Use transparent policy for more FDI

ECONOMIC SURVEY 2004-05/ FDI INFLOWS

Revisit ceiling for retailing, coal mining, insurance and real estate.

Underlining the need for higher foreign direct investments (FDI), the Economic Survey made a case for revisiting the ceiling for retail trade, coal mining, insurance and real estate to make the sectors more competitive.

While the government has allowed 100 per cent FDI in construction, it is reviewing the rules for the entry of foreign players in retailing and real estate.

Stating that investors were showing greater confidence in the immediate and medium-term prospects of the economy, the survey called for a transparent, broad and effective "enabling" policy environment.

It cited technological improvements, human capital formation and more efficient use of resources as the benefits of greater FDI inflows.

The survey said the FDI policy in India was considered to be one of the most liberal, while pointing out that the World Economic Forum's Global Competitiveness Report 2003-04 ranked India at the 41st position in terms of barriers to foreign ownership compared with China (81), Malaysia (67) and Thailand (75).

According to the Unctad's World Investment Report, 2004, inflows to India rose to $4.27 billion in 2003, though global FDI inflows decreased significantly. The Unctad has projected FDI inflows to India to touch $6 billion in 2004.

Despite the increase, FDI inflows to India are the lowest among BRIC (Brazil, Russia, India and China) countries. The Geneva-based body's projections for China at $62 billion, Russia at $10 billion and Brazil at $16 billion in 2004.

The survey said FDI inflows during the first eight months of the current fiscal year had reached $2.5 billion, nearly twice of that in the previous fiscal year.

It said FDI in retail could help in restructuring the largely unorganised retail sector in addition to creating greater sourcing avenues through the entry of established global players.

Organised retail formats would also help in upgrading the quality of products, establishing efficient supply chains from farm to market and generating greater employment, it said.

It noted that allowing foreign investment had helped certain industries, like automobiles, software and electronics, achieve technological upgrade and higher value addition.