Attracting foreign investment

The key takeaways from Super Tuesdays government action are the relaxation of FDI rules for telecom and defence

The key takeaways from Super Tuesdays government action are the relaxation of FDI rules for telecom and defence. While 100 per cent FDI,allowed in telecom,had communications minister Kapil Sibals strong support,there was no such support from the defence ministry. Despite those background noises,the agreement to allow foreign investment in case-by-case basis beyond 26 per cent for defence production is big news. It finally does away with the distinction between the private sector and public sector that has only hurt the economy.

Cabinet ministers visiting abroad had been inundated with demands from industries there to relax investment caps. For instance,last week,when finance minister P Chidambaram and commerce minister Anand Sharma were in the US,the speeches from the hosts were invariably laced with these demands. Sure,the money from abroad will not flow in immediately,but the signaling is important. It allows companies in India to scour foreign investments liberally.

A Care Ratings analysis shows since April 2000 to April 2013 the total cumulative FDI inflow was $195.6 billion with most of it coming from the services sector (19 per cent) followed by construction at 11 per cent and telecommunication,including hardware,at 7 per cent. The RBIs latest data shows out of the 836 Indian companies that had picked foreign investments in a three-year period till 2010,672 or 80 per cent were subsidiaries. This shows how restrictive is the field for attracting foreign investment into the economy. Also foreign equity as percentage of total paid-up capital of the companies taking out foreign investment had increased from 70.1 per cent as on end-March 2008 to 78.4 per cent as on end-March 2010. So the liberalisation of the FDI route has to be read with the next step which is allowing more play for equity in foreign investment into India as suggested by the Mayaram committee. Some work has already been done in this direction by Sebi by removing the distinction between FIIs and QFIs. The final step in the investment scenario is what the US-India Business Council said. What investors really need is transparency,predictability,and consistency in decision making.

The other is a hard look at Indian tax policy,aspects of which concern investors but those are another chapter in the FDI saga.

Shruti is a senior correspondent based in New Delhi

shruti.srivastava@expressindia.com

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