With the economic liberalization hit India in the 1990s, the economy of India realized all the way a new growth potential, pulling itself out from the Hindu growth rate to more than doubling in two decades. But, with this growth comes a need to efficient utilization of growth in the form of further investing in structural reforms. Sadly, India ignored that part and is now facing the consequences of the same. Had it invested in the structural development along with its focus on growth, India could have easily surpassed Chinas growth.
When, India came with its reforms in September last year, probably they had 90s reform outcomes in their mind. But, unfortunately, crisis twenty years before cannot be compared with the crisis that we perceive 20 yrs. later. It is firmly believed that India started its journey on growth a decade before it opened its economy. The reforms that helped in pulling out the economy in the 80s comprised of abolishing the License Raj and investing in the infrastructure. All these reforms were when coupled with economic liberalization acted like an icing on the cake.
It is hard to compare with the situation that we are facing today. The govt. was too high to realize that infrastructure does become obsolete because it has an age. If the domestic investors are reluctant to invest in the economy, then foreign investors will understandably be more concerned with the mounting uncertainties. So, Chidu should have also given some consideration to the point that these second generation reforms wont be of much help to the economy unless it comes with strengthening of fundamentals and credibility in the measures they take.
There is a growing realization all over the world that the policy-makers are directed on the ad-hoc measures instead of pushing the long-term goals button on, FDI was one of them. They announced these reforms, without setting the agenda, to how will it take place. So, initially, it helped in reviving the sentiment, but when interested investors came in with their proposals, nothing took off. This underscores a very strong point that FDI is not a magic wand; it will not work wonders always! Owing to bureaucratic hurdles delaying the materialization of
investments, advocacy issues, regulatory concerns and corruption scandals when FDI reforms could not signal positive sentiment, then to lure the investors, it made the FDI norms more relaxed.This indicates that they lack firmness in the policies they adopt. The Vodafone case also points a need for transparent tax regime. The govt. has reserved itself the right to amendment of any act at any time (suitable to their needs) they want. But, such steps will only scare the investors away from the economy.
Divya Shukla: A graduate with a Major in Economics degree from the renowned University of Delhi and is about to enroll for Masters program in Financial Economics in Babasaheb Bhim Rao Ambedkar University, Lucknow. Whilst this journey of financial economics is a career career path, has also developed a diverse field of interests, (especially in Economics, Politics, and Finance).