ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Regulating Multinationals

Foreign direct investment needs bona fide regulation for it to make a significant addition to capital formation.

Internationally, the dominant idea that “regulation is always bad, multinationals are always good” emerged around at the time of Margaret Thatcher and Ronald Reagan, but came to constitute the presiding notion in India with a lag in the early 1990s. A further liberalisation of foreign direct investment (FDI) policy, as was recently approved by the union cabinet, invariably then calls for a toast from the pink papers, but not without the addendum “too little, too late”. Important questions – whether FDI constitutes a net addition to the country’s capital formation or largely substitutes for domestic investment, whether the social cost in the form of a large net foreign exchange outflow is balanced by the benefit of access to better technology and net addition to employment – invariably get the go-by.

The union cabinet, on January 30, allowed FDI of up to 74 per cent on the “automatic route” for non-scheduled, chartered, and cargo airlines, with no direct or indirect participation by foreign airlines in the former two, but allowed non-resident Indian (NRI) investment up to 100 per cent in these areas. What, however, irked the pink papers is that the existing FDI cap at 49 per cent on the “automatic route” in the domestic scheduled passenger airline sector remains unaltered.

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