Automatic Foreign Investment in India

A month and a half before the unveiling of India’s consolidated foreign investment policy, the government on Thursday doubled the ceiling on automatic foreign investment from Rs 600 crore to Rs 1,200 crore. Union commerce minister Anand Sharma, who announced the decision, said the move is expected to make India a more attractive destination for long-term investment. Under the current rules, long-term investments into most Indian sectors are ‘red-tape free’, subject to a cap on the amount of money invested. “We have got a good response from companies and investors, both from India and abroad,” he said, referring to his Christmas-eve invitation for suggestions from the public on simplifying foreign investment policy.

Sharma also announced that existing investors need not seek the government’s nod for incremental investments in sectors where a fresh investor would not be required to do so. Similarly, a single no-objection certificate from business partners would be enough for all subsequent investments of a company into India, he said. For calculating the investment, the government will look at actual capital inflow rather than the projected cost of the project, he said. The simplifications are seen as the result of the feedback given by the industry on the complexities of the existing policy. Sharma had, in December last year, urged companies and investors to give their suggestions on simplification and consolidation of India’s foreign investment rules.

Sharma said that long-term foreign investment (FDI) into India has remained at levels comparable to the year before. December saw inflows of $1.5 billion, taking the nine-month total to $20.9 billion against $21.2 during the same period a year ago. FDI flows, a signal of long-term confidence in India’s economic future, have remained flat for the last three years at around $35 billion even as the country moved up to top 3 in international ratings on investment friendliness. Sharma said the year may see record FDI inflows, despite starting off slowly. “Keeping the momentum in view, it is quite likely that FDI flows this year exceed those of last year’s,” he said. Meanwhile, India’s exports, which moved back into the positive territory in November, continued to grow in January. Total exports during January clocked $14.36 billion, clocking a growth of 11.5% compared to January 2009.

Sharma said the incentives announced by his ministry, such as cash support to exporters, would remain as they are even beyond the upcoming Budget, but some of the finance ministry-related sops, such as lower excise duties may be rolled back in a “cautious and considerate” manner in the Budget. Sharma said the government is in trade agreement talks with a number of countries, including Japan, the European Union, Turkey, New Zealand and Malaysia.