Down to business

Energise the reforms agenda to revive wilting FDI. Govt doesnt have time to lose

Energise the reforms agenda to revive wilting FDI. Govt doesnt have time to lose

In 2011,India received around 31.5 billion by way of foreign direct investment FDI,according to the UNCTADs World Investment Report 2012,less than Russias 52.8 billion and Brazils 66.6 billion and way below the 123.9 billion that multinational corporations pumped into China during the calender year. More worrying is the reports forecast that a rebound in global investments,which surged to 1.5 trillion in 2011 and far exceeded pre-financial crisis levels,could even out this year. Coming at a time when India has reported a record current account deficit of 4.2 per cent of GDP for 2011-12,subdued inflows both FDI and foreign institutional investments conjure up a scary prospect on the macro-economic front. Government must get its act together or risk losing out on potential inflows that could help partially bridge the deficit.

Comparative data on yearly FDI equity inflows does show that India received sharply higher inflows during 2011-12,compared to the previous financial year,with inflows in just the first 11 months of the financial year clocking in at Rs 1,33,181 crore,as against the Rs 88,520 crore received during 2010-11. But there is very little room for complacency. In fact,a research study undertaken by the RBI to examine why the FDI flows to India remained sluggish in 2010-11 proves this conclusively. Based on 10 major emerging market economies,it showed that investments were significantly influenced by openness,growth prospects,macroeconomic sustainability,labour costs and predictability in government policy. To woo investors back to India,ushering in the much-delayed policy reform on allowing FDI in the multi-brand retail sector could be a good starting point. Combined with changes to the current policy pertaining to FDI in single-brand retail,this could help reverse the slipping investment sentiment. The longer-term booster dose for the economy could come in the form of credible action in areas such as the pension and insurance sectors,along with the pending reforms in the taxation sector.

Despite the worrying forecast of global investments tapering off this year,the silver lining in the UNCTAD report is that it places China,the US and India,in that order,in the list of the hottest investment destinations for global companies over the next three years. For this to translate into investment inflows on the ground,though,the government needs to reinvigorate the flagging reforms agenda. That will show the world it means business.