danieldrezner.com :: Daniel W. Drezner :: India decides to welcome FDI
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India to unveil new thinking on foreign investment
>By Jo Johnson in New Delhi
>Published: November 17 2005 10:47 | Last updated: November 17 2005 10:47India’s Communist-backed government will on Thursday afternoon consider a sweeping liberalisation of foreign direct investment rules that would kick start a long-stalled programme of economic reforms.
Kamal Nath, India’s minister for commerce and industry, has proposed allowing 100 per cent foreign direct investment in a range of sectors, including airport construction, oil & gas infrastructure and cash & carry wholesale trading.
The cabinet will also debate whether to allow FDI in the exploration and mining of coal, lignite and diamonds, and in the cultivation of important plantation crops such as coffee, tea and rubber.
“It’s big news as this is first time that such a specific sector review of foreign direct investment has been undertaken,” said a senior commerce ministry official, who warned that there was no guarantee the cabinet would approve Mr Nath’s proposals.
India attracted $5.5bn in FDI in 2004-5, an increase of 18 per cent, but less than a tenth of the inflows into China. The government estimates that $150bn needs to be invested in upgrading the country’s infrastructure over the next 10 years.
If the new rules are approved, they will also allow foreign investment to come in by the so-called “automatic route”, circumventing a cumbersome approvals process overseen by the Ministry of Finance’s Foreign Investment Promotion Board.
Allowing 100 per cent foreign direct investment in airport construction would be a big boost to the ongoing privatisation process. High-profile groups such as Singapore’s Changi have withdrawn from bidding because of constraints on foreign operators. Permitting foreign groups to invest freely in India’s oil and gas infrastructure would be aimed at harnessing international capital for complex undertakings such as the laying of a proposed gas pipelines to Iran via Pakistan.
The measures will disappoint the US and UK government, however, who have been lobbying aggressively for foreign direct investment thresholds to be allowed in the Indian retail sector and for the ownership ceiling to be raised in insurance. Mr Nath, in an interview on Tuesday, said he would be in a position to put a proposal to the cabinet permitting FDI in retail, allowing companies such as Wal-Mart and Tesco to enter into the $205bn Indian retail market, within three months.
“We have to be cautious that FDI in retail doesn’t replace or displace existing employment and are trying to evolve a model after consultation with all stakeholders which makes FDI incremental to employment,” he said.
“It seems to me that within three months, we should have some progress, he added. “We don’t have to go to parliament because it’s an administrative decision. We can take it to the cabinet in three months.”
The government has recently lifted FDI thresholds in the aviation and telecoms sectors, industries whose rapid growth has bolstered the hand of reformers within the government, to 74 per cent from 49 per cent.
