Reforms in FDI policy

Had Raghuram Rajan not announced that he was quitting, his exit some months later would have been less noisy than it currently is

Throughout the last week the economy and its issues have overtaken politics in India.  Politics, as is well known, is the staple diet of Indians and however important the economy and its concerns may be, it is always politics that gets precedence.
 It is a known fact that even when policies are economy driven, politics casts a shadow on decisions taken by the government.
 This is exactly the point made by outgoing Governor Reserve Bank of India Raghuram Rajan’s supporters when they said that his exit is an example of how politics trumped good governance.
 A little before Brexit came, India was hit by what has  come to be known as RRexit or Rexit i.e. the exit of Raghuram Rajan.
 That there were fault lines in the equation between Rajan and the Government has, for some months, been well known. His exit has been on the cards even  though the Government gave no indication one way or the other. Rather, it maintained a studied silence whenever the issue of his second term came up leaving it open ended. When Rajya Sabha MP Subramanian Swamy openly criticized Rajan, the Government mumbled polite nothings but made no move to solidly back him.
 Swamy had sometime ago written to Prime Minister Narendra Modi that the RBI governor was not “fully Indian” and was making “deliberate attempts to wreck the Indian economy”. The Government instead of a spirited defense preferred to give a muted one. At that point in time it was argued that governments cannot be expected to get into a slanging match and take up cudgels against individuals even if it involved an MP from its own party.
 But a few weeks down the line, this argument did not hold because when Swamy demanded that the Chief Economic Adviser Arvind Subramanian be sacked Union Finance Minister Arun Jaitley said that the CEA was very much a part of the government’s planning and decision making process.
 Swamy’s allegation against Rajan is that he is a US green card holder and even as RBI Governor he made mandatory annual visit to the US to keep his card alive.
 Swamy had sought that the Prime Minister sack Rajan immediately. But the Government did neither that nor anything to stoutly defend him. As for the CEA, Swamy alleged that he had urged the US to initiate disputes against India before the World Trade Organization.
 Not the one to be upstaged, Rajan caught the government off guard by announcing his decision to quit. It just took two sentences from Rajan to say that he was stepping down. At the same time, he made it clear that he was open to seeing through developments but would be returning to academia. In the same breath he did say he would be available to serve the country when needed.
Therefore, the message was while I have packed my bags, I am, if asked, willing to stay. Even while stating that, he as everyone else knew that it was curtains down for Rajan. Not the one to take this lying down, Rajan decided not to go unsung or without making the right noises. He did it sufficiently that caused more harm than good to the Modi government’s image.  In the process Rajan emerged as a player who, even while losing, won a round. This was because the government goofed up. It adopted a one step forward two backwards policy towards Rajan’s future as Chief banker of the country. Two it came across as ambiguous on whether it wants him to stay or shut its door on him. Three it miscalculated that the timing of the announcement would be of its choosing.
 Rajan outsmarted the government, hogged the limelight and forced a debate much before the government anticipated the fall out. He also came across as a victim who was shown the door simply because he was not in sync with the current dispensation. Rajan was appointed by the previous regime.
But what was most damaging was that it showed up Modi and company more interested in politics rather than the economy. That Rajan was a  talented man is beyond doubt as is the fact that he is innovative and thinks out of the box. That this hurt the industrialists is a given. Therefore, between the Government and Rajan the verdict is that the government has little room for people who think on their own against those who follow an agenda. Had Rajan not announced that he was quitting, his exit some months later would have been less noisy than it currently is. Therefore, Rajan decided to make deafening noises. What came across is that Rexit could cost the country billions of dollars worth of foreign investment. Worse still that the Government has pushed out someone who was determined to set systems in place and clean up the banks.   The government may not be able to match Rajan’s economic calibre as it were, but it outsmarted him on politics.
 Therefore, within hours of everyone penning Rajan’s obituary, the government deftly shifted focus by announcing reforms in its FDI policy. Through this, the government has allowed 100 percent inflows in civil aviation and food processing sectors while also easing norms in defence and pharmaceuticals. 100 percent FDI has been approved in the broadcasting carriage services such as cable networks, DTH and mobile TV and food product e-commerce. Foreign investment in greenfield pharma projects has been approved 100 percent and 74 percent in brownfield projects. Upto 100 percent FDI has been announced in the defence sector.
  The government has also relaxed sourcing norms for up to five years for single-brand retail trading. So while on Rajan there was a thumbs down, the FDI announcements were a clear thumbs up for the Modi government. The focus shift from Rexit to FDI reform was a political masterstroke by the Modi government. This time around it paid Rajan in same coin.  The noises he made were drowned in the FDI din.  
 To add to all this, the Brexit countdown began. A short form of “Britain” and “exit,” it implies the exit of Great Britain from the   European Union following a referendum that asked voters whether or not UK  remain a member of the European Union or not.   Even while the world was coming to grips with the vote to leave the EU followed by Prime Minister David Cameron’s resignation, India was grappling with the impact this could have on its economy that has been in focus since Rexit.
 Brexit could mean probable depreciation of the rupee given that EU is among the largest trading partner to India. Indian markets would feel the pressure. It could suffer wild fluctuations or large outflows in sync with the overall trend.
Therefore while the world is handling Brexit, India is grappling with both Rexit and Brexit. The timing could not have been worse.

The writer is a senior Indian journalist, political commentator and columnist of The Independent. She can be reached at: ([email protected])

Reforms in FDI policy

Had Raghuram Rajan not announced that he was quitting, his exit some months later would have been less noisy than it currently is

Throughout the last week the economy and its issues have overtaken politics in India. Politics, as is well known, is the staple diet of Indians and however important the economy and its concerns may be, it is always politics that gets precedence. It is a known fact that even when policies are economy driven, politics casts a shadow on decisions taken by the government. This is exactly the point made by outgoing Governor Reserve Bank of India Raghuram Rajans supporters when they said that his exit is an example of how politics trumped good governance. A little before Brexit came, India was hit by what has come to be known as RRexit or Rexit i.e. the exit of Raghuram Rajan. That there were fault lines in the equation between Rajan and the Government has, for some months, been well known. His exit has been on the cards even though the Government gave no indication one way or the other. Rather, it maintained a studied silence whenever the issue of his second term came up leaving it open ended. When Rajya Sabha MP Subramanian Swamy openly criticized Rajan, the Government mumbled polite nothings but made no move to solidly back him. Swamy had sometime ago written to Prime Minister Narendra Modi that the RBI governor was not fully Indian and was making deliberate attempts to wreck the Indian economy. The Government instead of a spirited defense preferred to give a muted one. At that point in time it was argued that governments cannot be expected to get into a slanging match and take up cudgels against individuals even if it involved an MP from its own party. But a few weeks down the line, this argument did not hold because when Swamy demanded that the Chief Economic Adviser Arvind Subramanian be sacked Union Finance Minister Arun Jaitley said that the CEA was very much a part of the governments planning and decision making process. Swamys allegation against Rajan is that he is a US green card holder and even as RBI Governor he made mandatory annual visit to the US to keep his card alive. Swamy had sought that the Prime Minister sack Rajan immediately. But the Government did neither that nor anything to stoutly defend him. As for the CEA, Swamy alleged that he had urged the US to initiate disputes against India before the World Trade Organization. Not the one to be upstaged, Rajan caught the government off guard by announcing his decision to quit. It just took two sentences from Rajan to say that he was stepping down. At the same time, he made it clear that he was open to seeing through developments but would be returning to academia. In the same breath he did say he would be available to serve the country when needed. Therefore, the message was while I have packed my bags, I am, if asked, willing to stay. Even while stating that, he as everyone else knew that it was curtains down for Rajan. Not the one to take this lying down, Rajan decided not to go unsung or without making the right noises. He did it sufficiently that caused more harm than good to the Modi governments image. In the process Rajan emerged as a player who, even while losing, won a round. This was because the government goofed up. It adopted a one step forward two backwards policy towards Rajans future as Chief banker of the country. Two it came across as ambiguous on whether it wants him to stay or shut its door on him. Three it miscalculated that the timing of the announcement would be of its choosing. Rajan outsmarted the government, hogged the limelight and forced a debate much before the government anticipated the fall out. He also came across as a victim who was shown the door simply because he was not in sync with the current dispensation. Rajan was appointed by the previous regime. But what was most damaging was that it showed up Modi and company more interested in politics rather than the economy. That Rajan was a talented man is beyond doubt as is the fact that he is innovative and thinks out of the box. That this hurt the industrialists is a given. Therefore, between the Government and Rajan the verdict is that the government has little room for people who think on their own against those who follow an agenda. Had Rajan not announced that he was quitting, his exit some months later would have been less noisy than it currently is. Therefore, Rajan decided to make deafening noises. What came across is that Rexit could cost the country billions of dollars worth of foreign investment. Worse still that the Government has pushed out someone who was determined to set systems in place and clean up the banks. The government may not be able to match Rajans economic calibre as it were, but it outsmarted him on politics. Therefore, within hours of everyone penning Rajans obituary, the government deftly shifted focus by announcing reforms in its FDI policy. Through this, the government has allowed 100 percent inflows in civil aviation and food processing sectors while also easing norms in defence and pharmaceuticals. 100 percent FDI has been approved in the broadcasting carriage services such as cable networks, DTH and mobile TV and food product e-commerce. Foreign investment in greenfield pharma projects has been approved 100 percent and 74 percent in brownfield projects. Upto 100 percent FDI has been announced in the defence sector. The government has also relaxed sourcing norms for up to five years for single-brand retail trading. So while on Rajan there was a thumbs down, the FDI announcements were a clear thumbs up for the Modi government. The focus shift from Rexit to FDI reform was a political masterstroke by the Modi government. This time around it paid Rajan in same coin. The noises he made were drowned in the FDI din. To add to all this, the Brexit countdown began. A short form of Britain and exit, it implies the exit of Great Britain from the European Union following a referendum that asked voters whether or not UK remain a member of the European Union or not. Even while the world was coming to grips with the vote to leave the EU followed by Prime Minister David Camerons resignation, India was grappling with the impact this could have on its economy that has been in focus since Rexit. Brexit could mean probable depreciation of the rupee given that EU is among the largest trading partner to India. Indian markets would feel the pressure. It could suffer wild fluctuations or large outflows in sync with the overall trend. Therefore while the world is handling Brexit, India is grappling with both Rexit and Brexit. The timing could not have been worse. The writer is a senior Indian journalist, political commentator and columnist of The Independent. She can be reached at: ([email protected])