Saturday, September 28, 2002, Chandigarh, India

National Capital Region--Delhi



Factors behind India’s FDI problem

Your editorial “India’s FDI problem” (Sept 20) was topical because you have been seized of this important issue soon after the report on foreign direct investment (FDI) authored by N. K. Singh has come out. Different economic think-tanks and political groups have been airing their conflicting views on it. Shorn of their dyed-in-wool ideologies, there is virtually a consensus that economic indicators which influence the inflow of FDI are substantive as well as surfacial. The most important substantive factor is that if domestic investment growth is sluggish, FDI cannot but fall in line with it because the FDI players keep close watch on the behaviour of domestic players.

Coming to the surfacial factors, it is well known thinking among the economists and governments of the underdeveloped and developing economies that growth of FDI is considered to be of crucial importance as a status symbol because they see it as a stamp of approval over their fiscal and economic policies. Now this hypothesis is misplaced in the face of economic truism that FDI is highly sensitive to the political state of affairs. There has been a virtual famine of FDI in India since 1997.

So far the study of ground realities in India indicates that FDI is mostly mobile and comparatively a small part is committed to stay put in industrial and marketing setups. The mobile FDI flows into capital and stock markets and comes in hordes when the market is bullish and jumps over the fence without a second thought if the grass is greener in the neighbouring lawn.


It is the long-term FDI which is the sine qua non of an economy being in the mainstream of globalisation. It is here, as rightly pointed out by you, that China has stolen a march over us. It attracted nearly $ 47 billion last year as against which the Indian figure is laughable. However, it would be worth taking note of the cover story in “Newsweek” a few months back with the heading “Cooked Books” where a well-researched case was made out by its economic bureau that China may be faking its economic numbers and the gloating statistics churned out by it appear to be a PRO exercise to impress foreign investors.

But all said and done, we can only derive cold comfort from it because the fact remains that China, even after discounting its cosmetic statistics, is much ahead of us in the growth of its manufacturing sector and exports. So far it is the low price rather than high quality of its products which is its USP but that gap too may be bridged. It is, therefore, a challenge before the Indian business and the government to match the Chinese example in growth and competitive advantage. You have rightly stated that the bottomline on the point is the quality of business and fiscal laws and their administration and implementation by competent and honest bureaucracy.

Lastly, I must oppose your observation about archaic state of labour laws, particularly the absence of a hire and fire policy. This whining by foreign investors is pure bunk. They know it well that Indian labour is very cheap. What they have to pay a skilled worker in India for a month, in terms of dollars, is equal to a janitor’s earnings in America for three days. Moreover, a worker fired there is sustained by statutory social security support during unemployment. Therefore, change in labour laws must take into account social accounting and social justice for the less privileged labour class.

R. C. KHANNA, Amritsar

Gujarat riots

Mr Atal Behari Vajpayee’s remarks at the reception hosted by India’s Ambassador during his recent visit to the USA that there was no justification for the riots in Gujarat and that he was pained and ashamed at the killings in the state had the quality of plainspokenness.

There is no doubt that the Godhra incident was heart-rending. But there was no justification in killing the people, who had nothing to do with that holocaust. It was the height of barbarity, not a matter of pride. The BJP cannot escape the blame of innocent people’s bloodshed by employing the subterfuge of the 1984 anti-Sikh riots allegedly aided and abetted by some Congress leaders.

Instead of feeling the qualms of his utter failure to quell the communal violence and bring the hoodlums to justice, the Gujarat Chief Minister, Mr Narendra Modi, performed a “gaurav yatra” and indulged in derogatory and inflammatory remarks like “ham paanch hamaarey pachchees”, “relief camps are child-producing factories”, etc against the Muslims. Are not such comments tantamount to sprinkling salt in their wounds? I want to tell him: “Ba-taras az aah-e-mazloomaan ke hangaam-e-doa kardan/ Ijaabat az dar-e-haq baihr-e-istiqbaal mey aayad” (Fear the sighs of the wronged people, because when they recite a prayer its acceptance comes from God’s door to greet it).



Subsidising power

With the government committing a subsidy of Rs 750 crore to the agricultural sector, the Electricity Regulatory Commission has reportedly recommended a subsidised rate of 50 to 60 paise per unit for farmers.

I have no objection to the subsidy but I am afraid the authorities are going about the whole thing in a wrong way. The right procedure would be to raise the bills at the normal tariff rate but indicate therein the portion payable by the consumer and that payable by the government. Each bill should therefore be raised in two copies. One copy to be presented to the agricultural consumer for paying his portion and the other copy to be presented to the government for paying its portion of the bill. The bills to be cleared by a specified date failing which usual action to disconnect the supply may be resorted to.

Both the consumer and the government would then remain on guard to clear the bill by the due date — the consumer to avoid the inconvenience and the government to avoid losing the votes of its farmer friends. The PSEB will thus be assured of regular monthly income with no fear of arrears of subsidy amount remaining unpaid by the government.

Wg Cdr C. L. SEHGAL (retd), Jalandhar

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