FDI inflows in three sectors decline sharply - Assocham

By Our Special Correspondent

NEW DELHI, JULY 4. Telecommunications, chemicals and transport sectors have registered a sharp decline in foreign direct investment (FDI) inflows during 1999 despite Government efforts to create an investor friendly environment, according to an analysis carried out by the Associated Chambers of Commerce and Industry of India (Assocham). It reveals that the total FDI inflows in these three sectors have fallen from over Rs. 4,280 crores in 1998 to Rs. 1,468 crores in 1999. The worst affected sector has been telecommunications where the inflow has been merely about Rs. 170 crores. This sector had attracted Rs. 127.45 crores in 1995, Rs. 753 crores in 1996, Rs. 1,185 crores in 1997 and Rs. 1,741 crore in 1998.

The chamber analysis shows that the FDI inflow was nearly 60 per cent less in the chemicals sector. In 1998, the inflow had been as high as Rs. 1,060 crores as against Rs. 821.26 crores in 1997 and Rs. 439.39 crores in 1999.

It also shows that sources of FDI have narrowed down with the largest investing countries like Mauritius, the U.S. and Japan accounting for almost two-thirds of the total investment.

The study found that the total investments in 1999 as against 1998 on a sector-wise basis was as follows: metallurgical industries Rs. 135.35 crores (Rs. 125.90 crores), fuels Rs. 538.46 crores (Rs. 563.55 crores), electrical equipment Rs. 573.59 crores (Rs. 786.59 crores), paper and pulp including paper products Rs. 7.32 crores (Rs. 234.17 crores), services Rs. 387.26 crores (Rs. 767.98 crores), and trading Rs. 93.05 crores (Rs. 52 crores).

To improve the FDI inflow especially from the developed countries, the chamber has recommended a two-pronged strategy. It has advocated further liberalisation of the FDI policy in high technology areas and the services sector to ensure that inflows pick up in areas such as pharmaceuticals, information technology and telecommunications. Similar efforts need to be made to increase FDI inflows into areas such as health services, insurance, banking, transport and retail trade.

Another area that offers great scope according to the Assocham paper, is the food-processing sector. Larger value addition to the output of the agricultural sector would require sizable investments into the food-processing sector both for production and building up the needed infrastructure.

New innovative ways have to be found to increase foreign investments and increase the value addition to the output of the agricultural sector. It suggests the Government should also bring out a small negative list of areas where FDI is not encouraged and the sectoral caps should be uniform in each industry.

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