India aims to throw open its doors wider to overseas investors, a minister said on Wednesday, as it seeks to spur a slumping economy before the general election.
The government has already relaxed foreign direct investment (FDI) rules in such sectors as civil aviation, retail, telecommunications, defense and oil refineries to loosen shackles on the long-protected economy.
“The government will continue its endeavor for liberalizing FDI policy further in the coming weeks ... for attracting foreign investments,” Indian Commerce Minister Anand Sharma said.
India is struggling to increase its attractiveness to overseas business to buttress a weak rupee and to support growth with the election due by May. However, political opposition has made economic liberalization a stop-start process.
Five percent annual growth — the slowest in a decade — a string of graft scandals, suffocating bureaucracy and project approval delays have soured the investor mood on Asia’s third-largest economy.
However, in a vote of confidence in India’s long-term potential with its increasingly affluent consumers, FDI interest has shown signs of picking up lately.
Earlier this week, the Indian foreign investment regulator cleared plans by British retail giant Tesco and Vodafone, the world’s largest mobile phone operator, to invest over US$1.5 billion in India.
“The bold decisions of the government [to liberalize the economy] have resonated with the global community and we have seen results in the last few months,” Sharma said in a New Year’s Day message.
Indian officials say the government is now looking at relaxing a ban on FDI in the cash-hungry dilapidated railways, one of the world’s largest networks, and improving lines to ports and industrial hubs that would boost productivity.
Still, an investment turnaround could be some way off. Between April and October of this financial year, FDI slid 15 percent to US$12.6 billion from a year earlier, official data showed.
Meanwhile, foreign institutional investors pumped in around US$20 billion into financial markets last year, down from US$24 billion in 2012, according to a chamber of commerce study.
India’s immediate economic prospects remain downbeat, analysts said. Ratings agency ICRA called the government’s fiscal situation “gloomy” after New Delhi said it had used up 94 percent of its borrowing limit by November last year.
ICRA said more spending cuts that could slow the economy further will be needed to meet the government’s fiscal deficit target — the gap between spending and revenue — of 4.8 percent of GDP for the financial year to March.
Finance Minister P. Chidambaram insists the goal is a “red line” that will not be breached.
Underscoring the Indian economy’s fragility, output from eight key industries ranging from coal to steel, edged up by just 1.7 percent in November from a year earlier, compared with 5.8 percent growth in the same month of 2012, data showed.
The Indian National Congress party, recently routed in four state polls, is desperate to make headway in breaking the economy out of its state of stagflation — high inflation and weak growth — before the May vote.
“The new government will inherit an economic mess,” Mint business newspaper said in a front-page essay.
“It will have to set its fiscal house in order, keep its eye on inflation, rebuild confidence, push a new reforms agenda and get investment activity in the private sector on track,” Mint added.