Centre will prefer the FDI route over FII inflows

The budget will be centred on growth-promoting policies and Finance Minister Arun Jaitley will soon unveil new Foreign Direct Investment (FDI) policies that the government is working on, Finance Secretary Arvind Mayaram said on Tuesday.

The government would focus on the infrastructure sector so that manufacturing that had slumped from 12 per cent growth to 0 per cent now could be revived, Mr. Mayaram further added. He explained that for this the system needed to gear up, especially for de-clogging the infrastructure sector as the new government had clearly stated that the system of project approvals was to be simplified and timelines were to be set so that there were no delays and so that then both domestic and foreign investments could return to the manufacturing sector.

“I am confident that the economy will see a major change this year and it will take off this year,” the Finance Secretary said. He was speaking at the launch of the World Investment Report 2014 of the United Nations Conference on Trade and Development (UNCTAD).

Mr. Jaitley will present the Modi Government’s first budget in Parliament on July 10.

The trend line gross domestic product (GDP) growth was what should be looked at and over the last 10 years it had been 6 per cent for India, the Finance Secretary said adding that he believed India’s potential was a growth rate of 8 per cent. The economy grew at a sub-5 per cent rate for the last two years.

The slow economic growth had adversely impacted revenue collection, Mr. Jaitley said talking to reporters on the sidelines of a Navy function on Tuesday. “With regard to the Finance Ministry...this is a challenging time for it …because in the last two years, the economy has moved at a slow pace...Whatever steps have to be taken in this direction, this is the time for it and you will have to wait for this,” the Finance Minister said.

The Finance Minister also said that over the last three-four weeks he had been holding consultations with stakeholders to make the economy grow at a faster pace, reinstate the trust of investors in it and to make plans for bringing it back on track by holding consultations with stakeholders.

PTI reports:

With growth trending below 5 per cent for two successive years, Mr. Mayaram said India would prefer the FDI route over FII inflows if overseas resources need to be generated to spur economic expansion to its potential level.

“I believe our potential growth rate is 8 per cent. And to get there, we need to develop resources. And that which we cannot generate domestically must come from outside and if it comes from outside then we prefer it in the form of foreign direct investment (FDI) rather than foreign institutional investment (FII),” Mr. Mayaram said.

India’s GDP expanded 4.5 per cent in 2012-13, the slowest pace in the past decade, and at 4.7 per cent in 2013-14. The RBI this month retained its GDP growth estimate of 5-6 per cent in 2014-15. Foreign investment is considered crucial for India, which needs an estimated $1 trillion in the five-year period ending March 2017 to overhaul infrastructure such as ports, airports and highways to boost growth. A decline in foreign investment could affect the country’s balance of payments and the rupee.

Overall foreign inflows into the country grew 8 per cent to $24.29 billion in the previous financial year from $22.42 billion in 2012-13. To further attract foreign inflows, the government plans to relax the FDI policy in sectors such as defence, railways and construction activities.

Mr. Mayaram emphasised the need to bring India back on the growth path to attract investments.

“You must remember that investments don’t come because of agreements like Bilateral Investment Promotion and Protection Agreements. Investments come if there are opportunities to make profits. Opportunity to make profits can only happen when growth is higher, and when the economy becomes robust,” he said.

On Sunday, Mayaram said at G-20 meeting in Australia that the policies of the new government would deepen the reform process to put the economy on a sustainable and balanced high-growth path.

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