What made the decades of Congress licence raj infamous was not just the controls, but the arbitrary manner in which they were exercised. The unpredictability made India an unattractive country. It invited bribery and manipulation, made them the determining factors in business rivalry, and set back the growth of innovation and enterprise. This dysfunctional regime collapsed in 1989. Its demolition led to two spectacular booms — one in the early Nineties and then the current one. It improved the quality of growth; the competition it engendered created nimble companies, which are now conquering markets and taking over enterprises abroad. But their success has strengthened the balance of payments and thereby removed the one corrective India had to bad government policy. At the same time, the Congress has returned to power, and with it, the itch to use arbitrary controls. Its latest instance is the proposed law to require foreign direct investors to take prior permission, and bring security agencies into their scrutiny. This is precisely the kind of case-by-case scrutiny that foreign investment proposals underwent till 1992. The industry ministry had an opaque secretariat to do this. It sent off most proposals to what were called parent ministries, which took their own time and speed money.

Since no part of our government can be dismantled, the then prime minister, P.V. Narasimha Rao, created a new foreign investment promotion board with his own principal secretary as chairman, and directed that all proposals should go to this board, which approved them within three weeks. Still, foreign investors took long to develop confidence; it is only in the last five years that foreign direct investment has become significant. And now, under the leadership of a prime minister who made his name as a reformer under Narasimha Rao, controls seem to be coming back. Actually, it will be worse than in the bad old days, for the home and defence ministries and the spying agencies, which never had anything to do with industrial controls, will be brought in. These ministries and agencies are always trying to scare the rest of the government about security threats so that they can get their foot in the door. Now, they see a chance under an amenable prime minister.

Two very different issues are involved here. One is investment from countries such as Pakistan and China that the government is hostile to. The other is creation of monopoly or restriction of competition. The two should be handled very differently. The government should explicitly require that its permission be taken by any company from countries it does not like before it invests in India. Competition, on the other hand, depends on the number of producers, their market shares and relationships; its regulation should have nothing whatsoever to do with the identity of the companies in the market and their owners.