Review of FDI rules timely

Union finance minister Arun Jaitley has done well to highlight the fact that they are planning to examine how the foreign direct investment policy can be eased further to invite investment. India ranks ninth out of 10 countries in attracting the highest FDI, according to the UN Conference on Trade and Development’s World Investment Report 2015. It has even jumped 16 places to stand 55th out of 140 countries in the World Economic Forum’s Global Competitive Index. India needs to build on this momentum. Mr Jaitley’s assurance that they are reviewing the FDI investment rules and examining how the number of approvals currently needed can be reduced or removed comes at an opportune time.

Today there is an irritating lag between the time taken from the investment decision and the actual investment, so rules have to be simplified to shorten the time and archaic rules discarded. There is also the issue of management control in the insurance sector. The government had raised the cap on FDI in insurance to 49 per cent. However, it retained management control in the hands of Indians. This made the raised cap unattractive for many foreign investors. This is a political hurdle that the government will find difficult to overcome as the resentment stems mostly from the unions.

Another hurdle is from the states, particularly in the critical construction sector. The recent World Bank Report on the ease of doing business had said India had jumped 12 positions, but it was still at 134 in the ranking which is well towards the bottom of the list. In the section “Dealing with Construction Permits” India had moved to 183 from 184 in 2014. Mr Jaitley has recognised this and has appealed to the states to speed up issues relating to land availability, environment and permission and building plan sanctions. Some states have to depend on local bodies and often they are very corrupt.

This will have to be tackled urgently. Mr Jaitley has rightly questioned the need to grant permissions on a structure to structure basis once an industrial zone is granted environment sanction. He has suggested following the practice of countries that have switched to an architect’s certificate as a substitute for building plans being sanctioned. However, one feels that all permissions requested and dealt with should be online. Only this will assure speedy decisions.

Another difficult area in which India fared poorly was enforcement of contracts, ranking 178, the same as 2014. The government has taken steps to rectify this but it will take time. Mr Jaitley’s assurances look promising and one is sure that after the Bihar results are out, the government will get down to seriously tackling FDI issues.