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FDI poker

Last Updated 17 July 2013, 17:17 IST

While increasing FDI limits in 13 sectors on Tuesday, starting with 100 per cent foreign direct investment in the telecom sector, the government is pushing for fresh fund flows to lower the industry’s financial burden.

As things stand, the RBI’s measures to bolster spending through repeated monetary easing cycles have not really unlocked low-cost credit for sectors in need. This week, RBI’s measures to rein in rupee depreciation by placing a cap on daily borrowing by banks from the repo window at Rs 75,000 crore, and raising interest rate on marginal standing facility by 200 points -- effectively raising it to 10.25 per cent -- not to mention selling government securities through the open market, are guaranteed to choke credit flows and overall market liquidity.

It is too early to say if the measures will help place limits on unbridled FII inflows into the market. Under the circumstances, freeing up more FDI inflows into key sectors like telecom will open up new sources of funds, though it remains to be seen how effectively the proposals will sail through in Parliament. The markets are mildly enthused, though the 98 point upshot in the Sensex on Wednesday led by telecom and FMCG stocks, comes with huge dozes of scepticism on whether India is truly investor-friendly. The first attempt at permitting 100 per cent FDI in any sector – in multi-brand retail –clearly came a cropper with no sign of the Walmarts, Tescos and Carrefours. The results are a slap in the face of the FDI reforms engine: FDI inflows in 2012-13 declined to $22.42 billion from $36.50 billion a year ago. This time, investors hope that the pace of liberalisation is far more drastic, and hopefully, decisive.

However, the possibility of more scams opening up at the ministerial and regulatory levels for a UPA government, glibly surfing the waves of controversy at every step, has led to the BJP and BSP making no bones about their apprehensions on further liberalising the FDI regime. Defence minister A K Antony insisted on retaining the FDI cap in defence at 26 per cent. Radical easing of FDI rules and supportive RBI measures will not be enough to entice overseas investors. And, the risk of collateral damage is high. The war on the primary investor concerns of current account and fiscal deficits and high balance of payments should be waged at the planning, allocation, funds utilisation and non-Plan expenditure levels.

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(Published 17 July 2013, 17:17 IST)

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