Indian govt’s FDI measures watershed, courageous: US

The US has termed as “watershed” and “courageous” the Indian government’s decision to allow FDI in multi-brand retail, saying that the new reforms will send out the “right message” to global investors.

It said the steps will convince investors that India’s economic environment is conducive to foreign investments.

The announcement by the Indian government that it will open its retail, broadcasting, aviation and power sectors to foreign investment provides a “new optimism” to the country’s growth story, Under Secretary for Economic Growth, Energy and Environment Robert Hormats said at the 9th annual Indian Investment Forum here yesterday.

“The Government of India’s courageous decision last week on regulations to pave the way for expanded participation in the multi-brand retail sector as well as more foreign direct investment in aviation, power grids, and broadcasting are in my view watershed decisions,” Robert Hormats said.

These reforms would lead to a stronger, more efficient, resilient and inclusive Indian economy, he added.

He said when history is written about the modern economic growth story in India, the date when the reforms were announced would figure prominently in the narrative.

Robert Hormats said US businesses are attracted to investment destinations based on the investment climate, transparency and the ease of doing deals.

However, India still lags behind when it comes to the ease of doing business.

The World Bank has ranked India 132 out of 183 countries on the ease foreign companies have in doing business in India.

The government of India must help create an environment that makes it easier for all investors – including those from the United States – to invest in India, Robert Hormats said.

“Of course, in order for our companies to provide the top technology, managerial expertise, and know-how to India, the government of India must help create an environment conducive to their investment. That is why last week’s decisions on FDI are so consequential,” he said.

“They send the markets the right message – that foreign investors are welcome and encouraged to participate in India’s economic growth story,” he added.

However, Robert Hormats said the US remains concerned about the local content requirements in the FDI in retail policy that require investors to source 30 per cent of inputs domestically but said he believes these challenges can be overcome.

Other limits governing foreign direct investment in retail, including a state-by-state opt-out clause, a minimum $100 million in-country investment and some provisions excluding small towns in India would also be acceptable to investors, he said.

“These reforms have the potential to change – for the better – the way goods are sold and produced, transported, and brought to market in India,” he said.

Incremental progress toward adoption of modern cold storage practices can help to dramatically reduce the estimated 40 per cent of crop spoilage across India, Robert Hormats said.

Indian farmers partnering with US companies to learn best practices could expand crop output while reducing water and fertiliser inputs resulting in higher quality crops and more income for farmers, he added.

“A true win-win scenario. Expansion of investment by both domestic and international operators in retail will make retail in India more sustainable, more inclusive, and will help lift millions of citizens out of poverty,” Robert Hormats said.

He added that the new economic policies will create investment opportunities and foster permanent partnerships between Indian and American firms.

“I have full confidence that American companies will be committed co-innovators with their Indian partners, as India transforms its retail landscape. We know that India’s domestic consumption story continues unabated,” he said.

Outlining the pivotal role that US has played in India’s economic growth; Robert Hormats said the $24 billion in US foreign direct investment has provided innumerable benefits to the Indian economy.

US investment in India’s infrastructure is modernising supply chains, building new airports and power plants, and is helping to forge the Indian economy of the future, besides bringing world-class technology and know-how to India.

The United States is equally focused on attracting growth and investment to its shores, he said.

Indian FDI into the US reached $3.3 billion in 2010, up over 30 per cent from the previous year.

Indian firms have created over 30,000 jobs in the United States and US subsidiaries of Indian firms account for an estimated $700 million in exports.