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RBI blames Jairam’s policies for FDI dip

The RBI has recorded an “almost 36%” dip in inward FDI during the first half of the current fiscal.

Written by Ravish Tiwari | New Delhi |
January 27, 2011 2:42:47 am

While India hardsells itself at Davos as a favoured destination among emerging economies like China,Brazil,Mexico and Indonesia among others,Environment Minister Jairam Ramesh’s “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 suggests — in its quarterly review of economy released on Monday -as one of the key factors affecting “investors’ sentiment.”

The RBI records an “almost 36 per cent” dip in inward FDI during the first half of the current fiscal (April-September 2010). The RBI,in its report,points 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 per cent.

“Net FDI flows to India declined by almost 36 per cent,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 per cent 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,” RBI said.

This is an apparent reference to Vedanta’s projects in Orissa (mining),Lavasa Lake City (integrated townships) and POSCO’s 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 Government’s policy focus,” RBI said.

The RBI report says that FDI to India has declined by about 25 per cent 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 per cent 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.

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