Global players knocking on India’s door
new Delhi, February 26:
When P Chidambaram delivers his budget speech on Tuesday, global markets will pay great heed. For the suave, Harvard-educated finance minister of India, the 2006-07 budget is more
onerous than in previous years, with the country in the midst of an economic boom, galloping stock markets and frenzied growth in infrastructural development. Foreign investors eagerly await his proposals; will India, the fastest-growing democracy, dislodge all entry barriers for them and open up ‘hot’ sectors for 100 per cent foreign direct investment (FDI)?
Chidambaram, one of the architects of India’s economic reforms under the late prime minister Rajiv Gandhi, would have liked to open up retail, insurance and banking for 100 per cent FDI, but opposition from the parties of the left, as well as some in his own party, has so far prevented that. So while preparing the ground for such an eventuality in the near future, his budget is likely to focus on supplementary measures to encourage FDI, say government officials.
According to a study by Grant Thornton India, 2005 saw significant FDI growth in India, and it was a bumper year for mergers and acquisitions, with 467 deals compared with 360 in 2004. India is now seeking to increase its FDI to $10 billion in 2006-2007, up from $6.5 billion in 2005.
Chidambaram is expected to take the ‘India Everywhere’ campaign, launched at the World Economic Forum at Davos, to the world. It focuses on the benefits of investing in the ‘world’s fastest growing free-market democracy’, where ‘15 years, six governments, five prime ministers, one direction’ have underscored commitment to the free market agenda.
With eight per cent GDP growth today, India is exhibiting a new sense of self-confidence and optimism. Economic trends for 2006 indicate continued buoyancy with a resurgence of industrial growth, a continuation of the robust services sector growth and expectations of improved agricultural performance following normal monsoons.
Vallabh Bhansali, chairman of Enam Financial Consultants, says India is fast becoming a
mature market, attracting foreign players, “The major areas where India will see a lot of action by foreign players are real estate, infrastructure, manufacture and retail. Except in retail, the government has opened up other sectors for 100 per cent FDI and the budget is expected to give it a big boost.”
KV Kamath, managing director and chief executive of ICICI Bank, India’s largest private sector bank, says economic growth has been driven by greater integration into global markets, leadership in knowledge-based sectors, strong domestic demand driven by increased household incomes and a revitalised manufacturing industry. “We need large investments in roads, ports, airports and power generation and distribution to support business activity,” he says, “The budget will play an important part in maintaining economic momentum.” The government is trying to attract more FDI in sectors such as infrastructure, retail and manufacturing. Lately, it liberalised FDI policy, permitting foreign investment up to 100 per cent for various activities such as setting up greenfield airport projects, laying of natural gas/LNG pipelines, cash and carry wholesale trading and export trading, power trading, transmission and distribution, coal and lignite mining for consumption by power projects, iron and steel, and cement production.
More importantly, India has allowed FDI up to 51 per cent, with approval from the Foreign Investment Promotion Board, for retail trade in ‘single brand’ products with a view to attracting investment, technology and best global practices. This would mean that retailers such as Nike, Christian Dior, Gucci, Gap, Zara and Nokia can set up their operations with a 51 per cent stake in the company and management control.