The Hindu : More economic initiatives likely, FDI limit to be increased

Online edition of India's National Newspaper
Thursday, Jan 15, 2004

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More economic initiatives likely, FDI limit to be increased

By Alok Mukherjee

NEW DELHI, JAN. 14. The decision to go in for early general elections notwithstanding, the Central Government is unrelenting in its effort to unveil more economic policy initiatives before the model code of conduct comes into force.

A Cabinet meeting scheduled for tomorrow has on its agenda a host of initiatives aimed at making the foreign investment climate more attractive. Not specifically in the agenda, however, is a proposal to merge 30 per cent of the dearness allowance of Central Government employees with the basic pay. The electoral payback of such a move will not be restricted to the 40 lakh or so Central Government employees alone since the signal will go out to the State Government staff that such benefits will accrue to them as well. Though it was not the norm earlier, the Fifth Pay Commission award for Central Government staff resulted in a parity for the State Government employees and with elections facing every State Government, it would be difficult for them to deny this benefit to their employees at this juncture.

A merger of the DA with the basic pay automatically increases the basic, which in turn results in higher allowances on other heads since they are normally a percentage of the basic pay. Sources, however, said that in case a decision on this was taken tomorrow, a formal announcement was unlikely. It would wait for an appropriate political forum, they added.

As for further liberalisation of the foreign investment regime, the hints came from the Finance Minister, Jaswant Singh, himself today. To questions about further tax concessions and reforms at a conference on the oil sector, he said, "why be impatient. Just wait for a few days. Key reforms now is to further open up the foreign direct investment and the foreign institutional investment regime."

Informed sources indicate that in tomorrow's agenda for the Cabinet is a proposal to increase the foreign investment limit in the banking sector to 74 per cent from the current 49 per cent. Similar hikes are proposed for investment in the petroleum and natural gas sector with 100 per cent to be permitted in the refining sector from 26 per cent at present and 74 per cent for oil marketing. The foreign investment limit in scientific and technical journals is to be raised from 74 per cent to 100 per cent. Some across-the-board investment facilities for foreign investors are also planned. For instance, foreign investment in the telecom sector may be allowed to up to 74 per cent, but FDI will remain capped at 49 per cent with the rest coming from foreign institutional investors.

While the Finance Ministry has worked out these measures, the Commerce and Industry Ministry is working towards an early announcement of the Export-Import Policy to beat the election deadline. Normally, the Exim policy is announced on March 31 and contains benefits and facilities for exporters.

Liberalisation of the foreign investment regime is not guided solely by political consideration. With international investment agreements in place, developing countries have now to move towards development-oriented FDI policies in order to attract higher non-debt creating inflows. While foreign investment approvals have been granted by India in huge numbers, the actual FDI inflow has picked up lately. The inflow, which was $2.32 billion in 2000, went up to $3.40 billion in 2001 and to $3.44 billion in 2002. Though the foreign exchange reserves are extremely well placed at over $100 billion, the Government is keen on encouraging FDI inflows as these do not add to the debt burden while at the same time creating assets, productive capacity and employment opportunities.

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