(a) Analyse the sectoral inflows of FDI in India during the post-liberalisation period. (20 marks) (b) Critically discuss the…

(a) Sectoral inflows of FDI after liberalisation. From 1991, automatic approval was given for up to 51 per cent foreign equity in 34 priority industries; later most sectors were opened to 74 or 100 per cent under the automatic route, while sensitive sectors stayed under government approval or caps (multi-brand retail, parts of media, earlier defence). Cumulative equity inflows from April 2000 (DPIIT data) show the services sector, financial and non-financial, as the largest at roughly one-sixth of the total, computer software and hardware next at about 13 to 15 per cent, and telecom, trading, construction and automobiles at about 5 to 8 per cent each. Manufacturing's share has hovered around a quarter, and agriculture's has stayed below 1 per cent. The pattern changed over time: in the early 1990s, power, telecom, oil refining and consumer goods attracted the inflows; in the 2000s, IT and IT-enabled services, telecom and finance; since 2014, Make in India and relaxed caps (defence, railways infrastructure, single-brand retail, insurance) brought more to manufacturing and trade; and in 2020–21 computer software and hardware took about 44 per cent, driven by investments in Jio Platforms. By source, Mauritius led until 2016, reflecting treaty routing, and Singapore after that. The drivers were policy access, English-skilled labour and IT outsourcing, telecom liberalisation and tax-treaty routing; agriculture and retail were limited by regulation. FDI is thus services-led and concentrated in a few states (Maharashtra, Karnataka, Delhi, Gujarat), so its employment effect is smaller than manufacturing-led FDI would give.

(b) Private participation in public enterprises. The strategies were: (1) minority disinvestment from 1991–92, first through auctions and bundled sales, later by IPOs, FPOs, offers for sale and ETFs (CPSE ETF, 2014), with the government keeping control; (2) strategic sales from 1999–2000, with transfer of management control, as with Modern Foods, BALCO, VSNL and Hindustan Zinc, supported by a separate Department of Disinvestment (1999); (3) institutions, such as the Disinvestment Commission (1996), the National Investment Fund (2005) to channel proceeds, NIIF (2015) and DIPAM (2016); (4) restructuring and autonomy, through MOUs and Navratna and Maharatna status; (5) public–private partnerships in infrastructure, supported by Viability Gap Funding and the IIFCL, and, from 2021, asset monetisation and a strategic-sector disinvestment policy. Assessment: listing and market discipline improved governance and raised revenue, and strategic sales, as in VSNL and BALCO, improved efficiency. But valuation disputes, union and political opposition, and delays (Air India was sold to the Tata Group only in 2022) limited progress; proceeds often met the budget deficit instead of being reinvested; and minority sales left control with the state, so efficiency gains were small. Results have therefore been modest.

(c) Twelfth Finance Commission and fiscal federalism. The Commission (chair C. Rangarajan, 2005–10) raised the states' share in the net proceeds of central taxes to 30.5 per cent from 29.5 per cent. Horizontal distribution used population (25 per cent), income distance (50), area (10), tax effort (7.5) and fiscal discipline (7.5). Its debt-relief scheme consolidated central loans to states at a lower interest rate over 20 years, with write-offs linked to enacting FRBM Acts, eliminating revenue deficits and keeping the fiscal deficit within 3 per cent of GSDP. It gave grants for non-plan revenue deficits, and about ₹20,000 crore for local bodies (panchayats and municipalities), with conditions on accounts and capacity. Strengths: states' deficits fell and many reached revenue surplus by 2007–08, interest burdens eased, and the criteria rewarded discipline. Weaknesses: conditionality reduced state autonomy; local-body grants were small relative to needs; cesses and surcharges outside the divisible pool were not addressed; and the large vertical imbalance remained because states' spending responsibilities exceeded their revenues.