India has long tried to protect itself from unbridled Foreign Direct Investment (FDI). They achieved this by not allowing foreign companies to own a majority stake in ventures, which forced many companies to form partnerships. The Indian Cabinet chose to start modifying this rule by allowing it in retail and aviation. Here’s a quote from the write up in the Financial Times:
The cabinet on Friday also said it was opening the door for up to 51 per cent foreign direct investment in supermarkets and department stores, though New Delhi said each individual state could decide whether or not to allow foreign-owned operators to set up shop in their regions.
India’s economy has been slowing, and Indian Prime Minister Manmohan Singh hopes an increase in FDI will spur growth.
Singh is perhaps one of the most influential individual in India’s economic history. Following its independence, the Indian government implemented a socialist economy. These policies resulted in a much slower rate of growth than nations in the Orient that embraced more open forms of capitalism–often state-run capitalism as in Japan. The weight of these policies created a crisis by 1991. Singh’s economic reforms as the Finance Minister, fostered much faster economic growth. According to the Organization for Economic Co-operation and Development, “annual growth in GDP per capita has accelerated from just 1¼ per cent in the three decades after Independence to 7½ per cent currently, a rate of growth that will double average income in a decade.”
It will be of interest to watch how this plays out both economically and politically for India and companies pursuing investment there.
