By Nageshwar Patnaik in Bhubaneswar, August 30, 2019: Concerned by the economic slowdown and persistently weak investment activity, the Narendra Modi led NDA government has embarked on a series of stimulus measures like the rollback of a tax surcharge on overseas investors, improved credit flow, transmission of lower interest rates and relaxations in foreign direct investment (FDI) norms to revive the growth which has of late slowed down rather sharply.

Most significantly, the NDA government has sought to provide a policy fillip to attract more foreign capital into some sectors which will have a multiplier effect particularly in terms of job creation at a time when India is facing a sharp economic downturn and severe loss of business confidence.

Private sector investment, the mainstay of sustainable growth in any economy, is at a 15-year low. The situation has gone from bad to worse so much that many Indian industrialists have complained loudly about the state of the economy, the distrust of the government towards businesses and harassment by tax authorities.

Back-to-back decisive victories for Narendra Modi have brought an element of continuity for the present regime in the country and Modi has a unique electoral mandate to embark on bold moves to truly transform the economy and pull India out of the woods.

Needless to say, the key to successful economic transformation lies in having a holistic perspective of the challenges facing the economy and then bring into line specific policy responses with appropriate interventions.

Even the Reserve Bank of India (RBI) in its 2018-19 annual report released on Thursday has made it clear that issues related to “land, labour and marketing” will need to be addressed as a broad-based downturn is underway in sectors such as manufacturing, trade, hotels, transport, communication and broadcasting, construction and agriculture.

Though RBI earlier cut its growth projection for FY20 to 6.9% from its June forecast of 7%, citing weak domestic economic activity and a global slowdown amid trade tensions, independent evaluators like Moody’s Investors Service cut India’s GDP growth prediction for calendar 2019 to 6.2% from 6.8%. The Indian economy had decelerated to a five-year low of 5.8% in the March quarter. It further dropped to a seven-year low of 5 per cent in the April-June quarter of 2019-20 due to a sharp deceleration in the manufacturing sector and sluggish agriculture output, according to official data released on Friday. The previous low was recorded at 4.9 per cent in April-June 2012-13. The economic growth was 8 per cent in the same quarter of 2018-19.

In fact, the economic scene across the globe is not rosy and governments of many countries are trying to revive growth through stimulus packages. The biggest casualty is the manufacturing sector following the trade war between the US and China.

Nevertheless, the US-China trade war presents an opportunity for India to enhance its negligible share in global trade. But for that sustained enhancements in productivity are essential. This also called for further liberalization of Foreign Direct Investment (FDI) norms with global FDI inflows facing headwinds over the past few years.

Not surprisingly, the Modi government on Wednesday came up with the much-awaited impetus by liberalizing the existing FDI regime to shore up the flagging economy. The changes across four sectors include foreign investment in digital media up to 26 percent, 100 percent foreign direct investment (FDI) for coal mining and contract manufacturing and easing of sourcing norms for single-brand retailers.

The move will go a long way to further India’s aim in establishing itself as an attractive investment destination. Despite the decline in FDI trends globally, India seems to be on the right track with the receipt of an all-time high FDI inflow of $64.4 billion in 2018-19. The latest package is expected to woo foreign investors to set up their bases in India.

The policy package permits 100% FDI under automatic route for sale of coal, for coal mining activities including ‘associated processing infrastructure’ subject to provisions of Coal Mines (Special Provisions) Act, 2015, and the Mines and Minerals (Development and Regulation) Act, 1957.

It seeks to open up the coal mining sector to foreign investment beyond just captive use allowed under the earlier dispensation. Mega global corporations such as BHP and Peabody Energy are likely to evince interest in India as the country belatedly opens up the coal mining sector in India to foreign players.

Similarly, in a bid to further stimulate domestic manufacturing as part of ‘Make in India’ initiative, 100 per cent FDI under automatic route has been allowed in contract manufacturing, to bring it on par with the existing FDI regime.

Analysts say the relaxation of norms is likely to make India a more lucrative market for global retailers such as Apple, IKEA and Uniqlo with the local sourcing requirements being relaxed to the extent that all procurements made in India -including both where goods are sold in India and exported – by the Single Brand Retail Trading (SBRT) entity for the particular brand will be counted towards local sourcing.

To open the FDI doors further, GoI has now decided that retail trading through online trade can be undertaken prior to the opening of brick-and-mortar stores, provided that such an SBRT entity will open its physical stores within two years from the starting date of their online retail business. This reform aims at creating employment opportunities in logistics, digital payments, customer care and training.

With a global economic slowdown anticipated in the months to come, these timely measures should prove to be effective and is all set to reinforce the confidence in investors towards the Modi government’s commitment to attract more FDI while improving ease of doing business.

Whether the latest FDI rule changes are good enough to draw a rush of investments is the moot question.