FDI inflows soar 60% in Nov at $1.74 b

FDI inflows soar 60% in Nov at $1.74 b
The Hindu Business Line, December 25, 2009, Page 1

Draft compendium of foreign policy issued.

Our Bureau, New Delhi

India attracted foreign direct investment (FDI) inflows of $1.74 billion during November 2009, a 60 per cent increase over the $1.08 billion notched in same month last year.

Clarity in rules

To give a further fillip to FDI, the Minister of Commerce and Industry, Mr Anand Sharma, has released a draft document that consolidates foreign investment policy notified through a slew of Press Notes by the Department of Industrial Policy and Promotion (177 to be precise) and various Reserve Bank of India circulars, into a single regulatory framework.

The consolidated framework is aimed at providing a greater clarity on the existing rules to foreign investors, but will not alter the current FDI norms or sector specific caps, he said.

“FDI in November has been substantially higher and we hope this trend continues,” the Minister said adding that the Government expects to attract substantial amount of foreign direct investments in the current fiscal.

On a cumulative basis, the FDI inflows remained almost flat at $19.38 billion in April-November 2009 compared with $19.79 billion in the year-ago period.

Amid the global credit crunch, it is the second month in a row that the inflows have posted an impressive growth. October witnessed a 56 per cent year-on-year jump in FDI at $2.33 billion.

In top five

The Minister said that FDI equity inflows as a percentage of GDP has grown from 0.75 per cent in 2005-06 to nearly 2.49 per cent in 2008-09. In fact, the World Investment Report 2009 has placed India in the list of top five most attractive locations for FDI for 2009-11, alongside China, the US, Brazil and the Russian Federation, he said.

Also, the 2009 survey of the Japan Bank for International Cooperation conducted among Japanese investors continues to rank India as the second most promising country for overseas business operations, after China.

Private bank ownership

On the contentious issue of certain private sector banks being categorised as foreign-owned under new FDI norms notified in February 2009, Mr Sharma said his Ministry was in active discussion with Finance Ministry and the RBI on the matter.

The FDI norms had signalled a problem for banks such as ICICI Bank and HDFC Bank as their ADRs (American depositary receipts), GDRs (global depositary receipts), and FCCBs (foreign currency convertible bonds) would also be considered as foreign investment while calculating the ownership.

The Press Note 2 of 2009 stipulates that foreign investment channelised through an investing Indian entity (owned and controlled by resident Indians) will not be taken into consideration for calculation of indirect foreign investment. It has defined Indian-owned company as one where resident Indian citizens or Indian entities have over 50 per cent stake.

Conversely, if the investing company is owned or controlled by non-resident entities, its entire downstream investment into the subject company would be taken as indirect foreign investment. RBI has been opposing these norms since they will change the classification of many banks to foreign banks. Seven private sector banks ICICI Bank, HDFC Bank, Yes Bank, Indus Ind Bank, Federal Bank, ING Vysya, and Development Credit Bank face the risk of a changed categorisation.

“There is this issue about ownership of certain banks which have a substantial foreign holding but are perceived as Indian banks…Active discussions are on between Finance Ministry, Ministry of Commerce and Industry, and RBI in this regard. The final view will be taken soon,” Mr Sharma said but did not give a timeframe.