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FDI impediments

PREDICTABLY, THE WORLD Economic Forum (WEF) director, Ms Colette Mathur, has reiterated the same old reasons for the impediments to the smooth flow of foreign direct investments (FDI) into India.

On the eve of the three-day India Economic Summit in the Capital, she said: ``India is of great interest for investors, but the problem in India is it is not yet facilitating enough. Lots of companies find it easier to invest elsewhere than here. '' Thus, the problem is not as much related to policy as to actual implementation. Both the WEF and the Confederation of Indian Industry (CII), the joint organisers of the summit, have described the bureaucracy as one of the bigge st impediments to FDI.

Despite the efforts of successive Governments in recent years to attract more FDI, the chasm between promise and performance is still wide. In 1996, the then Finance Minister, Mr P. Chidambaram, had set a target of FDI inflows of $10 billion per a nnum by the start of the new millennium. But the country is nowhere near this target despite the series of measures announced by successive Governments to liberalise the policy environment governing FDI and the impressive rise in global inflows of FDI.

The measures announced over the past few months include allowing offshore venture capital funds and companies to invest in domestic venture capital undertakings as well as in all other companies through the automatic route; allowing 100 per cent FDI in all manufacturing activities in Special Economic Zones (SEZs); permission for FDI through the automatic route in companies providing Internet services, and so on. In May, the Finance Minister, Mr Yashwant Sinha, made use of the o pportunity provided by the Asian Development Bank's annual meeting to showcase India as an attractive destination for FDI, particularly in infrastructure sectors. He invited foreign investors to come forward to invest in power, teleco mmunications and IT, roads, ports and civil aviation in a big way and assured them that his Government would move ahead with the necessary liberalisation process. Subsequently, during his visit to the US, the Prime Minister, Mr Atal Bihari Vajpayee, announced the creation of a strategic management group (SMG) in his office to remove bottlenecks in FDI projects.

Emphasising India's importance to investors, Ms Mathur pointed out that despite the downgrading by several agencies, the list of participants in the WEF has increased this year to more than 500 business leaders from 30 countries, indic ating a favourable climate for FDI inflows. What, then, is holding up the promised flood of investment into India? For one, there are still too many procedural hurdles -- both at the Central and State levels. This is evident from the huge gap between approvals and actual implementation. Second, while the liberalisation of FDI policies is no doubt welcome, the real hurdle is the big investment slowdown in the infrastructure and manufacturing sectors.

The recent Mid-Term Appraisal of the Ninth Five Year Plan has drawn attention to the major slippages in public sector investments without any commensurate increase in private sector investments. In fact, the private corporate sector has also put on hold most investment decisions because of the demand recession and growing competition from imports. Of late, there has also been a significant slowdown in cross-border mergers and acquisitions, which have emerged as a major dr iving force in the rising FDI inflows.

Special efforts are, therefore, needed to invite more domestic and foreign investments in infrastructure sectors and to assist the manufacturing industries to improve efficiency levels and increase exports. Hopefully, the ongoing summit will addre ss some of the major impediments and try to associate the State governments in this effort to facilitate early clearance and implementation of the approved investment projects.