FDI stuck in faultlines

Ease bottlenecks to attract funds

The Union commerce ministry’s latest report says that actual realisation from foreign direct investment (FDI) fell to 47 per cent in the first four months of the current year, down from 59.5 per cent in 1999 and 52.2 per cent in 2000. What is worse, the government has done precious little to halt the declining ratio that was in evidence in recent years. FDI fell from $3.6 bn in 1997-98 to $2.4 bn in 1998-99 and then to $2.2 bn in 1999-2000. A comparison of FDI approvals and actuals on a monthly basis is even more disconcerting. FDI approvals declined from Rs 14.5 bn in July 2000 to Rs 12.3 bn in April 2001, while actuals shrank from Rs 10.9 bn to Rs 7.9 bn; and actuals to approvals ratio from 75.2 to 64.2 per cent. In fact, in November 2000, FDI approvals fell to as low as Rs 2.1 bn. Obviously, foreign investors are not impressed by the government’s initiatives to attract investments. If anything, the declining ratio of actuals to approvals is an indication that liberal economic reforms have not yet arrived.

Throughout the 1990’s, FDI to developing countries was on the rise. China cornered a big chunk of it: during 1992-99, its share of total FDI to developing countries was about 20 per cent against India’s measly one per cent or so. The Economic Survey 2000-2001 has ruefully noted that “the falling share is a cause for concern and underlines the need for even greater policy reforms in the FDI regime.” This disconcerting observation comes in the wake of measures allowing 100 per cent FDI in e-commerce, the removal of dividend balancing condition in 22 consumer goods industries as well as of Rs 1,500 crore upper limit for FDI in power sector and raising of ceiling for automatic route in oil refining to 100 per cent from 49 per cent, among others. Sadly, these measures have not yielded the expected results. Yet, India needs FDI on a greater scale now than ever in the past to promote growth. Only a hassle-free and investor friendly policy can ensure more FDI.