Clearing clouds over foreign inflows

Nov 12 2013, 05:49 IST
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SummaryWith FDI and FII investments still significantly down, government gears up to give a final push to improve investor sentiment in the last six months of its tenure

The UPA-2 has about six months left to improve its record on the economic front as, in all likelihood, it will complete its full five-year term in May 2014. The chances of an early Lok Sabha poll are now remote with the assembly elections in five states, including Delhi, Rajasthan and Madhya Pradesh, finishing only on December 8.

It is not feasible for the government to take any major policy decision or get any major legislation passed in Parliament during this period—the Winter session has already been curtailed to 15 days due to the assembly elections and will be held from December 5 to December 20. Though there is a possibility of the Direct Taxes Code (DTC) Bill being brought in the Winter session, it is unlikely to be passed, and this is the most that the government can do as far as legislative business is concerned. So, the focus now is entirely on doing whatever is possible to perk up the investment scenario.

Total FDI inflows into the country rose from $4 billion in FY01 to about $9 billion in FY06 and then jumped to $22.8 billion in FY07, $41.87 billion in FY09 and then to $46.55 billion in FY12. In the first five months of the current financial year, however, FDI inflows have been only about $13 billion as against $36.86 billion in FY13. The FII investments also increased from $1.8 billion in FY01 to $29 billion each in FY10 and FY11, but during April-November 7 in the current financial year, they were (-)$4.3 billion as compared to $27.58 billion in FY13. This situation needs to be remedied fast if the picture has to get better from here, by the end of the financial year.

The worrying bit is that the US QE taper fears could make this task even tougher. On its part, the finance ministry is not taking any chances. While economic affairs secretary Arvind Mayaram is slated to address a global investors meet this week, finance minister P Chidambaram is set to outline the 'India atmosphere' to the CEOs of financial institutions early next week. With foreign banks and institutions keen on making their projections about the likely economic scenario post-elections, these interactions would be a window of opportunity to look at administrative measures for attracting foreign investment and allaying unnecessary fears.

What favours the government is that there are reasons for the investment climate to

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