Emerging Indian model ..........

Article in ET again read today in ET
Emerging Indian model
Reform FDI Regime To Boost Inflows

ROBUST growth of FDI inflows into the country in the first five months of FY09 amidst financial sector crisis reinforces the attractiveness of India as business destination. But, a 125% year-on-year growth of FDI in April-August 2008 to $14.6 billion does not mean that the government does not need to carry the reforms process forward. Unfinished agenda such as opening up various sectors to greater foreign investment participation should be completed. A recession in the US, EU and Japan can be seen as opportunity by India which can attract global investors looking for reasonable returns. This is the time to come up with policy responses that will ensure India remains an obvious choice for global investors once a semblance of normalcy returns in financial markets. So reforms in some sectors, where investor interest is high, must happen apace. These include retailing, manufacturing, mining and insurance which provide a compelling investment story. It is important that the country gets a larger share of long-term capital than portfolio investments to prevent any crisis on the balance of payment front or undue pressure on the currency. The Centre has eased restrictions in several sectors earlier this calendar year. But it needs to keep the process going. For instance, for many foreign investors, the provision under Press Note 1 of 2005 that requires them to get a no objection certificate from their existing partners is the chief irritant. This clause must be scrapped. Further sectoral caps for FDI that have ceased to make much sense should be relaxed. For instance, why should a foreign airline not be allowed to invest in domestic airline company? Or when we have decided to allow FDI in retail trade, why should it be restricted to single-brand retailing? That is not how retailing is organised. Besides, organised retailing brings more efficiencies into the supply chain, benefiting both producers as well as consumers. The financial services sector, notwithstanding the current financial crises, could do with higher doses of foreign investment under strong domestic regulation. Restrictions on voting rights of investors in banking too need to be reviewed. Insurance sector would gain from capital infusion from both domestic and foreign investors. Doubtless, such reforms must be accompanied by even stronger regulation. India has a chance to demonstrate its own model to the world.