India reveals that a third of what we eat today is of foreign origin).

It is also a fact that foreign investors have deeper pockets and have a much longer term horizon in mind. And if the attendance of representatives of multinational companies at events hosted by the prime minister during his global visits is any indication, the keenness to invest in India is visible.

The implicit bet—don’t expect the Bhartiya Janata Party-led NDA to ever say so explicitly—is that it will be a while before Indian industrialists resume their investment regimen. Buffeted by bad debts, sins of crony capitalism, growing economic uncertainty and disruption trends, the domestic investor is now risk averse.

A recent story published in Mint reveals how automobile firms, despite benefiting from lower input costs, are preferring to run cash surpluses (behaving like an investment bank and surely making good returns for its shareholders) rather than investing in new capacities. In fact, a Union cabinet minister had once remarked to me about how the NDA was not betting on India Inc. returning to their investment ways very soon.

And without a step up in investment, India faces the risks of being stuck in a low income trap. The NDA is very much seized of the problem—without a step up in investment, there can be no job creation, which in turn spells political disaster.

Accordingly, over the past two years, it has pursued a strategy of improving the ease of doing business, readying the country to transition to a rules-based regime (like the use of the intersection of a bank account and Aadhaar or the unique identity to distribute cooking gas subsidies), incentivizing Make in India, cleaning up the banking system of its bad debts and improving governance at public sector banks, encouraging start-ups and entrepreneurship among the economically and socially disenfranchised through the Mudra bank and zealously pursuing the creation of an infrastructure framework—with particular focus on reviving long stuck projects.

Alongside, the NDA has recalibrated its strategy towards public sector undertakings—instead of pursuing divestment of its stakes, it is working on strengthening public sector undertakings so that they can generate more investments. A previous column of Capital Calculus, PSUs: Return to the commanding heights, had dwelled on this.

Now, it is making its next big bet: FDI. Besides making up for the investment deficit in the economy, the move recognizes that India is an attractive investment destination. The imminent meltdown of China and the slump in global growth (which will only worsen after Brexit) means global investors will be looking for new destinations.

India’s biggest attraction is its burgeoning market. The phenomenal growth in cell phones is the simplest and best example of the potential of India; at almost every price point, cell phones have found consumers. The same is true even of consumer goods. And unlike, say even a decade ago, India is materially far better off today (poverty levels are at a record low of 22%); in fact, aspirations have replaced the desire for survival.

However, the drawback has been the lack of a rules-based regime and pathetic infrastructure. The latter is relatively easier to rectify as opposed to the former—which needs a change in the national mindset. The exception-based regime is what encouraged crony capitalism (and the consequences are self-evident), leaving the less favoured investors vulnerable to arbitrary policy actions. To its credit, the NDA has pursued, despite the pushback, a transition to a rules-based regime (its crackdown on black money is the key reason that the bottom has fallen out of the real estate market).

It is then clear that the NDA has made a big bet on FDI. It may or may not succeed. At the least, it can’t be faulted for not trying.

Anil Padmanabhan is executive editor of Mint and writes every week on the intersection of politics and economics.

His Twitter handle is @capitalcalculus

Comments are welcome at capitalcalculus@livemint.com

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