The Hindu Business Line : Ambitious on FDI

THE PRIME MINISTER, Dr Manmohan Singh, is confident that India can attract as much $150 billion, over a ten-year period, in Foreign Direct Investments in the infrastructure sector if a transparent and independent regulatory structure is put in place. Undoubtedly, this is ambitious, going by the FDI flows thus far. Much would depend on the kind of strategy adopted. The Government's attitude to divestment in public enterprises is one. For now, the deck may be stacked against any divestiture. But some kind of a divestiture by stealth involving sale of small lots initially and of a strategic stake later could achieve that result. The Government has enough big-ticket assets in aviation, telecommunication, power and other sectors for this. Second, the Government would do well to focus on improving administrative efficiencies at the State level rather than try to alter for the better the policy framework at the Centre. The States ruled by the Congress(I) offer the best scope for triggering a fresh wave of FDI if the ambitious numbers are to be achieved. After all, if the Congress, leading the coalition at the Centre, cannot make a State ruled by it see reason on economic reforms of the kind likely to attract fresh investments, it cannot hope to do so elsewhere, even at Central ministries controlled by its alliance partners.

But having said that it would not do to ignore the realities of democratic politics. The phraseology that Dr Singh has employed may be original but the underlying ideas are surely not. Successive Plans have spoken of putting in place structures to attract ever larger sums of overseas monies into infrastructure. Yet, the performance continues be as uninspiring as ever. Take the case of the power sector. Ever since the country embarked on the policy of liberalisation, in the early 1990s, the poor financial health of the State electricity boards has been recognised as a serious impediment to attracting private investments. The offer of counter-guarantees by the Centre on payment by State utilities of dues to generating enterprises was seen as a stop-gap arrangement pending the restructuring of operations of the electricity boards, rationalisation of tariffs providing for cost-based tariffs and so on. But a decade or so down the road, not only does the concept of counter-guarantees stand discredited, but the finances of the electricity boards are in worse shape; cost-based tariffs have receded far into the background.

Yet, none of this can be attributed to a perverse or whimsical attitude to governance on the part of rulers. They are inherent in the nature of competitive politics. The ideological preferences of parties constituting the present ruling coalition and those extending support from outside are such that reforms of the neo-liberal variety which seem to underpin fresh commitment of resources by overseas investors can well be ruled out. Quite apart from this, the natural tendency of the bulk of the political class to leverage administrative decisions for personal profit is neither calculated to serve the cause of transparency nor bring speed to administration. That, then, is the challenge for Dr Manmohan Singh in his quest for more foreign investments.

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