Top executives of global firms bat for India relaxing FDI norms: Report

Conducted by Deloitte, the report says that the executives have also asked the government to introduce more pro-investment policies in manufacturing

Top executives of global and domestic companies have asked India to relax policies defining foreign direct investment (FDI) and take measures to encourage investments in manufacturing. The government is already in the midst of reviewing FDI policy and has announced National Manufacturing Policy to take the share of manufacturing to 25 per cent of GDP in the next decade from around 16 per cent at present.

Global consultancy firm, Deloitte, came out with a report, titled ‘Manufacturing for Growth’ on the basis of  an interaction with executives. The executives said the key to growing India’s manufacturing sector faster than GDP is an environment that promotes both private and foreign investments.

However, many executives believed current laws were restrictive to support the objectives outlined in the National Manufacturing Policy. The policy states that foreign investments and technologies will be welcomed while leveraging the country’s expanding market for manufactured goods to induce the building of more manufacturing capabilities and technologies within the country.

The executives recommended that regulatory restrictions on foreign investments in sectors deemed important and strategic to India’s growth objectives be reviewed and reformed.

In the face of the economic downturn in Europe and the US, India receives more and more attention from international developers, investors and financial institutions, the report said. However, it added the perceived lack of commitment from the government to relax regulatory controls and other factors are contributing to an environment of uncertainty among these stakeholders.

Achieving the growth objectives outlined in the National Manufacturing Policy will be driven in large part by participation from international organisations, and removing restrictive barriers of entry and regulatory controls is critical to the process, the executives said.

India received 38 per cent less FDI at $28.99 billion till February, against $33.49 billion in the corresponding period of the previous financial year.

India’s manufacturing grew just 1.2 per cent in 2012-13 against three per cent in the financial year.

The executives also suggested that basic financial sector and capital market reforms be initiated to attract private investments.

“While executives said India’s growth is appealing to private investors, many also believed that current policies work against growth by adding risk and cost to private investments, which discourages capital inflow to the manufacturing sector. Specifically, cost of capital is extremely high, and private equity investors have limited exit strategy options,” the report said.

Many important Bills relating to financial sector reforms are still pending — hiking FDI from 26 per cent to 49 per cent in private insurers, opening up pension sector, increasing voting rights of a stakeholder in the banking sector etc.

Deloitte interacted with over 70 senior executives, including Procter & Gamble Company Chairman, President and Chief Executive Robert McDonald, Toshiba Corporation Chairman Atsuthoshi Nishida, Cargill Chairman and Chief Exeuctive Officer Gregory Page, Fiat/Chrysler Group Chairman and Chief Executive Officer Sergio Marchionne, Maruti Suzuki Chairman R C Bhargava, Infosys Executive Co-Chairman S Gopalakrishan.
HOPING FOR BETTER REFORMS
Some other recommendations given by the executives were

• The government should implement less restrictive labour laws and invest in globally competitive infrastructure.
• The government should simplify tax policies and introduce stronger education and workforce frameworks.
• It needs to introduce strong science, technology, and innovation policies that promote innovation in the manufacturing sector.