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At the time of resurgence of growth in the global economy, India is being seen as a potential investment destination. This is attributed to the country’s positive stance and committed policies in continuing economic reforms. Already the country has moved to the third spot, behind China and US, in AT Kearney’s FDI Confidence Index, 2004, from sixth place in 2003.
India provides a lucrative market for the investment of foreign institutional and other investors and the Government has assured them to remove any procedural hurdles that they might face. The foreign investment is imperative for the country as it needs a growth rate of 7 per cent if it is to find employment for millions of new entrants every year, as per Common Minimum Programme’s commitment. The United Progressive Alliance (UPA) Government remains committed to the process of reform and would forward the process faster than ever to reach the target.
At India Investment Forum in New York, the Finance Minister, Shri P. Chidambaram assured the foreign investors that the present Government would create a conducive investor friendly atmosphere in the country and iron out all the hurdles with regards to caps on the FDI. He also allayed doubts that the Left parties, could be a hindrance in the process of moving the reforms forward.
He further stressed that the separate caps for foreign institutional investment (FII) and foreign direct investment (FDI), however, are not relevant. According to a report on FII liberalization by an internal committee, FII holdings should essentially be treated as over and above FDI sectoral caps. FII-FDI fungibility (mutual inter-changeability) in the private banking sector would mean that FIIs can pick up stakes in private banks beyond 49 per cent that is currently permitted, while the Government has allowed overall foreign investment up to 79 per cent in private banks. In the print media, FIIs may take the entire 26 per cent stake, however, the Government has already allowed 26 per cent FDI.
On foreign direct investment in the banking sector, he reiterated that foreign banks with operations in the country were satisfied with the latest Government’s decision to permit an annual 10 per cent hike in ownership in a private bank which can be sustained till such time the local bank becomes a subsidiary of the overseas parent. Besides, the CEOs of global banks have welcomed the twin-trade policy which enables the foreign banks to increase their holding in India under Tack-I, during the next 3-4 years. At the same time under Track II Indian public sector banks would be able to consolidate and prepare themselves for the Basel II norms and a stricter regulatory regime in the country. The process of consolidation of public sector banks would be completed thereby providing a vibrant financial sector in the country.
It is feared that the oil price pressure may pull down growth prospects and increase inflation. Each rise of $ 5 per barrel would increase inflation by 1.4 per cent and bring down GDP by 0.5 per cent. If oil prices keep on rising the growth may stop between 6-7 per cent. Though it is regarded as high when compared to most other countries, it is not good enough for India. But this factor is beyond control, and one can only fervently hope that oil prices would moderate. Besides to curb the inflation, the Government is taking measured steps, both on fiscal and monetary side. These include cutting customs and excise duties, foregoing some measures and the reserve bank sending in excess liquidity. In the long run, it would be necessary to accelerate the exploration programme within the country and put in place measures of energy conservation besides resorting to alternative sources of energy.
Also, to keep the deficit situation under control, the UPA Government has notified the Fiscal Responsibility and Management Act passed by the NDA Government. The Government has committed itself to a statutory basis for keeping a check on government’s spending, while the Central Bank should be cautious enough in revising interest rates to check inflation so that policy initiative to stabilize prices do not hinder growth.
The present Government wants India to become an economic stronghold. The country has made good progress in the financial, manufacturing and external sectors. The need of the hour is to strengthen the infrastructure sector and that needs large quantities of investment. The country is blessed with physical resource and almost inexhaustible human resources but lacks the world-class infrastructure. Therefore, the Government is committed to realize the objective of potential investments in the area of infrastructure such as power and telecom. A decision on raising the cap on FDI in civil aviation and Telecom is expected to be taken shortly. In domestic airlines, the intention is to raise the cap from 40 to 49 per cent, in Telecom from 49 to 74 per cent whereas in insurance from 26 to 49 per cent.
To make rural India prosper especially the farmers, huge public investment in the social sectors have been planned. This would take care of the basic need of the poorer sections of the society, like drinking water, sanitation, schools, health centers, roads and electricity.
Emphasising the need of large amount of investment, the Finance Minister advocated the review of the country’s fund quota allocation by the world bodies. “We have the human resources. We have the fiscal resources and we believe we can raise-with your support – additional resources. We believe we can bring to governance in India a sense of dedication, commitment and capability. It’s not a matter of one individual’s aspiration, it is an imperative”, Shri Chidambaram said.
He also dismissed US and UK fears on outsourcing. According to him it could be a pre-election rhetoric that would tone down after the US Presidential elections are over. Outsourcing not only kept American industries competitive but what the US appeared to have lost by outsourcing, it had more than gained by insourcing.
The country has to assure and convince the world that there is a fiscally responsible government which is confident of coming to terms with the challenges. The Government has to convince that it is not only open but also receptive and would facilitate for investment. The procedural difficulties would be done away with stringent steps in this regard. These include for instance in the approval route to the automatic route, the setting up of an Investment Commission within this month and the establishment of the Cabinet Committee on Infrastructure headed by the Prime Minister. ((PIB Features)
*Based on the Finance Minister, Shri P. Chidambaram’s recent visits to London and New York.
*PIB Features Unit
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