New Delhi….. We have a problem! There is only so much household silverware we can sell to earn money. This country needs a better class of governance, and FDI won’t give it to them!


Over the last few days we have had a slew of artbicles supporting/condemning this decision and the reasons for the same.. The folks who support the decision argue, validly in most cases, that the FDI will bring in a lot of global technology/best practices/solutions to our fledgling retail industry and those are the precise things we need. Those who oppose the FDI argue, equally validly in most cases, that these solutions will mean removal of a lot of human involvement in the industry and that will be catastrophic in the long run. These 2 arguments, in my view, form the core of the entire FDI debate.


I, for one, sit squarely in the latter camp. Last year I’d documented my reasons for opposing the FDI and nothing much has changed in my views since then. In the article below, I am trying to chart out an alternate reform policy than what is being practiced by the present government.


First, let’s recall how a country can achieve growth. As mentioned in my earlier article, growth depends on the amount of money that is available for investments and the quality and contribution of those investments towards the overall vision (indicated by return on equity). If one sees, one would agree that these are the precise arguments that are being made in favor of the FDI. Government is saying that a) FDI will bring in more money that will be available for investment and b) because of the fact that these will be private companies investing towards their goals, the quality of investment will automatically be high which will contribute towards the overall goal. The clauses of 51% investment back in back-end infrastructure and specific areas like cold storage are attempts in this direction.


I do agree that growth will come in the immediate future because of this policy. But before committing wholeheartedly to this path, let us ask ourselves these questions: a) Keeping the fundamentals same, is this the ONLY way for us to seek investment and b) Are these clauses the only way to get the maximum return on the investments we are making.


a)     Where do we get money for making investments in our economy?


Last night, our PM told us that Money Does Not Grow on Trees. I recalled that these are the same words my parents told me when I had got my 1st job and had encouraged me to plan my finances with prudence. However, along with this they also told me one more thing: MORE IMPORTANT THAN PLANNING FOR NEW WAYS TO EARN, IT IS IMPORTANT TO MAKE SURE ONE IS NOT SPENDING INDISCRIMINATELY. From what I know, I do not have a single friend/relative whose parents have told him/her anything different.


 We have a pool of money lying with us. A part of that pool belongs to individual citizens of the country (in the form of savings), a part of that is with business organizations (in the form of savings/liquid investments) and a part of that is with the government. Over and above that there is a huge pool of money lying with the external world (Foreign Investors). For the purpose of investing back in the country’s prospects, we can take contributions from all these sources.


In the below table, I have mentioned how each pool can contribute some money, and whether they WILL do it to begin with:


Source How will these contribute money for investments Will this succeed today? What we need to do to make it a success?
Indian Citizens Issue bonds for specific investmentsEncourage savings NO You and I both know that due to chonic corruption, the money you are paying in taxes is itself not getting used properly. Psychologically, the confidence on government to execute projects is at its minimum. This needs to be reversed. 
Indian Business Organizations (please note, I do not mean corporate India, but the regular Indian businessman) Ask them to invest in government schemes for investments and/orProvide business incentives like tax breaks/prolonged depreciation advantage for investments in priority areas NO Some of this is indeed present. But a regular business is hammered by high borrowing costs and low business confidence (due to a variety of factors, most of them our own doing). Also, a business will never invest 100% if it knows there are shortcuts where an equal benefit can be obtained by investing 50%
Government of India – by itself Borrow from Indians (2 points above)Borrow from external agencies (world bank loans etc)Print Money (monetary easing)Reducing expenditures NO Indians do not see any reasons to trust this government with their money. So they will not invest. (2 points above). Loans from the rest of the world looks ok, but that is dollar-based. With rupee getting cheaper by the day, actual cost if much more than documented cost. Also, we need to project an image that we don’t need external help. 

By printing money, we devalue our own rupee. It would lead to a diabetes like situation where the insulin of our own body (rupee in this case) will be ineffective and so we need to inject more insulin (print more money) to absorb blood sugar (pay for existing debt)


Reducing expenditures is one way, but that won’t happen immediately due to the subsidies we are giving and the upcoming social welfare schemes we are making. 

Foreign Investors They can invest in India like Indian Organizations, with a hope that they will make profits in the future. These rates of profits have to be higher than what they will earn in their own countries. Probably When a government is unable to extract investment money from its shores, it asks external investors. Like any investor, an external investor will invest only if he/she is guaranteed a higher rate of returns than elsewhere. This essentially means that we need to relax a lot of norms/give a lot of favors (like tax breaks etc) to have them come over.


As seen above, it looks like our government has give up all hope of getting any money from anywhere within India. I can’t help but think why!


To me, there is reasons why none of us in India are willing to invest in India are:

  • The past track record of the government in handling investments,
  • The relative inefficiencies of the Indian work systems as compared to the rest of the world and 
  • Higher taxes/inflation leading to lower savings



This also ties pretty nicely with the fact that if there is good confidence that returns can be obtained; there will be no concerns with making investments.


b)     How to get better returns on or investments?


Anyone who has ever had any interest in making any money knows that efficiencies are the key to better returns. Ideally the more efficient one is in executing the plans, the better returns one hopes to get.


Sadly, we don’t practice that in India. Somehow in the last few years, WE HAVE STARTED BELIEVING THAT THE MORE MONEY ONE THROWS INTO THE BUSINESS, THE MORE MONEY ONE GETS OUT OF IT. That is like saying that gaining body weight is the key to good health for a malnourished person, even if one is gaining fat instead of muscles! You and I both know that gaining fat I key to getting diabetes!


So what causes inefficiencies in our country? Below are some of the factors I have seen working in life that reduces financial returns on paper:


What we hope to see to get better returns? What we get in present India? What changes we need to improve returns?
Indian businessman wants a good quality workforce Shop floor labor for small businessman is becoming inefficient due to welfare schemes like NREGA 

Experienced labor comes at a premium due to lack of alternatives


Colleges are producing employees of low quality 

Reforms to improve the quality of workforce in the country. This will directly improve the output of domestic sectors and with a degree of sustainability 

Make work language independent –  understand that same work can be done by anyone who is trained, irrespective of the language involved

Stable power supply for manufacturing/irrigation Nearly bankrupt power distribution companies, unreliable supply and a power policy that does not guarantee minimum power to those who need 

Existing power generation projects are stalled due to various types of oppositions

Modernization of Indian power sector from generation to distribution Better implementation of tariff rules, penalization for those who do not comply

 Incentives for renewable energy usage

 Phasing out of subsidies (in the form of supporting DISCOMs despite under recovery)

 Complete transparency in implementing policy/regulations

Innovation ideas that can tell any local industry of the way forward Complete disconnect between the academics and the industry 

Only innovation in business processes comes from foreign sources (FDI or returning citizens)


Over exploitation of tax treaties to obtain above average returns


Local sources of innovation not encouraged

Policy that encourage academic participation in Policy development/ implementation/ evaluation for the country Transformation from academic teaching to implied learning


Better connect of Indian industry with external world through forums/fairs/conferences

Competitive environment where those who work the hardest, smartest and with highest integrity earn the maximum wealth and where those who do not showcase these qualities lose the most. Bigger players in any industry colluding with the decision makers to change the rules in their favor 

Companies operating for years despite being declared insolvent and despite having violated each government norms


Complete absence of a sound and implementable bankruptcy law

Bring in Strict “Conflict of Interest” Law – relatives of those who can take decisions cannot be industry players and vice versa 

Remove political involvement in government agencies so that regulations can be enforces


Overhaul of the financials audit/liquidation industry – if possible, BRING IN FDI


Incentives for industry regulators to force liquidation when auditors raise doubts on business sustainability

Better and reliable infrastructure – roads for e.g. Development of infrastructure through Public Private Participation method which is tainted by corruption and cost/timeline overruns and low quality 

Destruction of roads due to complete lack of coordination among departments (like phone company digging up a new road)

Complete e-governance in infrastructure segment from order to procurement to billing to service Strict penalties on officers if the final contract documents/awards violate the spirit of the infrastructure policy

 Strict enforcement of contract SLAs

 A cohesive action plan involving coordination of multiple departments

Active involvement of small scale sector in government contracts/emerging industries Lack of clarity in tendering process means that existing vendors get the eligibility requirements tweaked in their favor 

Lack of funds in government departments causing Cash Flow crunch for their small vendors – leading to increased incentives to cheat

Complete implementation of e-tendering in all government institutions 

Sample certification of tendering processes from independent agencies

Law and order situation that encourages good behavior Immense red tape causing total dissatisfaction among small players 

Lack of competence in police/lawyers working in smaller areas

Benchmarking the no. of police/law personnel needed per lakh of population 

Establishment of huge training centers to retrain the present personnel – this will help both in skill improvement and in encouraging an honest dialogue among them


Invest in simplification of laws – entrust academic institutions to do that


No matter how I slice it or dice it, all the above problems are stalling an Indian entrepreneur but the government is bending backwards to resolve all of them for an external investor. This is exemplified in things like – One stop shop for all clearances, multi year tax breaks, cheap land allocations etc..

I can’t help but think why… WHY CAN WE NOT DO THIS FOR INDIAN ORGANIZATIONS? It is absolutely probable that once we help our own players, they will be able to do even better than external companies because of our local knowledge.





Following are the reasons why I believe we are going ahead in our growth journey the wrong way.


  • Complete lack of vision: Our leadership is gung-ho about growth. Growth of any country should be an output of all the good things it is going, and not the sole factor deciding all of it actions. WHAT WE WANT TO ENSURE IS PROSPERITY, GROWTH SHOULD TAKE CARE OF ITSELF.


To me, prosperity comes when the variance in income can only be explained by variance in hard work/innovation/sincerity/integrity. Then those who work earn appropriate returns.


How many times in the last year we have seen our PM or our FM harp about the importance of 8% or 7% growth? I have heard it quite a few times, and each time I heard it louder than the last. And how many times we have actually seen them meet targets on other parameters that will contribute towards ensuring that growth? I have never seen them meet targets on saving/defecits/borrowings/investments in the last couple of years at least. 


So have we not boxed ourselves into a situation where we have no option but to utter the words, “Money does not grow on trees”? Alternatively, is it not possible to concentrate on our actions better than how else we can generate more money to fill in the holes in our finances?


A country where leadership is clueless has no option but to become dependent on others!


  • Complete lack of imagination: People say that Indian IT (our biggest source of pride for a few years now) is itself a beneficiary of FDI policy of western nations, and so people like me are being narrow minded in their critiques. The way I see it Indian it professional improved the business processes of western countries WHILE SITTING IN INDIA. We have enough knowledge, experience, resources and foresight to know what is wrong with our industries.


I am not sure why we should borrow the success templates that have worked elsewhere without considering what made them tick. USA grew for decades continuously simply because it concentrated on its strengths rather than taking shortcuts from elsewhere. They had the benefit that they had no option (rest of the world was either war torn or was under colonial rule). IS THAT NOT THE SUCCES TEMPLATE WE SHOULD BORROW?


Competitive economics say that competitive advantage developed internally is more long-lasting than a tried and tested technique. It allows organizations and countries to realize their inner worth and helps them reinvent themselves in times of need. Coca Cola is still able to sell sweetened carbonated water even one century after inventing it.


I don’t think our leadership realizes it.


  • Complete lack of self confidence: Our country is blessed with immense entrepreneurial spirit. In Hindi we have degraded it by calling it Jugaad!


I really do not know why our leadership does not bank on our domestic industry to chart the future growth story of India. No one will hesitate in setting up a business to improve the situations in Indian industries IF IT WAS AS EASY TO SET UP BUSINESS AS IT IS IN US/WESTERN EUROPE? When it is becoming increasingly difficult for a small scale Indian enterprise to make its way in the economic environment, then why should it be equally easy for a large organization to set up business? It is no wonder that corporate India is in complete unanimity over the decisions. They know like the rest of us: what is wrong… and they have what the rest of us don’t have: a policy that supports them.





Reform is an action that takes us into a prosperous future. Such a future has to be sustainable in terms of earnings and should provide us with sound competitive advantage over other economies of the world. I do not believe that the policy on FDI in all sectors can be called a reform. Such action is commoditizing the Indian economy and is leading us to a future where we will have short term growth, but will not have enough prosperity among Indians.


Alternatively, we have too many lower hanging fruits that we can pick. With sound vision and intelligent application we can transform our future to a much better one than what the present FDI action guarantees us. We have enough knowledge, experiences, resources and foresight to know what needs to be done. FDI is to be welcome only in cases where we have acute shortage of expertise as compared to the problem at hand for e.g. – financial liquidation industry




If this was an event in isolation by our government, then it would have been still ok. The government, while encouraging FDI, is not stopping the indiscriminate social welfare schemes and fiscal profligacy that are causing both the loss of revenue and erosion of the quality of our manpower. This will only spiral into a future with higher dependence on the external world!


If you’ve never told your child/younger sibling/student/follower/someone who trusts you that “you are not good enough to make it on your own and so the only way to live is to tag along with someone with resources…”  PLEASE SAY THAT NOW.