Union finance minister P. Chidambaram’s mission to Tokyo this week to woo Japanese investment in India’s infrastructure sector has a deep sense of urgency. It comes at a time when India is heavily dependent on the inflow of foreign funds to finance its burgeoning current account deficit, which had hit a record high of 6.7 per cent of GDP in 2012’s third quarter (October-December) against 5.4 per cent in the previous quarter. The bulk of imports were accounted for by oil and gold; and gold imports may now overshoot the target of $36 billion for 2012-13 projected by the Prime Minister’s Economic Council.
In April-December gold imports amounted to $37.8 billion.
This huge gap between export earnings and expenditure on imports could be financed comfortably only by the significant inflow of foreign institutional investment, which was $8.6 billion in the October-December quarter, and overseas borrowings by banks and the corporate sector. Foreign direct investment, however, halved to $2.5 billion during the quarter, and this is proving a major concern for Mr Chidambaram. FDI investments between April and October 2012 stood at
$14.78 billion, according to latest data released by the department of industrial policy and promotion. There is no doubt that the government, following the push given by Mr Chidambaram, has taken a number of initiatives like permitting FDI in multi-brand retail and power exchanges, and it has hiked the FDI cap in single-brand retail and broadcasting. FIIs, after being assured that the General Anti-Avoidance Rule will be postponed by two years, have poured in $10 billion from January till date; and as far as foreign direct investment goes, India is in fact a preferred destination because of cheap labour and quality production. So a push at the highest level should prove effective. Mr Chidambaram had in January done several roadshows in Hong Kong, Singapore, Frankfurt and London, but the results of this are yet to become evident. He is, incidentally, also planning to go to the United States and Canada to woo investors.
But while Mr Chidambaram told Japanese investors that the Indian economy is capable of absorbing FDI of $50 billion a year, he will have to work harder to get projects in India off the ground. He himself had voiced concern recently that 215 projects with an investment of `7 lakh crore were stalled, and bank loans to the extent of `54,000 crore were invested in these projects. The only way these projects can be kickstarted is to tackle them one by one on a 24x7 basis. Making general appeals is not going to help much.