India can absorb more FDI: panel

Special Correspondent

`Achievement in 10th Plan below potential'

India now being perceived as one of the best performing emerging marketsThis has created a favourable impression among potential foreign investors

New Delhi: The Planning Commission has said the country needs and can absorb $16 billion of foreign direct investment annually. Describing this as a "reasonable target", it maintains that this can be achieved during the 11th Plan period, commencing 2007-2008.

In the draft approach paper to the Plan, the commission has said the FDI inflows, worth $5.4 billion, annually achieved in the 10th Plan was still below the country's potential. "The National Common Minimum Programme stated that the country needs and can absorb three times the amount of FDI that it gets."

During 2005-2006, the FDI inflow was $ 8.2 billion, substantially higher than the average of $ 3.7 billion during the ninth Plan period. The draft approach paper, circulated for comments to State Governments, has taken the view that it should be possible to finance current account deficits over the 11th Plan period, relying mainly on net FDI flows. This also allowed for a significant increase in Indian FDIs abroad as Indian companies also globalise, it has pointed out.

The commission has stressed that India is now being perceived as one of the best performing emerging markets and this has created a favourable impression among potential foreign investors.

Highlighting the importance of the manufacturing sector, it proposes a target of 12 per cent growth for this segment in a bid to achieve overall industrial growth of 10 per cent annually.

The commission has sought greater flexibility in some labour laws to facilitate "exit." These include amendments to the Industrial Disputes Act and the Contract Labour (abolition and regulation act) to give industry the flexibility needed to compete in international markets. It says labour intensive mass manufacturing, based on relatively lower skills levels, provides an opportunity to expand employment in the industrial sector. "China has done exceptionally well in this area and has opened up the world market in which we could compete effectively."

The draft paper has warned that reservation of industries for small-scale sector is a constraint, affecting the growth of labour intensive manufacturing. It suggests that the policy of dereservation continue in the 11th Plan at an accelerated pace, as domestic producers have to compete with imports, especially with more free trade agreements being negotiated with ASEAN and other neighbours.

It has also recommended progressive elimination of residual entry barriers in the sugar, petroleum refining, fertilizer and drug industries. Equally important, it says, is to amend the Companies Act to help rehabilitation and liquidation procedures of industrial units.