If the budget proposals are effectively implemented and yield desired results for sectors where outlays have been planned–such as the healthcare and well-being, infrastructure, textiles and manufacturing sectors, they are going to be magnets for foreign investors looking at these sectors. However, barring healthcare; all other sectors have been traditional sectors that have attracted FDI and have proven track record of growth. So, they have already attracted large FDI inflows over a period; of course, more is always welcomed! Thus, these established sectors are not truly the sunrise or evolving sectors anymore.
Therefore, big and bold reforms are needed for sectors having huge potential for growth. When taken together with these established sectors, they will deliver overall FDI growth for India Inc. The list of these high performing sectors is long, but what comes instantly in mind is e-commerce and real estate.
Both have witnessed scale up of business, in particular, the online/e-commerce business–thanks to the changing Indian consumers’ shopping habits or their compulsion for online shopping during the pandemic – that’s brought Indian consumers closer to experiencing online shopping.
Whatever may be the reason, these sectors are showing positive signs of growth. Favourable policies and measures rolled out for them will certainly give them impetus and go a long way in not only attracting big ticket FDI but also unlocking their true potential. Sadly, this looks to be far from reality and remains a work-in-progress distant dream. One dampener for this is the stringent FDI regulation and policy that governs these high potential sectors.
Let’s take e-commerce for instance. Barely two years since the last move, the Government is again toying with an idea of tinkering the FDI rules around e-commerce. The objective of the Government seems fair as it endeavours to trap rule flouting e-commerce entities by tightening screws of FDI rules which are often said to be smartly evaded by well-designed creative legal structures by these e-commerce entities. The Government feels that another round of modification to these rules is necessary, as legal structures may look good on paper (compliant with the letter of law) but essentially could be of ambivalent spirit.
Perhaps, under tremendous pressure from trade lobbies and noises around anti-trust violation by these entities, the Government wants to catch up with these e-commerce entities, hoping to plug the loophole in the existing FDI rules that could indirectly allow the e-commerce entities to sell their products on their owned e-commerce platform–which is what the law prohibits.
Undoubtedly the errant companies must be punished. But frequent amendments to catch the wrong doers could hurt investments and create doubt within India Inc as a favourable destination for FDI. This could also have a domino effect on FDI into India and overall investor confidence with trade relations with bordering countries (read China in particular) already at a low. Last year’s policy changes not allowing FDI from nations sharing land borders with India, unless the Government clears them plays into this. It is really time that the Government takes a clear, objective and a pragmatic view on FDI in e-commerce business and provides a permanent remedy rather than small fixes with frequent amendments.
Similarly, for the real estate sector reeling under huge pressure and dampening sales because of the COVID pandemic, a tweak in stringent rules could be a breather. Easing FDI prohibition on buying and selling of constructed projects may not be a good idea at this stage, but a few other tweaks could help this sector.
Although, if viewed from an overall perspective, the Budget looks good, forward looking and exciting, but there was room to do better for proposals attracting FDI.
(The writer is Partner with J. Sagar Associates. Views are personal)
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