Global crisis pinches FDI purse in 2009

The global financial crisis that spilled over into its second year choked flow of foreign direct investments into India in 2009, forcing the government to loosen rules for investments but it kept multi-brand retail off-limits to foreigners.

In the first nine months of 2009, FDI dipped by 26 per cent to $21.4 billion from $29 billion a year ago. The total FDI inflow into India since 2001 crossed the $100 billion mark.

Although fund inflow was few and far between, FDI became the cause of confusion over ownership of seven Indian lending institutions, including ICICI Bank and HDFC Ltd.

But the banks have maintained that they are Indian as they are controlled by Indian banking regulations, Indian board and management.

While the Centre simplified norms aimed at attracting more FDI, it has yet to get the Insurance Bill approved by Parliament.

The Bill seeks to raise the FDI cap in the insurance sector to 49 per cent from 26 per cent. The year also saw the Organisation of Economic Cooperation and Development and global firms including retail giant like Wal-Mart asking India to open the lucrative multi brand retail sector for FDI.

However, it does not appear likely to happen in the near future.

On a global scale, OECD estimates suggest that total FDI into the 30 OECD countries will fall to $600 billion in 2009 from the 2008 total of $1.02 trillion.

Since the epicentre of the crisis was in the US, India was one of a few nations which remained relatively stable.

Economists say foreign investment in India was good and remained buoyant as the domestic demand was good and robust growth in the economy, in spite of the global downturn.

"Capital is chasing opportunities," CRISIL chief economist D K Joshi said adding capital coming to India is not a surprise.

The OECD wanted India to liberalise its FDI, especially in retail, banking and insurance sectors -- the key areas of interest to global investors. Indias policy on multi-brand retail (i.e 'no FDI') acts as a social security net for millions of small retail traders in the country," commerce and industry minister Anand Sharma said recently.

A Parliamentary panel has already suggested a blanket ban on FDI in the retail sector. Year 2009 also saw intensive efforts like roadshows in Europe by different ministries including Textiles and Road to attract FDI.

The OECD secretary general Angel Gurria recently said, "Indias FDI performance and progress in the past year has been particularly strong, even in a very tough global environment.

"This is a vote of confidence in India," he said.

According to a recent UNCTAD report, the list of 15 most favoured investment locations continues to be topped by China, followed by the United States, India, Brazil and the Russian Federation.

Economists are also up beat about the FDI prospect in the coming years.

"India can cash on the current opportunities by removing all the remaining impediments for FDI," ICRIER's director Rajiv Kumar said.

"People are looking at India.They want to come to India," Kumar said.

Crisil's Joshi said the inflows could be more provided government removes the remaining hurdles.