India first opened its markets in 1991 and allowed FDI in
some sectors. Since then its economy has expanded nearly six times, making the
country Asia’s third largest economic powerhouse.
“Discussions are under way to liberalize foreign direct
investment policy,” Indian Finance Minister Pranab Mukherjee said, adding that
the country was on track to achieve nine percent growth next year.
“Institutional and policy reforms are necessary for
improving productivity and effectiveness of our social development strategy,”
said Mukherjee, referring to liberalization of FDI policies but stopped short
of elaboration.
“We have to ensure that the revival in private investment is
sustained and matches the pre-crisis growth rates,” said Mukherjee.
India recorded a 22 percent decline in FDI to $21 billion
last year as foreign investors remained cautious amid fragile global economic
recovery, according to the latest official data.
Another data suggested that overseas portfolio investors
pulled out nearly $2 billion from India's stock market in the past two months,
reflecting fears of overheating.
To woo more FDI inflow, India on Monday said it will allow
foreigners to invest in equity schemes of Indian mutual funds, a move aimed at
widening the class of foreign investors in the country's equity market.
Currently, only institutional investors and sub-accounts
registered with the Securities and Exchange Board of India (SEBI) and
non-resident Indians are allowed to invest in mutual fund schemes.
“To liberalize the portfolio investment route, it has been
decided to permit SEBI registered mutual funds to accept subscriptions from
foreign investors who meet the KYC requirements for equity schemes,” said
Mukherjee.
“This would enable Indian mutual funds to have direct access
to foreign investors and widen the class of foreign investors in Indian equity
market,” he added.
In its budget for 2011-2012 fiscal year, the country raised
the foreign institutional investors’ (FIIs) limit to invest in corporate bonds
with residual maturity of over five years issued by companies in infrastructure
sector by an additional limit of $20 billion, taking the limit to $25 billion.
“This will raise the total limit available to the FIIs for
investment in corporate bonds to $40 billion. Since most of the infrastructure
companies are organized in the form of SPVs (special purpose vehicles), FIIs
would also be permitted to invest in unlisted bonds with a minimum lock-in
period of three years. However, the FIIs will be allowed to trade amongst
themselves during the lock-in period,” said Mukherjee.
In a bid to attract foreign funds for the infrastructure
financing, the Indian government wants to create SPVs in the form of notified
infrastructure debt funds. “I propose to subject interest payment on the
borrowings of these funds to a reduced withholding tax rate of five percent
instead of the current rate of 20 percent,” said Mukherjee, adding that he
wants to exempt the income of the fund from tax.
India’s infrastructure sector requires an investment of a
whopping $1 trillion in the 12th Plan, beginning year 2012-17.
