Feb 2, 2000|
Government gives further boost to economic reforms
The government seems to be leaving no stone unturned in its efforts to increase the foreign direct investment (FDI) inflow to US$ 10 bn per annum. It has allowed automatic clearance for FDI in all sectors except those on the negative list. The government is also initiating moves to prune this list further.
The negative list, which includes sectors that require industrial licenses, includes sectors like defence, aerospace and alcohol. The immediate effect of this move would be to limit the procedural and regulatory hassles that foreign companies investing in India have to go through.
The government's decision is a step in the right direction. The move will send a right signal to India's trading partners and creditors, which would then look at India more favourably from the point of view of an investment avenue. This will help in increasing India's share of global FDI flows in the coming years. The domestic economy would benefit from fresh inflows of funds (and technology) into various sectors. Moreover, it would help fund India's current account deficit.
FDI inflows in India have been increasing over recent years. The dip in FY99 was attributed to a global slowdown in FDI inflows mainly as a result of the East Asian and Russian crises. According to latest estimates FDI inflows in calendar year 1999 was US$ 4 bn – the highest in the post-liberalised era.
The protectionist lobby is sure to raise objections. They will highlight the possibility of a loss of domestic control on production. Increased competition for domestic companies is another area that would find favour with them. The government should nonetheless go ahead with its reforms. The reason is that opening up of the domestic markets to foreign investment, as precedent shows, leads to an overall improvement in the domestic economy. Improved technology, better products and higher wages are only some of the benefits that foreign companies will bring with them.
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