U.S. action may hit FDI inflows

By Sushma Ramachandran

NEW DELHI, SEPT. 16. With the U.S. gearing up for military action against neighbouring Afghanistan, the Indian economy may feel the repercussions in the form of reduced foreign direct investment and a higher oil import bill.

The Government is hesitant to make any pronouncements on these concerns, but officials and political leaders alike concede there is definite concern over both these issues. As it is, FDI inflows are far below the target of $ 10 billions annually. The overall economic scenario was already expected to worsen due to the global slowdown but a war-like situation with Pakistan as the base is likely to create further problems as it would scare away potential investors.

On the critical oil front, the Petroleum Minister, Mr. Ram Naik, told The Hindu that the international situation has to be carefully monitored before taking any action. He noted that global oil prices fluctuated initially but have now settled down. It would be premature, he felt, to take any decisions immediately in the oil sector.

Mr. Naik, who left on Saturday night for Shanghai to attend the first regional meeting of the World Petroleum Congress is expected to urge oil-exporting countries to extend concessions to developing countries whenever the international oil prices rise beyond a sustainable level. He will also highlight the need for cooperation among Asian countries as economies in the region have been affected to various degrees due to volatility in the oil market.

In the past also, Mr. Naik has taken the initiative to write to OPEC countries to extend special concessions to developing countries in terms of extending the credit period, price discounts and deferred payment facilities when prices harden.

OPEC has already declared it would intervene to stabilise prices in case these rise unduly in the coming weeks. However, it may step in to raise output only if prices cross $ 30 per barrel. Currently, prices are in the region of $ 26 to $ 28 per barrel and even a marginal increase will create severe difficulties for a country such as India which imports up to 70 per cent of its annual requirement of 100 million tonnes of crude oil. Even at existing prices, the import bill had crossed $ 15 billions in 2000-1. Another price hike could create severe pressure on the exchequer.

In the case of FDI inflows, the Government had recently expressed optimism about progress this year as inflows were higher in the first four months of the current fiscal. These had risen to $ 2.3 billions compared to $ 2.2 billions in the corresponding period last year. During July, inflows had surged to $ 570 millions which is 74 per cent higher than the previous months. This had raised hopes that FDI inflows would pick up despite the gloom generated by the economic slowdown globally.

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