Politicians have been rushing to crucify Monday’s liberal FDI (foreign direct investment) policy without understanding the implications of the decisions. Even the government is guilty of not issuing a detailed note on the decisions and their impact.



While the principal opposition party the Congress said the reforms were a “big threat” to the national interest, Commerce Minster Nirmala Sitharaman said that “definitions will have to be simplified, and clarity will emerge.” On Monday, the government removed the condition of ‘state-of-the-art’ technology for permitting 100 per cent FDI in the defence sector and set a new condition that the companies wanting to invest 100 per cent FDI and open a subsidiary need to bring in only modern technology. India needs modern technology, and only OEMs (original equipment manufacturers) can bring that kind of innovative tech.



But the Congress party thinks otherwise. Senior Congress leader and former defence minister AK Antony attacked Prime Minister Narendra Modi saying the reforms would “affect India’s independent foreign policy”. “Allowing 100 per cent FDI in defence sector means India’s defence sector is thrown mostly into the hands of NATO-American defence manufacturers,” Antony said on new FDI policy.



The government was forced to open up the defence sector as the Make in India initiative has failed to attract significant number of foreign original equipment manufacturers (OEMs). For the country’s long-term security interests, imports are not the solution, but the presence of OEMs on our soil is still helpful.



Manufacturing in India will see fewer scams and reduce cost overruns in public sector projects like the main battle tank or light combat aircraft, which consumed crores of taxpayers’ money. Even the sane voice of former commerce minister Anand Sharma sounded shrill. He charged the government with easing “pre-conditions” imposed by the UPA government that were necessary to protect the interests of the country and its people.

“While national interests have been ignored in easing FDI norms in defence…One cannot call this a progressive move. On one hand, there is this shrill noise about ‘Make in India’ and on the other, you do away with the local sourcing condition. This means the government speaks in double-voices. Its decisions do not reflect the sincerity of its intent,” Sharma said.



Remarks by a senior official may clear Sharma’s doubts. The official from Department of Industrial Policy and Promotion said that the government had been getting proposals in the defence sector. “But everybody was troubled by the clause ‘state-of-art’. This was affecting the ease of doing business; therefore, we have changed the terminology.”

Anand Sharma may be correct on one point. On the pharma sector, he said FDI was permitted in greenfield projects where new factories were to be established for 100 per cent FDI under automatic route but for brownfield, where the acquisition or takeover of existing pharmaceutical industry was concerned 100 per cent was allowed but through the government approval route and certain conditions were put.



“This means there is complete takeover without any precondition, without any check. It will seriously erode India’s strong capacity and capabilities in the pharmaceutical industry. There was no reason when 100 per cent was allowed in both greenfield and brownfield, why this was essential. Government has to explain this,” Sharma asked.



Meanwhile, Commerce and Industry Minister Nirmala Sitharaman said the Government initiatives are expected to increase FDI inflows which have been very encouraging over the last two years. “Now there is a greater clarity in terms of the caps, in terms of the process of approval, in terms of making it easy so that the rigours of going through an investment proposal are all eased out,” she said as quoted by India Today.



However, opening of FDI is not going to bring in big investments. The government should also ease land acquisition and labour laws.