Environment policy a hurdle for FDI inflows, says RBI

Written by Ravish Tiwari | New Delhi | Updated: Jan 28 2011, 06:12am hrs
While India hardsells itself at Davos as a favoured destination among emerging economies like China, Brazil, Mexico and Indonesia among others, environment minister Jairam Rameshs environment sensitive policies seem to be driving foreign direct investments (FDI) away from the country.

At least this is what the Reserve Bank of India (RBI) suggests in its quarterly review of economy released on Monday as one of the key factors affecting investors sentiment.

The central bank recorded an almost 36% dip in inward FDI during the first-half (April-September 2010) of the current fiscal. The Reserve Bank, in its report, pointed out that inward FDI during this period stood at only about $12.6 billion as against $19.8 billion inward flow witnessed during the same period last fiscal.

That it was not a global phenomenon is borne out of the fact that FDI inflow into other emerging economies during this period was up in the range of 6-53%.

Net FDI flows to India declined by almost 36%, year-on year, during April-September 2010. According to the latest estimates of UNCTAD (January 2011), FDI flows to major EMEs like China, Brazil, Mexico and Thailand recorded increases in the range of 6-53% in 2010. Notably, Indonesia recorded about a three-fold rise in FDI inflows, says the chapter on External Economy.

A major reason for the decline in inward FDI is reported to have been the environment sensitive policies pursued, as manifested in the recent episodes in the mining sector, integrated township projects and construction of ports, which appear to have affected the investors sentiments, the central bank said.

This is an apparent reference to Vedantas projects in Orissa (mining), Lavasa Lake City (integrated townships) and POSCOs captive port in Orissa.

Added to this (environment sensitive policies) are the persistent procedural delays, land acquisition issues and availability of quality infrastructure, which remain at the centre of the Governments policy focus, RBI said.

The RBI report said that FDI inflow declined by about 25% from $25.3 billion to just about $19 billion during April-November 2010 period of this fiscal even as global forecasts suggest net FDI flow to emerging economies will rise by about 11% in 2011.

The government has been sitting on introducing amendments to the Land Acquisition Act under pressure from its ally Mamata Banerjee, who has used land as a major issue in her political campaign against the CPM.