The Hindu : Business : Doors to be opened wide for FDI, FII inflows

Online edition of India's National Newspaper
Wednesday, May 18, 2005

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Business

Doors to be opened wide for FDI, FII inflows

Special Correspondent

Comprehensive policy on financial sector in first half proposed

PUSHING FOR GROWTH: The Union Finance Minister, P. Chidambaram, and the President-elect, Confederation of Indian Industry, Y. C. Deveshwar, at the CII annual session in New Delhi on Tuesday. — Photo: Sandeep Saxena

NEW DELHI: Expressing alarm over the gradually widening trade deficit despite increased exports, the Union Finance Minister, P. Chidambaram, on Tuesday hinted at further opening up of the economy to lure larger forex inflows through foreign direct investment (FDI) and foreign institutional investors (FIIs) while relaxing the rules for improved remittances and service exports.

Inaugurating the Annual Session of the Confederation of Indian Industry (CII) here, Mr Chidambaram said while the financial sector reforms would have to be completed by the first half of the current fiscal to touch `double-digit, inclusive' economic growth in the coming years, alongside, "we have to review our policies on FDI, FII remittances and service exports on a continuous basis.''

This, he stressed, was necessary to ensure that the trade deficit, now at $30 billion, does not become an "albatross". "We have to keep our doors open for FDI, ECBs (external commercial borrowings), tourism earnings and all other invisibles. Not much attention is paid to these inflows," he said.

Explaining the rationale for further liberalisation, Mr Chidambaram said foreign investments and inflows would stand choked if the doors were kept shut or opened narrowly. As for FDI in the retail sector, he maintained that the matter was still in the discussion stage.

It may be recalled that Mr Chidambaram had noted the Centre's intention to hike the FDI cap on insurance from 26 per cent to 49 per cent, on telecom to 74 per cent from 49 per cent and from 40 per cent to 49 per cent in the case of aviation. While the FDI cap on telecom and aviation has since been increased, not much headway has been made in the insurance sector.

Concerned over the high public debt, the Minister said the Government aimed to wipe out the revenue deficit by 2008-09 through better control over expenditure and increased tax revenues.

Dwelling on the dire need for speedy reforms, he pointed out that the first thing to be done would be to complete the agenda of financial sector reforms.

"Policies are still being made in the financial sector, in banking, insurance, pension and capital market. A comprehensive policy on the financial sector should be made by the first half of this fiscal so that all uncertainties are put to rest," he said.

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