How to make our regulatory system more attractive to foreign investors?

by Shreyas Goel on Friday 25 March 2011, 3:21 PM | Category: Finance| View: 1585 views

 In today's world of globalization, a disaster here & a political upheaval there can throw a spanner into the growth engine. The world is more connected than ever. As such, the regulatory bodies governing the various systems play a crucial role in showcasing their aptitude to deal with this ever-changing environment. Their mix of policy implementations, their contingency plans & actions help prospective investors abroad to determine if their interests are well- protected. We might have limped through the crisis owing largely to its tightened regulations & largely risk-averse nature, but now more than ever we need another round of reforms-this time largely regulatory.

The central authorities- RBI, SEBI, CCI, etc. all have their actions of looking after the interests of the regulated, ensure a level- playing field & at the same time make the country a hub for heavy inflow of investments. It's a difficult job, especially, since the last few months have been riddled with scams. To offset these ‘unforeseen' hiccups, the regulatory system needs to now forego sight of the shore & venture into the dangerous waters of uncertainty, albeit for a short time.

  • A string of reforms running across the breadth of sectors would help. To begin with, we need to come up with mechanisms that would help our country to be less oil- reliant. Our import bill is ballooning owing to the oil price volatility. The government's bureaucratic labyrinth as seen recently in the Cairn- Vedanta deal & their reluctance to provide capital support to RIL to expand in the K6 region is crippling the growth. Even after a near-quarter-century of growth, we are still driven by the ‘capitalism occurs when there is blood on the streets' mindset.
  • The protectionist attitude towards FDI in insurance has reduced enabling Berkshire Hathway paving the path for many to follow. However, it's too-little-too-late, similar initiatives need to be fast- tracked, regulated & implemented to offer more options to the market. The current discussion paper hints at granting banking licenses to industrial houses, but very severe stringent conditions. The approach needs to be a little more consumer- centric, not protection- centric. The latest announcement of reducing FDI in banking from the current 74% to 49 doesn't help.
  • In terms of battling inflation, the monetary policy measures have failed. While increasing bank rates has marginally improved the situation, but demand- side pressures have made progress slow. We therefore need now a new mix of fiscal policy changes coupled with the monetary ones, these include:
    • Prudent spending
    • Improvised tax collection
      • Implementation of UID

  • India does have a huge- deposit base with nearly 36% in savings. To better promote competition in the industry, the regulators must take up a relaxed policy stand.

  • Rural banking combined with MFI has tremendous potential in this country, regulators need to extend a hand & establish a model to aggressively promote the same.
  • The organized retail sector is less than 20% of the entire retail industry in the country. Implementation of FDI in multi- brand retail will help in changing that. Coupled with it is the much- needed improvisation in the food supply chain management of the country.
  • Revised definition of real estate for the purpose of understanding the actual opportunities of FDI in infrastructure sector.
  • Clear mandates on the sections related to M&A in the 1997 SEBI takeover code & that of CCI.
  • Inclusion of steps to increase FDI in tourism.
  • Processes to improve the inclusion, implementation & execution of PPP projects.

No business works in isolation. It's affected by the country's ancillaries like the judiciary, infrastructure, political & demographics. To that extend, an overhaul in every single facet is needed. To improve investor confidence, the people in positions of power need to carry out reforms in each sector.

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