Raghuram Rajan on FDI and capitalism

From Indian Express interview

In your book, ‘Saving capitalism from capitalists’, you wrote there is a more serious danger to capitalism from incumbents, who do not want new comers. It is here the government plays a big role. Is the idea being debated more actively?

In a sense, I was describing a process in which the power of incumbents was weakening to some extent. You still see it coming time and again. That process is going on and global competition is really helpful. To give an example, the other day Sunil Mittal was talking about how India would have been held back if we had given in to the Bombay Club. But now it was very beneficial, since we now have the Ludhiana Club. I think it would be even more beneficial, if in addition to the Ludhiana Club and the Madras Club and so on, we had in India the London Club and the Washington club.

We have allowed foreign entry. But we still keep making conditions. Foreign entry only if you have tie-ups with local entrepreneur. Sometime it is beneficial since local skills are needed. Sometime, it just holds up the foreign investor and forces him to share 26-30 per cent with the local incumbent. Three years down the line, with the local incumbent providing nothing, he buys out the local incumbent. The guy has got rent, and walks off with a pile of money. We have to figure out where it makes sense.