The last time the government tinkered with Foreign Direct Investment policies, the Bharatiya Janata Party had just lost elections in Bihar and Prime Minister Narendra Modi was about to jet off to the G-20 summit. The desire to send a message about India's economy to the world seemed evident. So it's hard not to look at Monday's announcements about opening up the economy even further to outside investment – including in defence and civil aviation – as part of a similar effort after Reserve Bank of India Governor Raghuram Rajan confirmed that he would be exiting in September.
"This is the second major reform after the last radical changes announced in November 2015," said a press release from the Prime Minister's Office. "Now most of the sectors would be under automatic approval route, except a small negative list. With these changes, India is now the most open economy in the world for FDI." (Emphasis in the original).
The rather obvious timing didn't go unnoticed, with TimesNow even going so far as to use the hashtag #RexitNeutralised.
Some of the changes are indeed major, like opening up much of the broadcasting industry to 100% FDI under the automatic route, meaning investors do not need government approval before hand. Others were expected, like 100% FDI under government approval for trading, including through e-commerce, of food products manufactured or produced in India, which was announced in the budget months ago.
Some seemed like minor tinkering. The government for example, touted the fact that there is now 100% FDI in defence, even though in reality this has been around for a few years now. The only difference in the current policy is that for investment of more than 49%, investors need prior approval and the government has done away with the requirement that the technology is "state-of-the-art". It now only needs to be "modern."
The rest of the policy details are here.
As the government press release acknowledges, the first round of FDI reforms in November 2015 last year actually set the template, with this current list only adding to the effort. Taken together, Modi insisted that India now is the economy most open to FDI in the world.
That is a bold claim to make, and a hard one to back up unless the governments falls back on technicalities.
Prior to the latest announcements, although FDI inflows had been rising, India was not exactly considered the most open country in the world for foreign trade.
The International Chamber of Commerce's Open Markets Index, for example, placed India 63 out of 75 countries based on the openness of its economy. In particular it said that India managed a "below average" score on FDI openness.
The Heritage Foundation, a conservative think tank in America that tracks these matters, similarly has a ranking for countries in the world that are open to investment. Here is a look at the graph in recent years for India as compared to a few other economies.
Although this graph doesn't take into account India's most recent FDI reforms, they are not nearly significant enough to capital the country from 35% openness to the 70+ levels of the United States, let alone destinations like Hong Kong or Singapore.
India is certainly one of the most promising destinations for FDI. The United Nations Conference for Trade and Development said earlier this year that FDI into India had nearly doubled in 2015 and the country remains a top destination, getting more capital investment last year than even China according to FDI markets, a Financial Times service.
The UNCTAD put India in the top 10 recipient nations overall last year.
It is true that with the changes, India now has a large number of sector open to foreign investors on the automatic route or closer to 100% in many cases through government approval. But there are still plenty of restrictions, from petroleum to the news media to private security agencies where even government approval will not permit foreigners to own up to 100% of companies they invest in.
Modi has clearly managed to get his headline, and one that directly responds to the concerns that Raghuram Rajan's exit might show India in a bad light. But in desperately attempting to change the tenor of the news, the government has once again resorted to making claims that almost call out for a rebuttal.