The growing global slowdown as a resultant of the US financial crisis is expected to shrink India’s FDI inflows target fixed for 2008-09 by around US$10 billion. The Union Ministry of Industry & Commerce had set an FDI’s target of $35 billion for India in the current fiscal when it announced its foreign trade policy sometime in early April 2008. It may be mentioned here that during the preceding fiscal (2007-08) the country received FDI inflows of about US$25 billion against the targeted amount of US%30 billion.
The other reasons cited for lower FDI inflows include adverse sentiments in the stock market, bottlenecks on infrastructure, no initiatives on
disinvestments, rising interest rates and volatility on the economic front because of the adverse and serious impact of global slowdown and the US financial crisis.
As per the figures available between January to June 2008, India received FDI of US$ 22 billion. Though compared with preceding years statistics it looks healthy, the inflows from USA, one of the largest investors in India, was only US$1.3 billion during the six months period.
To prevent further deterioration in the FDI amount, the government is contemplating relaxing norms for foreign investments in sectors like banking and telecom by treating portfolio foreign institutional investments (FII) outside the sectoral ceiling.
At present, FDI and FII are added to determine sectoral foreign investment ceiling in banking, credit information companies, broadcasting, commodity exchanges and telecom. But, with RBI allowing FIIs to acquire shares in companies under the Portfolio Investment Scheme (PIS), the government is now likely to mandate that the sectoral limits will henceforth be for FDI investment only.
In sectors with limits, the balance equity will specifically be beneficially owned by/held with/in the hands of resident Indian citizens and Indian companies.
Currently the banking and telecom sectors have a 74 per cent foreign investment ceiling (FDI plus FII), which will, after the policy is accepted by the Cabinet, be changed to 74 per cent FDI.
Similarly, 20 per cent FDI plus FII limit in FM radio will now be 20 per cent FDI ceiling, while 49 per cent FDI plus FII in cable network, direct-to-home commodity exchange and CIC will be changed accordingly.
The Union Cabinet has given its approval for the introduction of the Insurance (Amendment) Bill, 2008 to increase the upper cap of FDI from the current 26 per cent to 49 per cent. The decision was taken on the basis of the recommendation of a Group of Ministers (GoM) constituted to study the issue. The proposed changes in the FDI rules will not apply to state-run insurers where government is the sole owner.
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