Revisit sectoral FDI caps in coal mining, insurance

New Delhi, Feb 25 | Updated: Feb 26 2005, 06:00am hrs
The Economic Survey reflected the governments jubilant mood over the highest-ever FDI inflows into the country this fiscal and called for further liberalistion of the FDI policy with a view to removing restrictive provisions and spurring inflows. In what could raise the hackles of the Left, the Survey made a strong case for revisiting sectoral FDI caps in sectors such as coal mining, insurance and retail trade.

Pitching specifically for FDI in the retail sector, the Survey said foreign investment can not only organise a significant part of the largely unorganised domestic retailing but can also invite established global brands into Indian market. This would, in turn, create greater outlets for sourcing and marketing Indian products, according to the Survey.

Referring to the well-documented role of FDI as a source of economic development, modernisation and employment generation of developing countries, the survey says FDI-enabling policies were pre-requisites for maximising such benefits. FDI influences growth by increasing total factor productivity and the efficiency of resource use in the economy.

Significantly, the Survey calls for promotion of foreign investment in both forms FDI and FII. Both the forms trigger technology spillovers, assist human capital formation, contributes to global trade integration and create a more competitive business environment.

FDI Funnel
Revisit sectoral caps in coal mining, retail and insurance
Correct mismatch between FDI and FII inflows
FDI-enabling policy vital for reaping maximum benefits
Both FDI and FI trigger technology spillovers and benefit the economy
However, elucidating the mismatch between short term portfolio investment (FII) and long-term investment as FDI, the survey said constraints impeding higher FDI inflows needed to be identified.

Indias capital account in recent years has gained far more strength from short-term foreign investment flows. This necessitates revisiting FDI policy and identifying constraints impeding higher inflows, the survey said.

Portfolio inflows in first half of 2004-05 at $15.4 billion was much higher than $9.3 billion in the year ago period.

At $2.5 billion, the actual FDI flows in the first eight months of the fiscal was more than double of the inflows during the corresponding period a year ago.