Perfect timing: Why FDI reforms are a smart PR and an image booster for PM Modi
Clearly, the latest round of FDI liberalisation is likely to become a big success since there is lot of investor interest in India being a bright spot among other emerging economies and in the backdrop of a slowing world
Post the Bihar debacle, possibly the only thing the NDA government could have done to regain some lost ground was to reaffirm investors that the government is committed on the long-term reform path. And so it has done by hiking foreign direct investment (FDI) limit in at least 15 key-sectors.
More importantly, the step is also a major PR strategy in the backdrop of the ongoing high profile UK visit of Prime Minister Narendra Modi.Unlike Modi’s previous foreign visits, which were a success even before he landed, Modi boarded the flight to the UK in the backdrop of an unpleasant environment back home. For one, the ‘intolerance debate’, has surely hurt his image abroad and has made headlines in the UK and US media, impacting the Modi brand.
Secondly, the BJP’s Bihar failure to Lalu-Nitish combine has been a direct hit on Modi himself since the defeat came despite the prime minister giving his heart out to the campaign in the state, offering Rs 1.65 lakh crore package and using all possible weapons to gain political advantage over the rivals. But the BJP witnessed its biggest failure since Delhi polls.
Thirdly, Modi is also fighting dissenters in the BJP itself post the Bihar fiasco, with old horse L K Advani attacking the Modi-Amit Shah duo, for their unwillingness to take up the responsibility for the defeat and for, more importantly, ‘forcing the party to kowtow to a handful and destroying its consensual character.’
In this context, the BJP desperately needed a tool that can work to control the damage. The timing of the FDI reforms announcement can be seen in this context. Opening up several critical sectors, where there is lot of foreign investor interest, including defence, broadcasting sector and civil aviation — is a significant image booster and something Modi can put on the table when he meets investors abroad.
A major reform
But besides being a smart PR strategy, the FDI reforms are highly critical since it reaffirms the investor community that the NDA government has not lost its direction on pushing the reform-process ahead post Bihar. Also, it gives them hope that the Modi camp would attempt to push other large-ticket reforms in due course in Parliament.
"Tuesday's policy announcement (on FDI reforms) helps reaffirm the government's commitment to remain on the path of reforms," Morgan Stanley said in a November 10 report.
"We believe this latest policy decision shows that the government remains committed to the reform process," the report said.
As a matter of fact, the BJP’s Bihar defeat has disappointed the economy observers since it weakened the government’s political position in Parliament to confront a rejuvenated opposition. Investors are doubtful about the fate of big-ticket reforms such as GST and labour law reforms, where legislation is required. In the case of land acquisition, the government has left to the state governments to decide, but there also the central leadership will face challenges.
A victory in Bihar, though would not have added much in terms of numbers for the BJP in the Upper House, would have surely come handy to assure investors that the government can attempt to be in a comfortable position in Rajya Sabha at least by 2017-18. It would have also given more impetus to the BJP to gain a psychological advantage over the opposition to build consensus on the reforms process.
But, the Bihar defeat has clearly taken away that advantage. As Firstpost noted on Sunday, the Bihar outcome should be an eye-opener to the BJP to focus on its reform-agenda — a focus which it lost in the recent past. The FDI liberalisation is a step in that direction and the government deserves credit for timing it well. The government can also look at focusing on pushing executive decisions in areas, where there is no legislation required.
As the winter session of Parliament is set to begin later this month, it is critical for the BJP to reach out to the Congress and other opposition parties to build consensus to push key bills. There are a slew of subjects such as the bankruptcy law and GST that cannot be delayed at any cost. This will force the BJP to shed its confrontational approach and seek political consensus.
Clearly, the latest round of FDI liberalisation is likely to become a big success since there is lot of investor interest in India being a bright spot among other emerging economies and in the backdrop of a slowing world. The timing of the FDI reforms announcement couldn’t have been better for the NDA-government and especially for the Modi camp in the BJP.
Subscribe to Moneycontrol Pro at ₹499 for the first year. Use code PRO499. Limited period offer. *T&C apply
Manmohan Singh says process of economic reforms still incomplete, fresh thinking needed to design new policy
Manmohan Singh said the process of economic reforms was "still incomplete" and that a "fresh thinking" was needed
What exactly are the big bang reforms left to be legislated in a country which is no longer socialist?
P Chidambaram on Monday said credit cannot be taken away from late Prime Minister PV Narasimha Rao for the economic reforms driven by him in the 90s.