Sat, Jul 06, 2019 - Page 10 News List

India proposes opening up to FDI

Reuters, NEW DELHI

Indian Minister of Finance Nirmala Sitharaman, center, arrives to present the budget to parliament in New Delhi yesterday.

Photo: Reuters

Indian Prime Minister Narendra Modi’s government yesterday proposed giving foreign investors a bigger role in the nation’s giant insurance and aviation sectors to help reverse weakening growth and investment that threatens to take the shine off its landslide election victory.

Indian Minister of Finance Nirmala Sitharaman unveiled the proposals while presenting the budget for the fiscal year ending March 31 next year to parliament, the first since the Hindu nationalist-led government was re-elected in a vote in April and May.

Modi has set a target of growing India into a US$5 trillion economy by the 2024-2025 fiscal year from US$2.7 trillion that a government report on Thursday said would be done on the back of higher investment, savings and exports in the way China’s growth was propelled.

“The government will examine suggestions of further opening up FDI [foreign direct investment] in [the] aviation, media and insurance sectors in consultations with stakeholders,” Sitharaman said.

She said 100 percent foreign ownership would be permitted for insurance intermediaries and local sourcing norms would be eased for FDI in retailers selling a single brand.

India currently allows FDI in single-brand retail, but mandates investors to source locally 30 percent of the value of good purchased.

At present, India allows 49 percent foreign ownership through the automatic route in the insurance sector, which is worth billions of US dollars and has been tightly controlled for decades for fear of a backlash from the unions.

“It is high time India gets fully integrated into the global value chain of production of goods and services, but also becomes part of the global financial system to mobilize global savings mostly institutional in insurance, pension and sovereign wealth funds,” she said.

However, economists say scaling up Asia’s third-largest economy in rapid fashion would need bold reforms, including freeing up the land and labor markets, which Modi shied away from in his first term for fear of a political backlash.

Capital Economics yesterday said in a note that reaching that target “is dependent in large part on achieving real GDP growth of 8 percent a year, which we think is unlikely.”

Land and labor reforms are difficult in a democracy such as India and it seems unlikely Modi would risk drawing the ire of his Bharatiya Janata Party voters that re-elected him.

During the budget speech, Indian markets were down.

The broader NSE index was down 0.37 percent, while the benchmark BSE index was trading 0.29 percent lower at 39,793.46.

The 10-year benchmark government bond yield was at 6.72 percent, compared with 6.75 percent before the budget announcement. The rupee had weakened to 68.73 against the US dollar from 68.70.

“Nothing concrete has been announced so far, that disappointment is reflecting in markets,” SMC Global Securities assistant vice president of research Saurabh Jain said.

India’s economy is also running into global headwinds with growth weighed down by trade disputes and protectionism.

The economy grew at a much slower-than-expected 5.8 percent last quarter, the weakest growth in five years.

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