The Hindu Business Line : The colour of investment

THE ruckus over the proposed enhancement of the foreign direct investment limit in telecommunications, civil aviation and insurance has muddied UPA relations to such an extent that an important member of the Left party has threatened that, if pushed to the brink by the Congress, the Left could even take the decisive step of withdrawing support, which would lead to the fall of the Manmohan Singh Government.

Of course, this statement has been tempered later with the clarification that such a step was unlikely because of the one-point objective of the ruling coalition to keep "communal" outfits like the BJP out of power, which is reassuring in view of the great damage a return of the NDA could do to the social fabric of the nation.

Even so, the point of discord over the FDI issue remains, which is unfortunate because the issue is really a non-issue in terms of extending foreign control over the spheres in question.

First, what does the Common Minimum Programme (CMP) of the United Progressive Alliance Government have to say on the subject?

It says in part: "The UPA will take all necessary steps to revive industrial growth and put it on a robust footing through a range of policies, including deregulation, where necessary incentives to boost private investment will be introduced.

"FDI will continue to be encouraged and actively sought, particularly in areas of infrastructure, high technology and exports and where local assets and employment are created on a significant scale.

"The country needs and can easily absorb at least two to three times the present level of FDI inflows. Indian industry will be given every support to become productive and competitive..."

Second, what did the Union Finance Minister say in his Budget for 2004-2005 on the subject when he made the FDI increase proposal?

He said: "Foreign Direct Investment has the potential to add a competitive edge, especially in the industrial sector. The NCMP (National CMP) declares that FDI will continue to be encouraged and actively sought, particularly in areas of infrastructure, high technology and exports.

"Three sectors of the economy fully meet this description. They are telecommunications, civil aviation and insurance. There is an urgent need for infusing huge amounts of capital in these sectors.

"I, therefore, propose to raise the sectoral cap for FDI in telecommunication from 49 per cent to 74 per cent; in civil aviation from 40 per cent to 49 per cent; and in insurance from 26 per cent to 49 per cent."

As we all know, the Left is up in arms against the increase in the FDI cap in all three sectors, the two substantive grounds on which the opposition is based being the "security" aspect and — surprisingly — change for the sake of change (see Thursday's reported CPI stand in the Lok Sabha on the issue).

Both these arguments are very weak indeed. If the "security" argument is seen to be justified, among other things, the nation should cleanse its armed forces of all state-of-the-art technological marvels because most of them have come from the developed countries.

If the injection of foreign money into a sensitive sector makes the latter a security threat, foreign gizmos would be even more suspect because the country's security ultimate depends on the effective functioning of these gadgets on the battlefield.

If it is argued that Indian surveillance has been successful in removing this security "loophole" from foreign Defence products, the question to ask is: why should not equal surveillance be good enough to keep the security aspect of FDI in spheres such as civil aviation and telecommunications under control too?

Money has no colour. If it is foreign money, and if injection of such money does not lead to effective management control, which continues to remain in Indian hands, placing hurdles in the way of such resource infusion is actually a step against economic development.

The people, both the poor and the rich, cannot afford such a blinkered attitude because, at the end of it all, the losers are none other than themselves.

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