A day after Raghuram Rajan said that he would not seek a second term as RBI governor, the Narendra Modi government announced sweeping FDI reforms in defence and aviation, opening up the sectors for complete outside ownership. The reforms extend to pharmaceuticals and retail.
Some analysts felt this was the BJP government’s masterstroke – a signal to the markets which might have reacted unafvaourably to Rajan’s exit.
Apple stands to gain as a beneficiary of a three-year relaxation India is introducing on local norms. Single-brand retailers IKEA also stand to gain.
Global defence players that were hesitant on transferring technology to manufacture equipment in India will now have the right to own local operations, up from present 49 per cent. Foreign companies have been allowed to own up to 74 per cent in brownfield pharmaceuticals projects, with no government approval required.PM Modi hailed the relaxation of FDI rules saying they would make Asia’s third-largest economy the “most open in the world”. “Key reform decisions were taken at a high-level meeting chaired by the PM, which makes India the most open economy in the world for FDI,” the PM said in a tweet. He added that the changes would provide a “major impetus to employment and job creation in India”.
The last round of big-bang reforms was carried out after the BJP’s debacle in the Bihar elections in November last year.
If the latest round of FDI reforms is being linked to Rajan’s exit, it’s not difficult to understand why.
When Rajan announced at an internal RBI meeting that “he would not be available for a second term”, most in the government heaved a sigh of relief.
While BJP’s Rajya Sabha MP Subramanian Swamy had been running a campaign against Rajan for “his roots in America”, and the fact that “he had been appointed by the UPA”, the BJP had officially sought to distance itself from Swamy.
There was a catch, though. Most in the RSS, including the powerful Swadeshi ideologue, S Gurumurthy, had come to believe that Rajan had “overstayed his welcome”.
The RSS believed that Rajan’s office was not that of a public intellectual, and many of his statements including ones on “tolerance” and “one-eyed king” didn’t go down well even with Modi’s ministers. Commerce minister Nirmala Sitharaman had even hit out at Rajan. While Congress leaders were understandably sympathetic to Rajan, they could also be heard saying that “it was BJP president Amit Shah who had unleashed Swamy on Rajan”.
The RSS and the Swadeshi group have zeroed in on IIM-B professor R. Vaidyanathan as someone “who would be a worthy successor to Rajan” at RBI. But finance minister Arun Jaitley is unlikely to be swayed by this.
BW Reporters
Suman K Jha was the deputy editor with BW Businessworld
