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Accelerating FDI
Foreign direct investment in India is accelerating. The annual inflow doubled to $2.6 billion in 1996-97 over 1994-95. This was not considered good enough. The doubling was over a very small base. Nor was the absolute amount of investment significant. But things seem to be changing. FDI in the first eleven months of 1997 is estimated to have touched $3.2 billion; the prospects are that it will reach $4 billion (with telecom firms bringing licencee fees through the equity route) for full year 1997, or 65 per cent more than in 1996. The growth rate is good, though the absolute amount is nowhere near China's $40 billion. India's share in FDI flows to developing countries ($110 billion in 1996) is still very modest. Even so, in the context of the decline in net foreign institutional inflows, the big FDI spurt of 1997, it must be noted, will boost capital receipts in the BOP. This should abate nervousness about the rupee. Indeed, had news of the rise in FDI been released in time, pressures on the rupee might nothave reached panic proportions.FDI inflows are non-debt creating and far more stable than foreign portfolio investment. But a far more important reason for preferring FDI to portfolio inflows is that the former contributes to the growth of the real economy. Last year, besides telecom, FDI came into power, transportation, chemicals, electrical equipment, computer software and metallurgical and food processing industries. From potato chips and soft drinks, FDI has diversified in a big way into core industries. This should allay BJP's fears. Indeed, much depends on policy for facilitating investments in critical infrastructure; if political parties could get their act together, and if financial closures and quasi-guarantees could be quickened, FDI would soar. If priorities are to be set for FDI, then facilities and incentives should underpin them. Loose talk about not allowing FDI in one or the other sector only confuses the foreign investor. The task on hand must be looked at without blinkers. Massiveinvestment is required in power, roads, ports and in the core industries. Neither the domestic private sector nor the public sector can generate the required resources, financial and managerial. Like China, we must let in FDI in a big way. Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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