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Govt's hurried FDI measures cutting no ice with investors

Policies for FDI in sectors like railways and e-commerce also likely to be relaxed soon

Nayanima Basu  |  New Delhi 

Months before the Lok Sabha elections, the government seems to be trying to make up for lost time, at least in decisions on foreign direct investment (FDI). It is soon going to throw open sectors like the railways for foreign participation — something controversial until a couple of years ago. Also, foreign players might soon be allowed to sell to consumers anything from locks to laptops online. But, the question that looms is: Who are these players and are they really interested?

Next week, the Cabinet Committee on Economic Affairs, chaired by Prime Minister Manmohan Singh, is expected to give the green signal to FDI in railways. Earlier this week, a discussion paper on allowing FDI in e-commerce was floated by the commerce & industry ministry. Besides, the Department of Industrial Policy and Promotion (DIPP), the nodal agency for FDI, is keen to push foreign investment in low-cost housing.

  • Jan 2012: Govt allows 100% FDI in single-brand retail
  • Sep 2012: Govt allows 51% FDI in multi-brand retail (the decision had got stalled due to stiff opposition in November 2011)
  • May 2013: Swedish furniture giant IKEA’s FDI proposal to invest Rs 10, 500 crore gets approval
  • Jul 2013: Govt relaxes FDI rules for telecom, defence production, power exchanges, commodity exchanges, stock exchanges, asset reconstruction companies, petroleum, credit information companies
  • Jul 2013: Govt allows 100% FDI in courier services
  • Aug 2013: Govt eases FDI policy for multi-brand retail
  • Dec 2013: British retail giant Tesco Plc becomes the first multi-brand retailer to invest in India ($110 million proposed)

But where are the takers? This question is being asked not only by firms but in government corridors, too.

A top official involved in formulation of the FDI policy told Business Standard the government was trying “to do its best” in bringing reforms by allowing more FDI in some crucial sectors but was finding it hard to find investors.

In July last year, a high-level committee under the prime minister had relaxed FDI norms for 10 key sectors, including telecom, defence production, courier services, petroleum refining and commodity exchanges. Despite that, FDI inflows, according to official data, stood at just $12.6 billion during the April-November period, down 15 per cent from $14.7 billion in the year-ago period.

According to experts, the government has taken a flurry of measures to relax the country’s FDI norms, but investors have shied away from putting in money due to the fear of a rollback of decisions later.

“Investor sentiment is hurt. It is deeply harmed by the fact that there is no stability, certainty and predictability in policy decisions today. As an economy, we have hit the rock bottom. Investors have gone into a wait-and-watch mode so far as FDI is concerned. They are now waiting for the new government to come in. The fear of a rollback is always there,” says Punit Shah, co-head (tax), KPMG.

He also underscores the fact that some of the government departments, such as the Foreign Investment Promotion Board (FIPB) of the finance ministry, are increasingly acting as a deterrent to investment proposals with a plethora of rejections, deferrals and cancellations.

A case in point is the Jet-Etihad deal, in which the Abu Dhabi-based airline bought a 24 per cent stake in Jet Airways for $379 million. The proposal had to face deferrals a couple of times both by FIPB and DIPP.

According to an expert who does not wish to be named, investors are not sure whether the Bharatiya Janata Party, if it comes to power next, will be friendly towards investors or put severe clamps on the FDI policy.

In the case of multi-brand retail trading, the government faced a severe criticism from investors for ambiguity in the policy. It had to be put on hold due to protests from traders and farmers. The Opposition parties also fanned the protests.

Technopak CMD Arvind Singhal believes that only relaxing the FDI policy will not work; there has to be an enabling environment for investors to put in their money. “The economy is tanking. So, whichever party that form the government after the coming elections will have to understand that small measures will not help anymore. What the government is doing is no big deal. The world has moved on.”

The Department of Industrial Policy and Promotion recently floated a discussion paper on allowing foreign direct investment in e-commerce in the business-to-consumer segment.

It is to accept comments on the paper till January 31.

According to the 12th Five-Year Plan, the country will require $1 trillion to upgrade its ailing infrastructure, such as the highways, ports, railways and airports, which will be crucial for the growth of the economy.

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First Published: Thu, January 09 2014. 00:59 IST