insight: india 44
Favourable mid-term
outlook for FDI into India
Middle East market identified as new source of capital
from US$6 billion to US$15 billion, are contributing to a more
favourable investment climate. According to a government joint
secretary, Gopal Krishna, speaking earlier this year, FDI into
India is expected to reach approximately US$40 billion in the
year to March 2010, on a favourable outlook. Krishna said that
this figure included reinvestment by foreign firms. “There will
be some investment [in 2009/10] which will be delayed, but
the overall outlook is positive and optimistic.” New government
legislation is also set to benefit future FDI inflows. Currently, FDI
is allowed only in projects with a minimum investment of US$10
million (in wholly-owned subsidiaries) or US$5 million in joint
ventures, with a minimum land area of 10 hectares. The country’s
commerce and industry ministry is considering proposing new
measures for cabinet approval to waive end-use restrictions which
would allow realty developers to divert surplus FDI to projects
that were previously off-limits, as long as they meet mandated
government-set criteria. The Foreign Investment Promotion Board
(FIPB) is also gearing up for the issuance of new guidelines for real
estate projects to galvanise development in the current tough
economic environment.
The April 2009 survey on FDI in India, carried out by the
Above: Bandra Worli T_he real estate market across India may be suffering along with America Chamber of Commerce (AMCHAM) and consultants
Sealink, Mumbai
Facing page: Mumbai
other key emerging markets in terms of the slowdown in demand, Booz & Company, saw 53 percent of respondents confirm
tightening of liquidity and a drop in rental values, however the that the country is still an attractive FDI destination. However,
outlook for FDI in the mid to long-term remains positive. 60 percent were concerned about inadequate infrastructure
hampering development, with 55 percent citing the lack of clarity
India’s GDP growth rate for the fiscal year 2008/9 is forecast in FDI guidelines as an impediment to investment. Additional
to remain low in comparison to the rapid growth of previous years, concerns included the shortage of skilled professionals and
with the International Monetary Fund placing it at 6.25 percent as red-tape bureaucracy. Commenting on the findings, Jai Sinha,
against the government’s estimate of 7.1 percent. Weak demand managing director, India, Booz & Co, said: “There is a fundamental
and falling commodity prices saw India’s inflation decline from optimism about FDI in India. India will not go back to an FDI of
5.24 percent to 0.26 percent in the first quarter of 2009. However, US$5-billion per annum kind of a situation. Instead of investing in
core infrastructure industries still reported a minimal growth of one go, they may invest smaller amounts initially. The underlying
1.4 percent in January 2009, in comparison to the 3.6 percent of resilience of the investment will continue owing to Indian market’s
January 2008. attractiveness. India’s GDP may not be growing at nine percent,
but even at six percent it is higher compared with many other
On the legislative front, several central and state government countries. Issues like land acquisition, power and logistics can
policy initiatives, including the amendment to FDI rules and subtract 50 percent from profitability. These are the main
the SEZ act, the cut in bank rates and increase in the Foreign challenges that will have to be addressed at local and state
Institutional Investors (FII) limit on INR-denominated instruments government levels. It is important to give confidence to investors
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