Changes to FDI Policy Could Galvanize Indian Economy

---

Researched by Industrial Info Resources (Sugar Land, Texas)--India received $11.4 billion in Foreign Direct Investment (FDI) in the first six months of 2007, representing a 218% increase over the same period in 2006. With changes in FDI policy due from the government in the fourth quarter of 2007 the indications are that funds will be incoming to assist continued vigorous expansion in major industrial sectors, including steel, mining, power and petrochemicals with the priority of creating jobs at the retail level of commerce.

The time when international investors said it was easy to get funds out of India but difficult to get them in is now a thing of the past. There is a strong feeling that more deregulation of various sectors is on the way, despite strong rearguard actions by the pervasive bureaucracy. The rooted socialist norms of India have changed more slowly than those of the flip-flopped ”communist”-market-driven China. As change comes in India it has been tempered by democratic impulses that are expressed by the poor and the rural populations in the face of industrial expansion. The vastly growing middle class is providing the millions of engineers, artisans, teachers, technologists and managers to keep industry growing.

The Asian Development Bank (ADB) has predicted buoyant industrial expansion and moderate agricultural growth, ensuring solid growth in 2008 with GDP running at 8.5%. Weather will play a part in the GPD rate with the government’s central planners forecasting a rate of 8.7% abnormal weather conditions. In the event of a better-than-normal monsoon season (as in 2003-04) the growth is predicted to hit 9%. But bad weather, which is a growing factor for planners worldwide, could drop the rate to 7.9% or lower. Government planners expect the growth rate to average 8.8% over 2007-08 to 2011 to 2012. The Reserve Bank of India aims to contain inflation under 5%.

The estimated GDP of 9.2% in 2006-07 was led by high growth rates of 11.7% in industry and 10.8% in the service sector. In that period, exports and imports grew 19.5% and 27.7%, respectively. For 2007-08 exports are expected to grow 24.1%, and imports are expected to rise 27.5%.

With the expansion of power-generation capacity being a priority for the maintenance of high growth rates, the expansion of power-equipment manufacturing will be a key area in 2008. The minister of power has said that the lack of domestic manufacturing capacity for generation equipment was a major bottleneck inhibiting the scheduled completion of generation projects. He said that creating more players in the field was the only way to increase capacities, bring in cost competitiveness and accountability to timelines. The state holds major stakes in the power and energy sectors in India, but industrial majors are moving and shaking the scene, often with international venture partners.

The ministry continues to believe that an additional 78,000 megawatts in five years is attainable with all the necessary orders to be in hand by the end of 2007. A national IT-enabled energy accounting system will target reduction of aggregate technical and commercial losses of 35% to 15%, and a special task force on hydropower projects has been set up. This action model for the power industry could galvanize the whole Indian economy.

The ADB warns that shocks, which may undermine fiscal or monetary discipline and adversely affect food or fuel prices, pose risks to India’s economic outlook. A further appreciation of the rupee would also likely hurt exports and profits of domestic companies in export sectors.

Industrial Info Resources (IIR) provides marketing communication services ranging from industrial database solutions to market forecasting, custom analytics, and specialty promotions that support high-level image campaigns.