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Now, reforms in India seem like a mirage
The Indian government has promised a number of economic reforms to its citizens before the elections. But will these promises remain empty promises or will they bear fruit in the near future? As of now, these promises of economic reforms seem like a mirage or an illusion, far from reality.
Earlier this year, the Reserve Bank of India (RBI) reduced the interest rates in order to boost foreign direct investments (FDIs). The government had hoped that by attracting more foreign companies to India, it would be able to address the high unemployment rate, improve the currency value and increase the Indian market’s competitiveness.
Sadly, none of the aforementioned objectives were met. Despite reducing the interest rates, India did not see a significant increase in the number of foreign firms entering India. In addition, the currency’s value decreased to an all-time low of Rs 60.75 to the US dollar in June 2013.
Now, the Indian government has decided to increase the caps on FDIs in a number of sectors, including the telecommunications industry. In fact, the Indian government increased the cap for the telecommunications industry from 74 percent to 100 percent in an attempt to enhance foreign revenue flowing into the country.
The government hopes that this foreign revenue will help in financing its enormous current account deficit (CAD), which is 4.8 percent of the GDP. However, the US government believes these sporadic reforms introduced by the Indian government may not be sufficient for the overall growth of the economy. Multi-national corporations (MNCs) prefer to invest in countries in which they are confident in.
Sadly, India does not fall into this bracket.Investors have raised concerns over localization measures undertaken by the Indian government to enhance domestic manufacturing output and achieve objectives related to domestic policies.
In addition, investors are concerned over intellectual property rights, particularly in the pharmaceutical sector, in light of recent actions by the Indian government to impose additional rules for patenting of medicines, which already meet international standards.
So, apart from making it easier for foreign companies to enter India, the government should come up with policies that are favorable to these firms. Only when these firms are confident of their survival and success in India will they start a venture here.
So, the Indian government has to work harder than just coming up with reforms. Earlier this year, the Indian government announced that it will enhance the railway sector and build top-class infrastructure that is on par with international standards.
How will the Indian government fund these projects when it has a huge current account deficit? Recently, ArcelorMittal and Posco scrapped their multibillion dollar plans of building steel plants in India because of administrative issues like long delays in acquiring land for the project.
This will surely have a negative impact on the sentiments of other investors, and may push other investors to scrape their projects too.
Reforms in India will seem like a mirage if the Indian government does not do anything to improve the internal administration conditions. As mentioned by the US government, India has to gain investors’ confidence, which is possible by implementing policies that favor businesses in the long run.
Entry into the Indian market is not the only criterion that businesses look out for; they expect favorable policies during their operations in India too.