As the Indian economy battles sliding growth, costly credit, rising inflation and a falling rupee, economists say this is the time to ease norms for foreign investors to attract global capital, particularly for the capital-scarce infrastructure and retail sectors.
"Data clearly shows that domestic capital is not sufficient. There is a clear case for liberalising the FDI norms," Rajiv Kumar, secretary general of industry association Federation of Indian Chambers of Commerce and Industry told HT.Economists said FDI, in a regulated environment, is always a better option than forcing companies to raise debt at high interest rates. The RBI had raised interest rates 13 times in the past 20 months to tame inflation.
The government’s decision to allow 51% FDI in multi-brand retail triggered protests from the Opposition and the key UPA allies. Small traders argue that global stores will put them at risk. But economists said Indian firms are feeling squeezed by costlier credit at home.
The latest GDP growth data released Wednesday, showed a significant slowdown in investment. In July-September, gross fixed capital formation (GFCF) —a proxy to measure fresh investments by companies — fell by about Rs 1,000 crore to Rs 584,236 crore from that of the previous three months.
Manish Jain, analyst with research firm Nomura, said, "FDI for retail will be positive for the sector as a whole, where capital is at a premium."