Most of the FDI is going to the service sector followed by pharmaceuticals, infrastructure

and manufacturing. Foreign investors are interested in quick and remunerative returns.
They are coming to India because of the high GDP growth path in recent years.

PTI
Bandra–Worli Sea Link, Mumbai

E-COMMERCE EASE OF DOING BUSINESS FDI JOBS

India has jumped 30 places at one go in the World Bank’s Ease of Doing Business index
which is no small feat for a country in a year’s time. The World Bank must have been
very impressed with the Modi government’s track record on reforms. It is commendable
that on many of the indicators comprising the index, India has made progress at a fast
pace. Still, there is a lot to be done and by World Bank’s standards, the opening up of all
sectors needs to be expedited.

The World Bank’s index reflects the voice of all developed countries towards India and
its policy framework has been dominated by the US. In its ratings and suggestions, the
Bank’s policy is guided by the neoliberal ideology of lessening all regulations on trade
and investment. The US wants less regulation on its agricultural exports to India and so
also does EU. If India is willing to comply with the wishes of the developed countries
keen on prying open its markets, it may be able to climb up further in the Ease of Doing
Business index, but will it help in creating jobs or increasing the welfare of the people?
And we should not expect any reciprocity from the developed countries regarding
opening up their markets, especially for agricultural products or pharmaceutical drugs.
The constant complaint is that the standards of hygiene and cleanliness or even the
packaging are not high enough and do not conform to the norms of developed countries.
In the case of pharmaceuticals, the complaint is about lack of compliance with global
norms. Foreign investors from western countries are afraid of copyright infringements
and other Intellectual Property Rights issues in India.
As an index, the Ease of Doing Business is deeply flawed as it does not reflect the more
serious issues in the social sector, especially in the case of India. It does not take into
account whether the country is advancing on the welfare front, especially when it comes
to services for the poor and is oblivious of gender equality. India has the largest number
of malnourished children under five years old in the world and there is an increase in
stunting and ‘wasting’ among children. India has gone down on the world Hunger Index.

As an index, the Ease of Doing

Business is deeply flawed as it does not
reflect the more serious issues in the
social sector, especially in the case of
India. It does not take into account
whether the country is advancing on the
welfare front, especially when it comes
to services for the poor and is oblivious
of gender equality.

How is it that these important indicators and warning signs are glossed over by the
government and instead it is crowing about the climb in the Ease of Doing Business
index? India has become one of the most polluted countries with regard to air and water
pollution. It has serious problems in healthcare and there are not adequate hospital beds
per 1,000 population. Similarly, there are not enough doctors, especially in rural areas.
The state of sanitation and drainage are precarious and every so often with heavy rains,
metro cities like Chennai, Kolkata, Mumbai and Delhi are flooded and clogged.

Obviously, potential foreign investors will have to turn a blind eye to these aspects of
India’s business environment when they come to India. Also, the kind of FDI which is
coming in should be scrutinised because it may not be the type which establishes green
field enterprises that employs local labour. This kind of FDI was encouraged in the past
because it brought about transfer of technology and knowhow. The recipient country
benefited from the foreign exchange that investors brought which improved the balance
of payments.

The kind of FDI which is coming in

should be scrutinised because it may
 not be the type which establishes green
field enterprises that employs local
labour.

But, apparently the pattern is different now. The recent FDI inflows are not from leading
global producers of goods and services but mainly from private equity (PE) funds. In
2014-15, Private Equity funds like the Canada Pension Plan Investment Board accounted
for 60 per cent of the total foreign inflows and went to consumer retails like Snapdeal,
Paytm and Flipkart (e-commerce) that are heavily import dependent for their operations.
Today, Amazon is waiting to come in with $5 billion capital to increase its presence in
India. In such cases, the benefits of FDI in creating jobs is limited and does not entail
bringing in fresh technology or leading to new capital formation.

Most of the FDI is going to the service sector followed by pharmaceuticals, infrastructure
and manufacturing. Naturally, the foreign investors are interested in quick and
remunerative returns. They are coming to India because of the high GDP growth path in
recent years. Maintaining high GDP growth is also the concern of the government, along
with it is also the concern for job creation. By attracting FDI, mainly to service and e-
commerce sector, may lead to quick profits for investors, but it will not bring more jobs
to the people. Hence, attracting FDI to ‘Make in India’ initiative has to be the main
endeavour of the government, even though it will be difficult.

The FDI in India is highly concentrated and Mauritius is the top source of FDI into India
in 2016-17. Singapore is next biggest source and together they account for 50 per cent of
total capital inflows. In 2016-17, total FDI grew by 9 per cent to $43.5 billion. Mauritius
route is nothing but round tripping of Indian investment which prefers to go to Mauritius
to avail of the Double Tax Avoidance Treaty which means it is going to ‘brown field
investments’ in existing enterprises. The treaty has been amended but will come into
force only from 2019. The preferred destinations are Mumbai, New Delhi and Chennai.
But the rest of India hardly attracts much FDI and that is where the unemployed youth
are.

The Ease of Doing Business also refers

only to Mumbai and Delhi and hence it
is not giving a complete picture to the
investors.
The Ease of Doing Business also refers only to Mumbai and Delhi and hence it is not
giving a complete picture to the investors. The workers in other states need training in
skills and only then they can form a disciplined, dependable labour force which is the
backbone of industry. It is of utmost importance to see that FDI goes to the other States
and the reforms undertaken by the government in Ease of Doing Business should apply to
all. If India is keen on receiving FDI from other countries and build its infrastructure and
industrial base, a lot more attention has to be paid to the factors that are not covered by
the index. The government has to choose what kind of FDI it wants and where its location
should be. Only then can FDI fulfill its role as an accelerator of growth which will create
jobs for the people.

ECONOMIC REFORMS ECONOMY AND GROWTH INDIA

INDIAN ECONOMY

The views expressed above belong to the author(s).