The government has agreed not to treat NRI investments emanating out of their rupee accounts in bank accounts in India as Foreign Direct Investments (FDI).

On the face of it, this may appear to be a huge leg up to investments in industries and infrastructure by our diaspora but a deeper reflection would show why it would turn out to be another damp squib.

Non-resident Indians, overseas citizens of India (OCI) and persons of Indian origin (PIO) (the three categories hereinafter described compendiously as NRIs) together constitute the Indian diaspora.

Together they account for a large number of Indian stock and ethnicity stationed abroad, to be sure, but they must not be considered as homogenous in their investment decisions.

The salaried class, among them, be they white collar or blue collar workers, show interest in real estate and financial instruments for which already a liberal regime exists but they have no appetite, much less, capacity for investments in projects.

The irony is rupee accounts are by and large held by them, investments made out of which will not be treated as FDI. What then is the use of the liberalisation in favor of NRIs in general? The industrialists among them or their NRI proxies do not keep large amounts on industrial scale, so to speak, in any case in rupee denominated accounts.

Indian industrialists and their proxies would evince interest only if they are allowed to invest in projects from out of their foreign accounts denominated in hard currencies. But they dare not, for the fear of being caught by the Enforcement Directorate (ED) and income tax sleuths.

The recently crafted black money law, under its amnesty scheme if availed, would eat up as much as 60%, leaving only 40% for investments. Not many are likely to participate in the limited duration amnesty scheme except those who feel noose tightening around their necks or already caught with their pants down.

What the government can do is to offer yet another olive branch to the black money abroad salted away by Indians and nursed by their proxies - invest in government-specified projects mainly in the bijli, sadak, paani (BSP) segments.

The contours of the proposed scheme should be as follows: 30% to be impounded as tax and the remaining 70% kept in an escrow account for release only for the specified purposes, a la the Capital Gains Accounts Scheme 1988 obtaining for long-term capital gains.

This is any day better than the grim prospect of being denuded of 60% of what is disclosed under the extant limited period amnesty scheme. Fiscal purists and moralists would cavil at this suggestion on the ground that it practically amounts to indulging the crooks but what to do. Any scheme that leaves very little on the table for the participants is likely to bomb.

Indulging the crooks with strings attached may be a more pragmatic option though that might raise the hackles of moralists. Nation building must be foisted on crooks as a price for being lenient on them. Since the money sequestered is large (70% of illicit money), they would move heaven and earth to make the projects a success.

Best foreign technology and expertise may be roped in by them. Needless to say investments in the specified areas should be by way of equity infusion only subject to usual lock-in requirement obtaining for promoters.

The point is one-size-fits-all schemes such as the one freeing all NRI rupee investments from the claustrophobic clutches of FDI are doomed to failure. For, no NRI dares to sweep into his rupee accounts in India unless the money involved is legit mostly salaries.