FM moots new norms for FDI

CII NATIONAL CONFERENCE AND ANNUAL SESSION 2005

Finance Minister P Chidambaram today said there was a need to review the norms on foreign direct investment, foreign institutional inflows, external commercial borrowings, services exports and remittances to bridge the trade deficit estimated at around $30 billion during the last fiscal.

In an apparent reference to raising the foreign investment ceiling in insurance from 26 per cent to 49 per cent and a decision on setting up a regulator for the pension sector, Chidambaram called for a consensus on financial sector reforms during the first half of the current fiscal, to be backed by legislation.

The Left parties have opposed the new pension scheme and higher foreign investment in insurance. The communist parties have also voiced concerns over removing the 10 per cent cap on voting rights for foreign investors in private banks.

"There is a need to keep the doors open for FDI, FII, ECB, tourism earnings and other invisibles.... There are downsides of keeping the doors wide open but keeping it shut or opening it narrowly open means not much attention is paid to them," the minister said in his inaugural address at the CII national conference.

Asked about ways to push GDP growth to double digit levels, Chidambaram said completing the agenda on financial sector reforms would raise the growth rate from 6 per cent to 7 per cent, while passage of legislations like the Women's Reservation Bill and the Employment Guarantee Bill would push it further to 8 per cent.

The minister also said the Opposition's support in carrying out business in Parliament was of utmost importance and it could further help in pushing growth to 9 per cent.

Chidambaram said the government was committed to wiping out revenue deficit and containing fiscal deficit to allow more capital to flow in productive use. He said that expenditure control could only help in achieving a part of the goal and tax reforms were of critical importance to check deficit.

He also reiterated the need for pushing up the savings rate by the public sector and the government's policies should be aimed at raising the savings rate in the economy.

"Nothing pleases me more than the fact that the industry is more productive, more competitive, has cut costs and extracts more band for the buck. If the same ICOR (incremental capital-output ratio) can be applied to a higher savings and investment rate. Growth could jump from a single digit mark to double digit levels," the finance minister said.