'Remove red tapism to boost FDI'

Industry chamber PHDCCI said today that bureacratic hurdles was coming in the way of actual FDI inflow.

business Updated: Jan 08, 2006 10:59 IST

With India poised to become the "next big story" after China for foreign investors, industry chamber PHDCCI on Sunday said bureaucratic hurdles was coming in the way of actual FDI inflow even after government approves much more proposals.

"The percentage of cumulative actual inflows of FDI to cumulative total approvals between 1991 till September 2005 is still below 60 per cent," industry body PHDCCI said in a release.

The realisation rate of actual to approved FDI until 1997 was still around 30 per cent which rose and stood at 71.7 per cent in 2001 and then jumped to 191.1 per cent in 2002, 236.8 per cent in 2003 and over 300 per cent in 2004.

Though there has been considerable improvement in the realisation rate during the last 2-3 years, it said administrative barriers at the state levels continue to hamper the FDI inflows in the country even as policy barriers have been removed.

"Removing procedural and bureaucratic hurdles especially at the state levels is required," it said.

What's all the more disturbing is the delay after the new proposals are cleared by the Foreign Investment Promotion Board (FIPB), it added.

The main reason why India has not been able to lure foreign investors is the absence of an effective mechanism for improving co-ordination between Central and State governments in giving clearances, it said.

In sectors like the infrastructure, lack of transparent guidelines and governmental delays are the bottlenecks in luring foreign investors while in others non-workability of build-own-operate-transfer and build-own-lease-transer schemes are acting as impediments in progress.

Though India has been able to attract $5.5 billion as FDI in 2004-05 alone and $2.9 billion during the first half of 2005-06, PHDCCI points to a higher potential of FDI inflow especially in infrastructure sector.

An analysis by the chamber shows that FDI inflows surged from a paltry $97 million in 1990-91, to $6.13 billion in 2001-02.

In 2002-03, FDI inflows were $5.035 billion but fell to $4.67 billion in 2003-04. The inflows again rose to $5.54 billion in 2004-05.

Out of the total investment of $5.54 billion in 2004-05, the share of equity investment was $3.36 billion while reinvestment of earnings were $1.82 billion and inter-company debt transactions of FDI entities at $357 million.

Among the industrial composition of FDI in 2004-05, manufacturing with $924 million holds the largest share followed by computer services at $372 million, financing, insurance and real estate business and business services $363 million.

These are followed by the construction sector at $209 million, food and dairy products $183 million and transport $70 million, it added. (MORE)

In terms of geographical composition of FDI, Mauritius tops the chart with $820 million. But Mauritius is primarily used by global corporates as a "offshore financing centre".

Otherwise, United States with $469 million is the largest investor in India. Other major investors in 2004-05 include Netherlands with $196 million, Germany $143 million, Japan $122 million, UK $84 million and Singapore and Switzerland with $64 million each.

One of the major concern facing the Indian economy is the stagnancy in the domestic saving rate leading to dependence on foreign savings to bridge the domestic investment-saving gap.

The chamber has, thus, called for liberalisation of FDI policy and the sectoral caps in a comprehensive manner as well as provide policy stability thereafter.

As per the chamber analysis, to attract greater inflows of FDI, the policy will have to be flexible, consistent, unabigious and transparent with long-term objectives and minimal mid-course policy changes to boost the confidence of the foreign investors.

First Published: Jan 08, 2006 10:05 IST