The Hindu Business Line : FDI pours in, but where?

At first glance, the Commerce Minister, Mr Kamal Nath’s pride in the fact that foreign direct investment (FDI) in the first half of 2007 has almost trebled is understandable. The inflows have gone up from $3.6 billion in the corresponding period last year to $11.4 billion this year. This could be viewed as a ringing endorsement of the positive signals New Delhi is sending to the world that it means to attract more capital to sustain the Indian economy’s eight p er cent growth, if not accelerate it. But how much of this trebling is a result of specific policies is quite another matter. And there lies the rub.

A look at the big ticket investments that have come in up to May this year reveals that the surge has been restricted to a few sectors already flush with funds: telecom, realty and financial services. Thus the magic of numbers has to be tempered by the sobering reality that FDI, judging by its pattern in the period under review, is not going to the sectors that need it the most, to wit, physical infrastructure, power and, of course, agro-based industry. Judged in this light, the FDI inflows lose some of their aura and the Commerce and Industry Ministry would do well to consider how these critical sectors can begin to get the kind of investments needed to develop them. Time and again, policy-makers, both at the Centre and the States, have voiced concern about the lack of capital for the core sectors. By now it is also pretty clear that sustaining growth at current levels, leave alone escalating it, will require better roads and ports, and less power shortages. But, so far, New Delhi seems to have focused on only one aspect of the issue, namely capital requirement rather than on implementation.

Getting projects off the ground seems almost as hard now as it was in the pre-reform days. Power projects are still delayed for various reasons, the regulatory framework is still entangled by innumerable arcane legislations and the most important factor, land, is becoming alarmingly contentious as a resource for industry. Small wonder that almost every quarter’s data show infrastructure lagging behind other sectors. For the April-June quarter, the Index of Industrial Production (IIP) shows infrastructure slipping from 7 per cent to 5 per cent growth this year. The question policymakers should be asking themselves is: why is FDI not flowing to these sectors? On August 15th, the Prime Minister rightly asserted industry’s role and offered a hint that land acquisition and compensation norms will become easier with amended legislations. That will be possible only if they do not add to the regulatory burden.

Related Stories:
FDI inflow trebles in first half at $11.4 b
FDI inflows rise 47% to $1.74 b in Q1
Infrastructure growth slips to 5.3% in June

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