FDI rules will enhance trade

It was no surprise that in less than six months, we played host to Prime Minister David Cameron , President Barack Obama, President Nicolas Sarkozy, Premier Wen Jiabao and most recently President Dimitry Medvedev. One common agenda of all these visits was bilateral trade and an expectation that India further ease its FDI rules. Hence, as we approach the new year, it may perhaps be wise to once again objectively evaluate our current FDI rules to see what other changes can be introduced.Currently, all foreign investments into India are regulated by the consolidated FDI policy (policy). The consolidation, first undertaken in March 2010, pulls together in one document all previous acts, regulations, press notes, press releases and clarifications issued either by the department of industrial policy and promotion (DIPP) or the Reserve Bank of India (RBI) where they relate to FDI into India.

The consolidation exercise, a huge endeavour on the part of the DIPP, is a step in the right direction and hence deserves much appreciation. What also merits praise is the initiative of the DIPP to only make changes to the policy on a biannual basis, as opposed to the previous practice of issuing ongoing notifications. Hence, the most recent policy came into effect on October 1, 2010.Under the extant policy, investments into most sectors fall under the automatic route. Such investments require no prior permission of the government or any regulator and the Indian company receiving the foreign investment is only required to intimate the RBI of any such investment.The FDI rules applicable to such sectors are, therefore, fairly clear and unambiguous. But some sectors still require prior government approval and it is here that the rules may be accused of being somewhat complicated. What needs to be appreciated is that most sectors that require government approval fall within the 'sensitive' category and hence it is essential to balance FDI with concerns of national security. Similar restrictions also exist in some developed countries where there is a potential of national security being compromised.

government is discussing a proposal for allowing fdi in multi-brand retail stores

Despite a furore over the zooming prices of onion and other essential commodities, the United Progressive Alliance government is discussing a proposal for allowing foreign direct investment in multi-brand retail stores and increasing the FDI limit in defence production.


While Mr. Sharma rejected the argument that there was a link between the soaring onion prices and the opening up of multi-brand retail to foreign direct investment, the demand for liberalising the sector has been intensifying, especially in the wake of the wide gap between the wholesale and retail prices.

He said the government followed a progressive approach, and policy liberalisation was incremental to it.The Department of Industrial Policy and Promotion (DIPP) has floated discussion papers on allowing FDI in multi-brand retail and increasing the FDI limit in the defence sector. Consultations with the stakeholders have been completed.Giving the findings of the annual review of exports and industrial production, Mr. Sharma said the government would give more incentives to the export sectors that were labour-intensive and yet to fully recover from last year's slowdown. “Reviews have been completed. We will now be making a final analysis in the first half of January. Wherever further incentives are required, they will be announced.”Exports during April-November of this fiscal crossed the $140-billion mark, up by 27 per cent, and the annual target of $200 billion would be met, he said. The country was on course to doubling its exports by 2014, from $168 billion in 2008-09.

India received less FDI in 2010

India received less foreign direct investment in 2010 than the previous year, courtesy a modest recovery in the global economy which reduced the risk and expansion appetite of corporates across the world.Foreign Direct Investment (FDI) inflows into the country between January-October this year aggregated $17.37 billion, compared to $23.8 billion in the corresponding year-ago period, translating into a 27 per cent decline.Neither the government, nor the state of economy can be faulted for the big decline in fresh foreign equity investment in India.A recent World Bank report -- 'World Investment and Political Risks' -- gives an apt reason for the dip in FDI into developing countries. India was no exception, though it showed rather impressive economic growth, kissing 9 per cent."Multinational enterprises were hit hard by the global economic recession and financial crisis of 2008. Slower global growth in 2008 and 2009 squeezed their profitability, while global economic uncertainty, weak global demand and the credit crunch affected their willingness and ability to expand overseas," the report pointed out.At present, FDI up to 51 per cent is allowed in the single-brand retail format, while 100 per cent is permitted in the wholesale cash-and carry business.With domestic corporates going global, FDI is no more a one-way street for India, with outward investment also assuming a critical size.As per the RBI's latest figures, direct investment abroad increased by $2.8 billion in the April-June period of the current fiscal.

FDI falls in India

Fdi in India during the first seven months of the current financial year (April-October 2010-11) stood at $12.40 billion against $19.95 billion in the corresponding period of the previous year - a 37.8 per cent year-on-year decline.FDI equity flows into the country during January-October 2010 stood at $17.37 billion, official data showed.FDI in India stood at $25.89 billion for the whole of the previous financial year (April-March 2009-10). The government has set an FDI target of $33 billion in the current fiscal.The government is now looking at opening the retail and insurance sectors in order to attract continued flows of foreign equity investment.The Department of Industrial Policy and Promotion has issued five discussion papers relating to FDI in defence sector, FDI in multi-brand retail trading, approval of foreign/technical collaborations in case of existing ventures/tie-ups in India, issue of shares for considerations other than cash and FDI in limited liability partnerships.

Trade imbalances, dip in FDI challenge to growth

Finance Minister Pranab Mukherjee said india's economy was getting back to higher growth, but faced many headwinds. He was addressing the parliamentary consultative committee for his ministry.

The minister listed trade imbalances, volatility in portfolio investments, current account deficit, drop in foreign direct investments to almost half of last year’s levels and the crisis in the Euro zone as the biggest concerns, a release from the ministry said on Thursday.

India’s current account deficit is expected to touch 3% of GDP in the current fiscal. Goldman Sachs has said in a recent report it could widen to 4% of the GDP by the end of the next fiscal.

The jump in the current account deficit is largely because of the high trade deficit — $81 billion in the first eight months of the current fiscal. Much of this current account deficit is funded by the $39 billion of investment by foreign institutional investors, but these flows are beginning to become volatile.

The sharp drop in FDI has also caused concern, because it has increased the reliance on short-term overseas funds to meet the deficit. FDI in the first six months of the current fiscal was $11 billion, down from $15.3 billion in the same period last year.

The finance minister said there was a need to improve the public distribution system to ensure the people below poverty line get foodgrain at nominal price of wheat at Rs 2 a kg and rice at Rs 3 a kilo. The finance minister also urged various stakeholders to be responsible in their assessment of the requirement of foodgrain if the government is to ensure that every needy person is provided for.

India is becoming a major destination for FDI

Investment from abroad before economic reforms began in 1991 used to just trickle as foreign investors were wary of opportunity in India. But situation changed rapidly and more and more investment started pouring in with new policy in place. As various sectors were opened up gradually the FDI flow started steadily increasing and it cumulatively stood at 130 billion dollars by 2009.

India is far behind China, which attracts around 60 billion dollars annually. But today things have changed and India is becoming a major destination for FDI inflow. India received around 35 billion dollars in 2008-09 including reinvestments by foreign investors. In 2009-10 too FDI inflow is expected to be around 35 billion dollars, same as previous year despite global slowdown in the face of financial crisis.

Relaxed FDI norms in retail sectors

Pitching for 100 per cent opening of Foreign Direct Investment (FDI) in the Indian retail sector, US retail giant Wal-Mart Stores Inc said such a move will help in containing inflation.

"Wal-Mart has expressed that 100 per cent FDI would be the solution for all constituents and stake holders (in the Indian retail sector)," Wal-Mart Stores Inc President and CEO Mike T Duke told reporters.

He, however, said Wal-Mart respects the India's calibrated approach towards opening the retail sector to FDI.

India currently allows 51 per cent FDI in single-brand retail, but none in multi-brand. Recently, the government had initiated a discussion on opening FDI in multi-brand retail.

The government has also relaxed FDI norms thereby lifting restriction that required retailers to source products from FDI-backed group wholesale firms only for internal use.