‘Arbitrary’ action by govt favouring certain firms is making investors hesitant, says former CEA

“Private investment hasn’t picked up. So you wonder why it isn’t showing itself in the data, especially if there’s a China-plus one opportunity, especially if the banking system is ready to extend credit,” he said.

Even more telling, the economist said, was that FDI was falling as a percentage of GDP, and that India’s non-China global FDI had also declined. “So it’s an India-specific phenomenon,” he added.

Subramanian — who was CEA during 2014-18, a large part of the Modi government’s first term — said that the hope that “we had has not translated into outcomes”.

“We are catching up on the ‘hardware’ very nicely, but the ‘software’ of policy is still lagging,” he said.

Arbitrary actions, favouring some players

“When you try to think about why investment is not picking up, why FDI is not coming in huge amounts, you wonder if the government is not doing something, or doing something it shouldn’t be doing, that is putting off investment,” he said. “You can talk about arbitrary actions, favouring some over others, etc.”

The former CEA said India would continue to remain a bright spot in the global economy, largely because China was declining and Europe was struggling.

“So India will continue to be attractive, but translating those opportunities and intentions into actual investment on the ground, I think that’s where something is coming in between,” he added. “It’s probably some rigidities, some time lags, but also some aspects of government policies which frustrate investors.”

He said that over the past three to four years, the country had seen a number of actions favouring some investors over others.

“I don’t want to name names, we know who they are,” Subramanian said, adding, “So these regulatory favours have created the sense that the level playing field is not quite level. And some investors have been hurt by the reversal of policies. People are wary of entering into sectors where some of the big players are more prominent. There’s also state action against some investors and not others.”

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Can India become globally competitive?

Subramanian said he was “sceptical” about the government’s turn inward, with higher import duties and import licensing initiatives like the one for laptops — which was eventually eased following industry pushback — and its push for import substitution.

He said this import substitution opens up the question of whether the country’s exporters will be able to become globally competitive, adding that to sustain a growth of 7-8 percent, the country has to see export growth of 10 percent.

“I think this government does believe genuinely in import substitution, not in the extreme ways of the past, but for reasons like self-reliance and strategic reasons,” he said. “But if you turn inward in that sense, can India become a launching pad to become globally competitive? That’s always going to be in question.”

(Edited by Tikli Basu)

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