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India hopes to beat China on FDI
inflows
By Indrajit
Basu
KOLKATA - Encouraged by surging foreign
direct investment (FDI) inflows into the country over
the past 18 months, India has set its sights on
overtaking China as a preferred FDI destination, a
country with which India tries to compete fiercely on
various economic parameters.
According to
internal assessments of the India's industry ministry,
"Already India is preferred to its neighbor China in
areas where skilled labor is a major input, although
China continues to be a favored destination for sectors
requiring unskilled labor."
The country's
performance on FDI has been both "promising and
reassuring," said the industry ministry. For instance,
FDI inflows registering a record high of US$4.06 billion
(net of ADRs/GDRs) during fiscal 2001-02, which was
about 65 percent higher than the flows ($2.46 billion)
obtained during 2000-01.
Inflows in the current
year are equally impressive. According to a
recently-released government statement, FDI in the first
quarter ending in June 2002, rose 106 percent to $1.3
billion from $0.63 billion in the year-ago period. The
statement added that foreign investment inflows in June
were $504.5 million, up 203 percent from $166.4 million
in the same period in the previous year, while the total
FDI inflows during January-June 2002 were $2.66 billion.
Although on the face of it China's FDI inflows
are 10 times that of India's, which to skeptics could
make India's ambition appear like high hopes, the
country could well match China's inflows if FDI is
calculated according to global standards.
According to a study conducted by the
International Monetary Fund's (a World Bank subsidiary)
chief economist Guy Pfeffermann, India's FDI inflows
could shoot up three times if the country followed the
IMF norms of calculation.
Interestingly, the
study also pointed that the FDI inflow into China in
2000 was actually half of the calculated $40 billion, as
$20 billion of the total was actually unaccounted
Chinese money routed through Hong Kong. The IMF figures
greatly reduced the difference in the FDI inflow into
India and China to $12 billion from $38 billion as it
appeared on paper in the fiscal 2000.
Said
Murasoli Maran, India's minister for commerce and
industry, "That is why we feel our FDI will be much
higher, perhaps equal to China." Further, the numbers
flatter as seen as a percentage of gross domestic
product. FDI would then contribute 1.7 percent of
India’s GDP, a fraction lower than the 2 percent share
it has in China.
But that is not all. Waking up
to the fact that the method of measuring FDI excluded a
number of inputs prescribed in the IMF standards and
thus resulted in an under-estimation of inflows, the
industry ministry has constituted a committee, together
with the Reserve Bank of India, to examine ways in which
the coverage and FDI inflows could be improved.
The committee was set up last year and is headed
by N K Singh, a planning commission member, and has been
mandated to review existing FDI caps on various sectors
and review the functioning of the Foreign Investment
Promotion Board and Foreign Investment Implementation
Authority.
Although the committee was only
slated to submit its report to Prime Minister Atal
Bihari Vajpayee on Friday evening, sources reveal that
it has suggested fixing specific targets for increasing
FDI in various sectors, especially telecom, power,
petroleum, pharmaceuticals and coal, and also linking it
to reforms.
The committee was also to review the
functioning of the Foreign Investment Promotion Board
(FIPB) and Foreign Investment Implementation Authority.
The report will be used by the industry ministry to
prepare a comprehensive strategy paper on FDI.
Sources said the committee had suggested fixing
specific targets for increasing FDI in various sectors,
such as telecoms, power, petroleum, pharmaceuticals and
coal, and also linking it to reforms.
The
committee includes secretaries in the ministries of
finance, external affairs and industries and chief
secretaries of West Bengal, Andhra Pradesh and Uttar
Pradesh. Industry representatives from the Confederation
of Indian Industry and the Federation of Indian Chambers
of Commerce and Industry were also included.
The
committee is believed to have favored increasing
sectoral caps in banking, insurance, telecom (to 74
percent from the existing 49 percent) and the civil
aviation sectors. The report is also understood to have
favored making the FIPB a statutory body and empowering
the Foreign Investment Implementation Authority as part
of furthering investment facilitation efforts.
Sources said the committee was in favor of
liberalizing FDI norms in banking, insurance and telecom
in Special Economic Zones as well. The committee has
favored a phased relaxation in the existing FDI caps in
SEZs in banking, where the present limit is 49 percent
and insurance, where the present limit is 26 percent,
sources said. With regard to the telecom sector, sources
said that the committee was understood to have favored
up to 100 percent FDI for franchisees in these zones.
The report is also supposed to lay down a set of
principles which will define reasons for which caps can
be applied. Caps on all sectors where the country's
earlier policy principles do not apply should be
removed, sources said. Giving an example of a possible
reason for imposition of sectoral cap, sources said if
there is a fear of a monopoly being created then caps
can be put in place.
Sources said that the
committee had worked with a target of increasing FDI
inflow to $10 billion during this fiscal 2002-03.
Incidentally, the committee also suggested an aggressive
divestment of India's state-owned companies and
expressed concern over the recent spat between a few
Indian ministers over the country's disinvestments plan.
"The committee has examined the issue of
bringing in FDI through disinvestmnets, which has not
been so far the case in India and needs seriously to be
in focus," said N K Singh.
Meanwhile, according
to the industry lobby group, the Federation of Indian
Chambers of Commerce and Industries, other sectors that
are also expected to become the dominant FDI fetchers
are petroleum marketing, airports, food processing,
retail and the township sectors, as per the lobby's
feedback from overseas investors.
(©2002 Asia
Times Online Co Ltd. All rights reserved. Please contact
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