F: Foreign direct investment—For a capital-scarce economy, one of the reasons for liberalization is the inflow of foreign capital in critical sectors. This has not fructified in India. At one level, it shows that foreign companies are not willing to take a long-term bet on India even as they may go overboard on the India story in the short term as reflected by the periodic surging foreign institutional investment inflows post-liberalization. It also reflects that on the ground operational procedures haven’t really changed even as controls and regulations have. Even as the Centre has made enabling changes, operational rules, mostly with state governments, haven’t changed.
G: Green—The Indian economy which has been replete with transitions has to make one more now: The transition to a green economy. This transition has to be swift, for as things stand, India’s gross domestic product (GDP) growth will be hot due to the detrimental impact of climate change caused by the current growth pattern. This will not only affect business, but also livelihood. India is rated as one of the top three countries for renewable energy investment. So for a green economy what needs facilitation is green education, green businesses, and green innovations.
Also Read Haseeb A Drabu’s earlier columns
H: Housing—One of the biggest success stories in India that is not talked about is the housing sector. In the old economy, the average age of acquiring a residential accommodation was close to 58 years. Now this has come down dramatically to just 30. Home ownership age in India has dropped significantly over the last two decades, thanks to the private sector financial institutions such as HDFC and the housing finance revolution that it has triggered. This is indeed lower than many Western economies.
I: Information technology—Even though this sector had lost quite a bit of sheen now, it has propelled Indian economy on the global scene. Its greatest contribution lies in changing the mind set of the private sector. Not only did it make private firms look glamorous globally, it redefined the notion of wealth, its distribution with employees through employee stock option plans, and the society through meaningful corporate social responsibility initiatives. It also brought the concept of market capitalization in the realm of household discussion.
J: Joint ventures—In the earlier era, joint venture referred to the participation between public sector and the private sector. It was hardly a success story then. Now joint ventures refer primarily to partnership between Indian and foreign firms. It is hardly a success story now. It remains a mystery as to why there are hardly any true-blooded JVs between Indian and foreign companies. The ones which were formed have almost always ended up acrimoniously. Is it that the Indian firm is still in a mindset of control and command or is it that the foreign partner is still in an imperial mindset? Whatever the reason, this lack of collaboration is an also due to an inconsistent policy and regulatory framework since liberalization.
K: Koreans—Despite India’s Anglo-Saxon connections and colonial past, it is the Koreans who have successfully penetrated the Indian market. In the last 20 years or so, they have operated ever so quietly that major Korean brands such as Samsung and LG are virtually seen and believed to be Indian brands. The single biggest proposed foreign direct investment (FDI) in the country is that of the Korean giant, Posco. It has proposed a $12 billion investment in Orissa. They probably account for less than 1% of the total cumulative FDI into the country, but have built a strong franchise here which will facilitate a long-term play in the Indian markets.
L: Land—What land reforms were to the plan strategy of the 1950s and 1960s, land availability is to the economic strategy of the second decade of the 21st century. Despite a land mass of 3,287,263 sq. km, one of the biggest hindrances to development is land acquisition. Much of it has to do with the archaic system of land records and the cumbersome regulations governing transfer of land rather than the mere availability of land.
M: Market capitalization—Pick up any book on the Indian economy before 1991 and the odds are that you will not find the word market capitalization anywhere in it. Companies would be ranked by assets, sales, profits etc. For a few years after the reforms of 1991, market capitalization was the only variable CEOs looked at. Indeed, many forayed into unrelated businesses, only on to increase their market cap (even though they lost real money) so as to protect their rankings. Notional wealth, for sometime at least, became more important that the real wealth. This euphoria has resulted in the market capitalization to GDP ratio reaching a record level of 132.47% in financial year 2010-11 up from 23.28% in 2002-03 and less than 5% in 1990-91.
(Third and final part next Monday.)
Haseeb A. Drabu is an economist, and writes on monetary and macroeconomic matters from the perspective of policy and practice. Comment at firstname.lastname@example.org