Foreign investment is the new via media for economic growth

Aggressive reforms have become the new political norm. Foreign investment policy has now morphed into a vehicle for economic growth, industrial expansion, improving services and providing mass employment. Otherwise, there’s no reason why this government should announce big bang reforms in foreign investments three weeks ahead of the last full budget in its present term. It’s not just manufacturing that is being attempted. Arguably, the biggest reform in recent months announced by the Narendra Modi government on Wed-nesday was allowing foreign airlines to own up to 49 per cent in the bleeding state-run carrier Air India.

The cabinet’s decision on Air India has thrown open the doors for global aviation companies to bid for the invaluable brand ‘Maharaja’, synonymous with India’s stately magnificence over the decades. The piled up losses notwithstanding, India’s national carrier is a kicking entity that can be turned around into a global airline from Asia. After the cabinet’s decision, enthusiasm is bound to rise amongst cash-rich and deep-pocketed international aviation majors like Singapore Airlines, Gulf Air and Emirates Airline. Once the capital infusion happens, brand re-launched and services refurbished, there would be no looking back for this mascot, which has represented India symbolically for many years.

Picking up 49 per cent stake by foreign airlines was hitherto allowed in case of other private domestic airlines, but Air India stood exempted from this rule. In effect, Air India will now have to prune its human resources base, make each operation profitable and leverage its physical assets and route permits or landing rights across global capitals. Air India’s transfer into private hands may set the ball rolling to turn large companies like BHEL or SAIL into booming enterprises, both through private and foreign investments.

Clearly, putting 100 per cent FDI in single brand retail on automatic route ends the uncertainty in the BJP-led NDA government. Though 100 per cent FDI in retail was allowed on paper earlier as well, the unwritten law was not to promote investment proposals that would upset the BJP’s traditional support base of traders. The Modi government seems to have come out of this dilemma and decided to allow large retail chains set up shop in India without hindra-nce. Of course, one would need to watch with keen interest as to what lies ahead for the saffron party, as the backlash from traders should be considered natural. However, there is little doubt that construction and real estate would definitely benefit with the entry of 100 per cent foreign-owned brokerage firms that were hitherto the exclusive preserve of domestic agents, sub-brokers and street corner shops. In other words, foreign brokers will now get you houses or flats on rent, facilitate lease agreements or sell commercial and domestic dwelling spaces. In addition, ambiguity about the status of brokerages in real estate has been ended. The good thing is that if professionalism and cleaner entities get into the real estate ecosystem, it may well lead up to the ‘great clean up act’ that the prime minister has been not just been promising, but also attempting.

Allowing foreign institutional investors and portfolio investors to pick up strategic stakes in power exchanges would only add value and linkages with global markets. This should send positive signals for power trading in the country, apart from facilitating cross border power deals.