Deferring FDI, divestment decisions hurdle to reforms

Thursday, 19 September 2002, 07:00 Hrs
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NEW DELHI: The Indian government's move to put off decisions on crucial economic issues like divesting government stake in oil majors and allowing more foreign investment in key sectors is being seen as a roadblock to reforms.

While some experts feel it is a signal that politics is derailing the liberalization effort, others say such hiccups are inevitable in a democracy embarking on the reforms path.

After a lack of political consensus derailed the disinvestment of two major state-owned oil companies and opposition was voiced on plans to dilute stake in some of the other public enterprises, Wednesday night saw efforts to ease foreign investment norms also being deferred.

Prime Minister Atal Bihari Vajpayee's cabinet put off a decision on hiking the ceiling of foreign direct investment (FDI) in the telecom, insurance and civil aviation sectors, among others, as recommended by an expert committee earlier this month.

"The signal being sent out is that the government is going back on reforms. One of the major highlights of the Vajpayee government was commitment to disinvestment. Now that has come to a stop," economist D.H. Pai Panandikar said.

With a view to attracting $8 billion FDI annually, Planning Commission member and expert committee head N.K. Singh had urged easing investment norms and raising the cap significantly in the telecom, civil aviation, petroleum and insurance sectors.

"The government is not willing to even consider the recommendations of the N.K. Singh committee. This is two steps back in economic reforms," said Panandikar.

The cabinet meeting Wednesday failed to discuss the FDI proposals for want of a consensus and the absence of key leaders like Civil Aviation Minister Shahnawaz Hussain, officials said.

Experts feel the lack of consensus on FDI is likely to impact investment flow to India, which compares poorly with countries like China. While China last year attracted around $47 billion in FDI, India got just around $3.4 billion.

"The government does not seem to be ready to take hard economic decisions on disinvestments and FDI, which is not a good thing. A lack of political consensus on major economic issues or lack of cohesiveness creates uncertainty in the market," said B.B. Bhattacharya, director of the Institute of Economic Growth.

While this may not impact plans of companies with projects already in the pipeline, it could hold back potential investors.

"Major decisions of new investors may be held back till the government signals a cohesive policy," said Bhattacharya.

But the Confederation of Indian Industry (CII) feels these are but hiccups in the reforms and part of a democratic process.

"The fact that the government has been able to divest its stake in several major companies shows its commitment to the process," said S. Sen, deputy director general of CII.

"Divergent views and concerns on disinvestments of strategic companies and opening up the market for foreign investments are matters that need careful study," Sen added.

India's plan agenda for economic growth and reforms in all sectors during 2002-07 are to be finalized in the next couple of weeks. While some headway has been made in the power sector reforms, many measures to enforce fiscal discipline are yet to take effect.

"With an eye on the elections two years away, the political parties are putting electoral issues ahead of economic reforms. Most of them lack conviction in the reform process. A combination of factors is making for a play safe stand," said Saumitra Chaudhuri, economic advisor at ICRA Ltd.

Source: IANS
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