Falling rupee value discourages Foreign Direct Investments
Given the sliding economy, the corporates, both in India and abroad, get a cold feet when it comes to investing in the country, which in turn has affected the flow of foreign direct investments adversely.
According to the latest news, the flow of FDI in India has been on the rocks because of the ailing rupee. In this regard, the government has further attempted to open its economy to FDI by means of reformers, in order to steam up the stagnant economic growth and reinstate the value of rupee.
However, relaxing of the foreign investment rules, which was aimed to lure more funds and turn around the sluggish economy, did not work out as planned and hardly lifted the markets. Prevailing doubts among the investors whether the long-term inflows would materialize in the near future or not, has been one of the prime reasons for such rack and ruin. Given the obscurity and lack of transparency in the government measures in this regard, foreign investors are still in a quandary of pumping more money in the Indian market.
Relaxing of FDI
In a move to wave the FDI reforms, the government has sanctioned relaxing the foreign investment norms for 12 sectors, which include defense production, telecom and petroleum refining among others.
However, the restraint on foreign holdings in telecom, which is 74% at present will be dispensed with, while the limits in other sectors (from insurance to tea plantations) will be abolished or expedited. In certain sectors, like the commodity exchange, retailing (Single Brand) and oil refining, the foreign investment cap will be unaltered.
Sectors where the FDI norms are eased
The FDI caps are likely to be revised for certain specific sectors, namely:
Telecoms
The FDI cap in this sector was heightened to 100% from 74%. A foreign firm is allowed to purchase nearly 49% stake in an Indian telecom company, and will not have to seek for approval from the Foreign Investment Promotion Board.
Insurance
Government approval will not be mandatory for foreign investments up to 49% in insurers. Previously, the investment limit for this sector was capped at 26%.
Retail
FIPB’s approval will no longer be a mandate for foreign investments up to 49% on single-brand retail zone. Quite soon, FDI policy for supermarkets will also be released by the government.
Natural Gas and Petroleum
Foreign direct investment for this sector is left unaltered and no FIPB approval will be needed for investment upto 49%.
Cause for the fall in rupee
When the US economy went downhill during its Sub Prime Crisis, the FDI money was withdrawn by the foreign companies from India. Subsequently, the Indian economy went for a toss. This is evident if a nation solely depends on FDI only. The same is the reason for the downfall of Rupee value. FDI investors, who had a huge stake in the Indian market, eventually started to lose confidence and started drawing their dollars from the Indian economy. Consequently, the Indian rupee started to fall and the demand for dollar witnessed a sudden surge.
According to experts, the economy will be far more stable, if industries are established within the nation and agriculture, innovation, manufacturing along with export is promoted. Such an economy will not have to depend solely on FDI.
Experts view
It is quite obvious for a country not to be able to export if the foreign markets are not doing that well.According to experts, if the Indian economy would had a good track record of good foreign exchange in the past, the value of Rupee would not have been left in the lurch.
To add to it, if the country promotes export of agro products and encourages agriculture strongly, the economy will never witness a downward slope. This is due to the reason that agricultural products are always needed by countries with the growth of population and declining farmlands, irrespective of the condition of the world economy.
An open economy comprising of large market with acceptable economic policies and huge market, is likely to lure more FDI that will subsequently create more employment opportunities and introduce foreign exchange in the country to boost the economy.
However, depending on FDI alone is not viable in the long-run, since it will make the economy of a nation depended on the economic condition of the interlinked parent country of companies investing through FDI in the country.
To add to it, the India real estate will take of with the ease of FDI norms. NRI’s will find it convenient to spend in Indian properties without facing the previous complexities. Moreover, the areas which are not considered to be the prime locations of the nation, will witness major realty developments with the growing interest of the foreign investors.
