The Hindu Business Line : India's FDI record no big deal, says Yale Prof

THE foreign direct investment (FDI) scenario in India is abysmal. This is reflected in the untapped potential to woo foreign players due to the Government's refusal to open up certain sectors for investments, said Prof T. N. Srinivasan of Stanford Centre for International Development and Yale University.

Prof Srinivasan, who was speaking at the Centre for Analytical Finance, Indian School of Business, on Indian economic sector reforms, said that the country's FDI, estimated at about $5.5 billion, is lower than that of Lithuania, forget China, which accounts for $56-billion FDI.

Even after 15 years of reform, the investment climate does not match up to the potential the country holds, he said.

Taking head-on the contention of Prof. Srinivasan, the RBI Deputy Governor, Dr Rakesh Mohan, said that there has been a major resurgence in the corporate sector since 2002. This can be gauged from the fact that during the 11 consecutive quarters, the corporate sector registered a 40 per cent year-on-year growth barring the last quarter, which had a 27 per cent growth. This would not have been possible but for the momentum created by the economic reform process.

"There has been a huge resurgence in the investment climate that can be assessed from the entrepreneurs' memorandum filed with the Government, business requests with the banking sector and the CMIE studies. This is further corroborated by the fact that the gross domestic savings would go up from 28 per cent to 32 per cent. If the reform process had slowed down, how can a national achieve a growth rate of about 6 per cent," Dr Mohan questioned Prof Srinivasan.

Citing the VAT implementation, Dr Mohan said that what is being undertaken by the country, involving 28 States, must be considered the most complex exercise attempted anywhere in the world. By April, even the BJP-ruled States have agreed to come under its purview. "With most of the sector under the automatic FDI route, only areas such as banking, retail and telecom are under scrutiny for further opening up. However, one of the main concerns is about impediments related to lack of public service delivery," Dr Mohan said.

Dr S. Narayan, former Economic Advisor to the Prime Minister, said that the GDP growth is projected at 7 per cent and the manufacturing sector grew 9.13 per cent in 2004-05 against 5 per cent in 2000-01, capital goods went up 13.95 per cent in 2004-05 and consumer goods by 11.7 per cent. There has been a phenomenal growth in commodity markets and FDI in retail and food processing is on the anvil. Further barriers to movement of agricultural products are going down.

However, FDI is primarily coming through mergers and acquisitions in small and medium enterprises and the recent ones being the Bharti deal of $1.2 billion and Mr Hemendra Kothari's $500-million deal.

The former SEBI Chairman, Mr G. N. Bajpai, said that the country needs `market integrity' where regulatory bodies converge and remove all the confusion. Now it is fragmented, which can be seen from different regulators for each segment.

The Director of Indian Development Foundation, Mr Shubhashis Gangopadhyay, said, "It would be analysed if both commodities and stocks could be traded on the same platform. As opposed to market size of $22 billion, it is projected that the commodities market would grow to $600 billion."

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